Airlines Ready to Soar in '07

With the airline industry's trend toward consolidation quickening this year and likely to continue into 2007, it's almost easy to overlook the one major U.S. carrier that's been quietly observing from the sidelines.

To do so would be a mistake, because that bystander isn't some poorly run, cost-burdened outfit in need of being saved from itself. It's American Airlines (AMR Quote), the world's largest passenger carrier, and what it does next year might have repercussions for the entire group.

For the airlines, 2006 could be remembered best as the year that they finally emerged from their 9/11 slump, even in the face of stubbornly high fuel prices. Expense reductions have given the major airlines the ability to compete on ticket prices with low-cost carriers, while international routes and strong connecting hubs give them a broader reach in attracting passengers.

Although the rebound has resulted largely from capacity cuts achieved through bankruptcies and combinations, at American the plan is to keep advancing without relying on either one. Instead, it's using an unlikely third technique -- internal discipline.

This is what makes American unique. And its maverick strategy may serve as a template for other big airlines on how to survive in an era of staggering costs and brutal competition.

That certainly doesn't mean it will be smooth sailing. As evidence, consider that just this week, American said its fourth-quarter costs will increase more than it had expected.

Measured Steps

Should a merger of US Airways (LCC Quote) and Delta (DALRQ Quote) or Continental (CAL Quote) and United (UAUA Quote) actually happen -- the possibility of both has been broached -- American would likely cede its position as the No. 1 airline.