This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Bankrupt AMR: Cut Flights, Possible Merger

DALLAS TheStreet) -- The bankruptcy of American Airlines and parent AMR (AMR) could mean fewer flights and fewer seats for passengers, even on some prestigious routes, as well as a turning point for airline investors. Competitors' shares rose, with the three remaining legacy carriers registering double-digit gains last week.

Passengers in a variety of markets could be impacted.

Passengers are likely to lose routes with an American Airlines bankruptcy, but Delta, JetBlue, US Airways and United are already seeing stock gains.

American's principal hubs in Dallas, Miami and Chicago should escape the bulk of the capacity trimming, and American may also be hesitant to reduce flying between the U.S. and the U.K., Ticonderoga analyst James Higgins says. But flight cuts should be steeper in markets outside the three major hubs, he says, and various analyst agree they see impending cuts in Los Angeles and New York -- which despite being keys to American's cornerstone strategy are not places where it dominates.

In May, in a controversial report , Avondale Partners airline analyst Bob McAdoo wrote that American loses $1 billion annually by flying too much in losing markets.

"More important than its costs are AMR's capacity decisions, its market selection and its unwillingness to halt or reduce flying in markets that are losers," McAdoo said. Those losers, he said, include many of the carrier's highest-visibility, most prestigious routes: New York to London; New York to California; Chicago to Delhi, Beijing and Shanghai; and Miami to Buenos Aires. The 10 worst markets lose $450 million a year, he said.

Similarly, American operates 10 daily flights in the New York-Los Angeles market, losing $70 million annually, and five daily flights in the New York-San Francisco market, losing $54 million annually, McAdoo wrote.

In its first week in bankruptcy, American has signaled modest capacity cuts via interviews with executives and in its filing, which shows 24 planes already retired to desert storage facilities and more aircraft lease rejections coming.

In a report issued Monday morning, Higgin wrote "We expect all U.S. airlines to benefit from AMR's surprise Chapter 11 filing, largely because we believe AMR will meaningfully reduce capacity," probably in the 10% to 15% range.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
LCC $0.00 0.00%
DAL $45.33 -0.13%
LUV $43.96 -0.45%
UAL $68.03 1.80%
AAPL $128.78 -0.24%


DOW 18,214.68 -73.95 -0.40%
S&P 500 2,108.73 -8.66 -0.41%
NASDAQ 4,985.0430 -23.0530 -0.46%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs