) -- The airline industry, once exciting, has deteriorated to tedious. The mergers are largely done and most carriers emerged from bankruptcy to reduce capacity, charge fees for services, and make money even at $100-a-barrel fuel.
This was certainly the story in a second quarter with only a single pocket of drama: the morality play that is going on in Dallas.
It is hard not to think of
as more principled -- not to mention edgier, bolder and more interesting -- than its peers.
More principled because its CEO was unwilling to file bankruptcy,
largely due to moral objections. Edgier because it still leads the industry in many ways, particularly its willingness to
challenge the tyrannical global distribution systems that sell airline tickets, while most other carriers are content to watch from the sidelines. Bolder because it sticks to its course, despite widespread disapproval on Wall Street, and also because
in history, for 460 aircraft.
And more interesting because despite all of these commendable qualities, American will be the only airline to lose money in the second quarter and -- analysts expect -- for the full year.
The drama that hit Wednesday, AMR's earnings day, was typical American and provided a clear picture of the dichotomy surrounding the company.
In Dallas, many American employees were exuberant about the huge aircraft order. The world's two big jet manufacturers, despite being flush with orders, both felt compelled to deal with American. Each provided billions of dollars in financing, and
even offered to speed up its decision-making regarding a major alteration in the
most successful aircraft program in its history. Obviously, this was an affirmation of American's strength.
American Airlines CEO Gerard Arpey
Afterwards, morality's triumph over adversity was underscored by CEO Gerard Arpey, who said on the carrier's earnings call that the giant deal was enabled partially by American's avoidance of bankruptcy. "Our track record certainly had an influence on Boeing and
the fact that over past 10 years, we honored all our commitments," he said. "My own sense is that it did matter to them."
One more point here is that Arpey placed the order instead of doing something common in the industry, which is to use a potential order as a bargaining chip in contract negotiations. This gesture was noticed by Dave Bates, president of the Allied Pilots Association, who wrote in a letter to pilots that "I view this as another indication that management sincerely seeks an improved relationship with our pilots."
But moral triumphs take time. How else to explain the nearly incomprehensible fact that while both of American's competitors had anti-trust immunity with transatlantic partners for years -- a benefit that produces hundreds of millions in annual income -- regulators would not give American the exact same advantage until 2010, thirteen years after its first request?
Unfortunately, strong principles and conciliatory gestures do not comprise a story that appeals to Wall Street. Wall Street likes quarterly gains, not long-term plans. Also, Wall Street has obviously lost patience with a company that, after losing $12 billion since 2001,
with no end in sight at a time when competitors are all making money.
Veteran Wall Street analyst Bob McAdoo, for instance, reduced his target price last week for American to $6.50 from $7.50. "The new aircraft will change the fleet but won't fix American's problems," McAdoo said. "American shares will not participate in the positive moves we anticipate for other airlines." Also last week, Wolf Trahan analyst Hunter Keay downgraded American from peer perform to underperform, and set a price target of $3.50. (Yes, $3.50.) American shares dropped 4.18% Friday to close at $4.36.
"We see an indefinite state of cash burn," wrote Keay, who predicted "deep losses for at least two more years."
So the contrast between American and its competitors is stark, and not just because they make money while American loses money.
Of the four remaining network legacy carriers, three went through bankruptcy. Including their merger partners, five of the six went through bankruptcy.
each had two bankruptcies. To summarize this paragraph as a headline: "Airlines Flew Through Bankruptcy Storm."
All, that is, except for American.
Beyond that, American's two bigger competitors,
, are both run by attorneys, while Arpey is a career airline employee. Both of these attorneys are busily implementing successful mergers, occasionally pausing to say how well things are going on earnings conference calls.
US Airways also continues to perform well, benefitting from a 2005 merger with America West, but it's still seeking a bigger partner.
Nevertheless, although Wall Street can't yet see it, American too has a path to success. It needs to reach reasonable agreements in ongoing contract talks with unions. The benefits of immunized transatlantic and transpacific joint ventures must kick in. So must the benefits of an aircraft order that will vastly reduce fuel and maintenance costs.
Once these things happen -- they are all possibilities -- American can become a big successful bore, just like its competitors.
-- Written by Ted Reed in Charlotte, N.C.
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