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AEROSPACE
Outside View: AA restructuring
by William S. Swelbar
Cambridge, Mass. (UPI) Oct 18, 2012


disclaimer: image is for illustration purposes only

It's been nearly one year since American Airlines announced reluctantly that it could no longer avoid the inevitable. Like the many airlines before it, American would have to adapt to a new airline environment in which restructuring, internal and external realignment became paramount if an airline was to be in the conversation about tomorrow's survivors.

Much has been reported in the 11 months since the announcement about steps the company has taken to emerge as a viable carrier. And while the industry buzz has been mixed toward the company's prospects for a successful turnaround, company earnings released this week demonstrate real progress to investors about whether it can successfully emerge from bankruptcy as a stand-alone with the efficiencies needed to be a profitable carrier over the long term and across business cycles.

For each of the past six months, American has experienced growth in the all-important metric of passenger revenue per available seat mile. American's growth in unit revenue has eclipsed that of its rivals. But this week's third quarter report provided a fuller, more complete picture.

Like many analysts, I believed the airline would post a profit. The reported profit is the result of a restructuring plan that is ambitious, targeted and realistic.

One of American's biggest financial hurdles has been the company's above market labor costs and contractual restrictions that have prevented many of the essential restructuring elements from being implemented. Actions that are critical to building the type of agile airline necessary to survive the new competitive rigor. But we are beginning to see a marked shift in the right direction, with American aligning its labor commitments with industry norms -- from 28 percent trending downward toward 18 percent. Additionally, it has reached agreements with eight of its nine labor unions. This in itself is an enormous accomplishment but is not the only factor in American's strong performance.

Since American began restructuring, it has renewed or won more corporate account agreements as compared to the same period last year. American's new fleet will soon be the youngest in the industry and will allow it to compete on product as well as price. The company's plan builds upon the structural advantage it holds in the growing Latin American geography and the emerging markets confined within the region. Actions taken to strengthen the global alliance of which it is a member will also continue to improve the company's financial performance.

Admittedly, all of this can be construed as nothing more than spin. Achieving profitability before all of the anticipated cost savings and revenue synergies are realized is an important event in any bankruptcy. It will be difficult to impossible for any analyst to argue that AMR isn't a company taking the right steps like others before it, moving toward becoming a viable stand-alone player with solid investor value and with the potential to participate in the consolidation game if it proves to be a recipe for even further improvement.

These are not signs of an airline in distress as some analysts would have you believe. Rather, the signs demonstrate an airline putting into to place a plan that it believes is the best path forward for its employees, its customers, and the local economies its hubs support. A profitable plan.

Imagine what the numbers might look like when the many facets of American's plan begin to work in concert. Future earnings reports will be the ultimate report card and the grades can only get better.

(William S. Swelbar is a research engineer in the Massachusetts Institute of Technology's International Center for Air Transportation.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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