I think the answer is a strong “no,” but I did want to address this topic nonetheless…
CCN published a story yesterday titled “Fasten Your Belts, American Airlines Investors: You’re Flying Into Another Bankruptcy.”
The argument for American Airlines apparently being headed into bankruptcy comes down to a few things:
Just two days ago, American Airlines CEO Doug Parker presented at the JP Morgan 2020 Industrials Conference.
It’s interesting to compare the level of alarm we’re seeing from US airline executives. United President Scott Kirby is taking a doomsday approach to the current situation, noting that he’d rather the airline responds too much rather than too little.
Meanwhile American CEO Doug Parker seems to be taking more of a “we’ll be fine” approach.
Some highlights include:
Again, let me note that the above is all Parker’s perspective on things.
Look, it’s no secret that I don’t have a love affair with American’s management. I thought it was laughable when Parker said that the company would make a minimum of $3 billion in profits per year, even in bad years.
But I think it’s way too early to suggest that American is headed for bankruptcy. There are a few considerations here:
It goes without saying that American may eventually be in trouble, just as all airlines may eventually be in trouble. These are truly unprecedented times. I would imagine all US airlines can weather this situation for several months (the same probably isn’t true for at least a handful of fairly large non-US airlines).
But how long will this last? Will the world go into lockdown for a few weeks? For a few months? For a few years?
This seems like more of a question for scientists and doctors than for Wall Street (and I’m none of those things), and even those who know the most have varying opinions on how this will develop.
As much as consumers might not like US airlines, I think there’s no denying that they’ve fundamentally transformed since the last round of bankruptcies.
Between denser and more fuel efficient planes, better revenue management, more efficient route scheduling, etc., airlines are in a better position.
Parker gave the example of how in both 2005 and 2015, the price for oil was roughly $55 per barrel. Yet in 2005 the industry lost roughly $28 billion, while in 2015 the industry earned roughly $19 billion.
While we might not like some of the changes as consumers, the industry has come a long way.
Oil prices are in free fall, and that certainly helps airlines a lot. Of course low oil prices help more when there’s lots of demand for air travel, but at least American’s variable operating costs will be lowered…
American does have big contract negotiations ahead with both pilots and flight attendants, after wrapping up negotiations with mechanics. Call me naive, but I get the sense that there might at least temporarily be more of a “we’re all in it together” spirit now compared to 2011, when American was in bankruptcy.
The coronavirus situation truly is unprecedented, and I think even the otherwise tough unions might be a bit patient, or at least I don’t think this would be an issue that somehow pushes American over the edge.
Again, that might be naive on my part, but I don’t view labor as being the biggest challenge for American at the moment.
Of course airlines are in a really bad position right now. Furthermore, among US airlines, American has the highest debt by far. Still, I don’t think American is anywhere close to filing for bankruptcy, and I don’t think simply comparing 2011 debt levels to 2020 debt levels tells us all that much.
The industry has come a long way in transforming, and that includes American. What none of us really know is how long the impact of coronavirus will be felt in the airline industry (or perhaps the global economy on the whole).
What do you make of the claim that American is at risk of bankruptcy?
联系客服
