American Airlines Chapter 11 Bankruptcy

AMR Corporation, the parent company of American Airlines, Inc. and AMR
Eagle Holding Corporation (American Eagle), announced yesterday that it
filed voluntary petitions for Chapter 11 reorganization in the U.S.
Bankruptcy Court for the Southern District of New York.

American Airlines passengers should not expect any near-term changes, but the bankruptcy filing may affect their future plans.

The Chapter 11 reorganization of American
Airlines and its parent company AMR Corp could lead to a shakeup in
prices, fewer flights and an altered flying experience.

American sent a letter on Tuesday to its frequent
flyers saying, “We want to assure you that your AAdvantage miles are
secure,” and noting its intent to honor existing program awards.

Airlines tend to protect their mileage programs
throughout bankruptcy, he said, because they make money selling miles to
credit card issuers, and even passengers trading in miles fill seats
and spend money.

American may cut prices to keep planes full
and nervous passengers buying tickets for a slow January and February,
but those are typical sale periods for the airlines.

“As
always we will remain competitive with fares in the marketplace,” said
Tim Smith, an American spokesman. Parsons said he expects American to
price aggressively over the winter, perhaps adding extra miles rewards
and the like, to keep up customer confidence.

But the longer-term impact of an airline
bankruptcy is higher ticket prices, not lower ones
. As American uses
this reorganization to get rid of many big, pricey, old planes, it may
cut their routes. “With fewer planes in the sky and fewer seats, you may
be forced to pay more,” said Parsons.

Once
American emerges from bankruptcy, it will be less likely to price
aggressively, said Morningstar’s Alukos. “Future ticket prices should be
higher.”

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