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Economy & Business

American's flight into bankruptcy should have little effect in St. Louis

American Airlines bankruptcy 2011
Brent Jones | St. Louis Beacon
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This article first appeared in the St. Louis Beacon, Nov. 30, 2011 - Passengers flying out of Lambert Airport are used to having fewer routes offered by American Airlines, so its newest destination - bankruptcy court - isn't likely to have much effect in St. Louis, experts say.

At its peak in 2003, after buying TWA and taking over its St. Louis hub, American had 417 daily flights to 94 destinations out of Lambert. After a long series of cuts, it now offers only 31 daily departures to six cities: Dallas, Chicago, Miami, Los Angeles, New York and Washington, D.C., according to Lambert spokesman Jeff Lea.

"They basically dehubbed Lambert in 2009 and 2010," he said.

With other carriers picking up some of the former American nonstop routes - and with many of them having gone through the same bankruptcy process that American is now beginning - the result isn't expected to have much effect on St. Louisans' travel plans.

"American's executives contacted Lambert Airport this morning," Lea said Tuesday, "and they indicated that there should be no impact for passengers out of the St. Louis area. This is a financial reorganization, as I understand it. In other words, business as usual."

In recent years, business as usual in the airline industry has meant dealing with rising fuel costs and, for most major U.S. carriers, a trip through bankruptcy court or a merger or both. The reason they have not been able to reach a very high financial altitude, according to Daniel Rust of the University of Missouri at St. Louis, has been a combination of high labor costs and older, inefficient aircraft.

Filing for bankruptcy could help solve those problems, he added, though it is likely to cost many of American employees money in terms of wages and benefits.

"I believe it will come out stronger," said Rust, who is assistant director of UMSL's Center for Transportation Studies.

"American's main problem has been labor costs. Delta, Northwest and United have all filed for bankruptcy and used it as a tool to get concessions from their labor unions and lower their costs."

Rust said American's labor costs have been $600 million higher than those of its competitors. "In an era of high fuel costs," he added, "that hasn't helped any."

So what took American so long to follow its competition into filing for Chapter 11, given a long trip through red ink? Rust said that Gerald Arpey - American's now-former chairman whose retirement was announced Tuesday - wanted to tough things out.

Now, he said, the legal system will most likely be able to do what the airline itself could not do - get givebacks from its employees. A lack of trust between labor and management has not helped the situation, Rust added.

"In 2003," he said, "labor did make concessions. Then it came out that the airline's executives had gotten bonuses and had raised their salaries. That caused bad relations that they are still dealing with today. They have been trying to overcome that culture of distrust that has existed since then.

"From my perspective, I think it would have been wiser for the unions to play ball with American before a bankruptcy and work something out rather than have a court dictating it."

To Glenn MacDonald, a professor at the Washington University business school, the bankruptcy filing was no surprise, and he thinks that ultimately it will be good for both the company and for St. Louis.

"The thing with American and other legacy carriers was that they made promises a long time ago that they weren't able to keep," he said. "American was able to keep those promises longer than the others did, but the day of reckoning finally came.

"It's like someone going on 'The Biggest Loser.' They already weigh 500 pounds. That's the problem. Now they want to fix it. So this is pretty good news. They haven't been able to make deals with the unions. Now the court is going to do it for them."

Union members may not be happy with the outcome, MacDonald added, but they have to accept what was inevitable.

"The unions already were not going to get paid," he said. "It was just a question of how that was going to occur. The airline doesn't have the money to pay them. They weren't willing to do anything to change that. They just wanted to fight it."

When American emerges from bankruptcy with a leaner operation, he said, the company and the public will benefit.

"For me, this is generally a good proposition for American and for St. Louis, too. A healthier American Airlines will be able to fly more flights, because costs are going to shrink. The reason they removed all those flights was they couldn't fly them profitably. Now, some flights that weren't profitable will probably become profitable.

"If we were a hub, where we had a huge amount of American employees, this could be bad, But we don't have that anymore."

Economics professor Jack Strauss at Saint Louis University noted that American was the only major U.S. carrier that had not filed for bankruptcy since the industry was shaken after 9-11, so the airline's attempt to cut costs through the courts is overdue.

"Many companies since the great recession have not only reduced employees but have cut back on benefits and have been squeezing their remaining employees to improve productivity," Strauss said. "That's one reason why employers haven't increased hiring."

Calling the situation a zero-sum game, Strauss said airlines can't increase profits unless they increase the number of flights, but American hasn't been able to do that because it would cost too much money, in employees and equipment.

"Airlines have very large fixed costs with their airplanes," he said. "If they cut down the number of planes, they have to cut their number of flights. So the only way to increase profits is to cut costs."

Dave Bates, head of the union that represents 10,000 American pilots, told the Wall Street Journal that he is conferring with other union leaders who have gone through earlier airline bankruptcies to work out a strategy.

"While today's news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way," he said in a statement.

Sen. Claire McCaskill, D-Mo., planned to monitor the impact of the bankruptcy proceeding on workers. "My focus during this bankruptcy will be to protect the great people who work for American Airlines," McCaskill said in a statement late Monday.

On its website, American told consumers that the bankruptcy filing should not have any effect on its operations in the areas that passengers care most about: schedules, frequent flyer miles, amenities and safe and reliable service.

Answering the question about why it filed, the airline said:

"We took this action in order to achieve a cost and debt structure that is industry competitive and thereby assure our long-term viability and ability to continue delivering a world-class travel experience for customers."

As far as how much that travel experience will change for passengers at Lambert, Strauss at SLU expects little change as the bankruptcy process moves forward.

"American was at one point the airline to fly in St. Louis," he said. "Now it has considerably reduced its presence here, so there are alternatives, and it doesn't want to get consumers upset too much, because they can fly other airlines."

Rust at UMSL agreed.

"I don't think it's going to make much difference at all," he said. "There aren't many more cuts that can be made short of leaving St. Louis, and I don't think they want to do that. I think they want to maintain a presence in St. Louis."

Brent Jones | St. Louis Beacon

Contact Beacon staff writer Dale Singer.

Dale Singer Beacon staff

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