American Airlines, the third-largest U.S. airline and subsidiary of AMR
Sinking share value
American Airlines has been mired in trouble for quite some time now. The quarterly loss was the company's fourth consecutive, highlighting the airline's bleak financial position. AMR's stock has nosedived for multiple reasons in the past few months. After the announcement of the quarterly results, news that the airline might seek bankruptcy protection pushed shares down even further. To make matters worse, American Airlines has yet to reach an agreement with the Allied Pilots Association. Yesterday, the company made a full contract proposal to its pilots union and urged that it be put to a vote.
It is not as if the airline has not tried to streamline its operations to cut costs. According to AMR CEO Gerard Arpey, the carrier is entering into partnerships and has accelerated fleet renewal plans for a turnaround. In addition, as a part of cost cutting, it plans to retire around 11 Boeing 757 aircraft starting in 2012.
However, the grave situation requires stronger steps to bring about a turnaround in the foreseeable near future.
Airline industry facing turbulence
American Airlines is not alone in its fight for survival. Among the worst-hit in the economic pandemonium, the airline industry as a whole has been in the red for seven of the past 10 years. As an industry that runs on consumer and business sentiment, airlines have suffered due to dismal job numbers, as travel is often considered a luxury and airfare is a discretionary expense. Many experts observe the airline industry keenly in order to judge market swings, as traveler demand helps indicate the level of faith people have in the economy. Major carriers like US Airways
Margins hitting headwinds
American Airlines blamed rising fuel prices and the fluctuating value of the dollar for the huge quarterly loss. The airline faced a 40% rise in fuel costs this year compared to last year.
The future points to tumultuous times as well. The International Air Transport Association predicts airline earnings to take a cut of almost 30% next year, falling to $4.9 billion. This amount may shrink further if economic growth is less than the predicted 2.4%. Beware of what effect this industrywide trend many have not only on American Airlines, but also on other carriers like United Continental
Declining revenues, high costs, and travelers' tighter purse strings could make it a rough landing for American Airlines. Experts don't expect its bottom line to soar anytime soon, either.
As long as travellers face cash crunches -- thanks to the bleak economy and job numbers -- demand for air tickets will continue to be soft. As of now, I'm staying away from the stock.
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Fool contributor Vibhuti Shah doesn't own any shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.