"American Airlines likely will retain its dominance in any industry shakeout"

Monday, November 19, 2001

American Airlines likely will retain its dominance in any industry
shakeout
BY CYNTHIA WILSON
The St. Louis (MO) Post-Dispatch


AMR Corp.'s purchase in April of most assets of Trans World Airlines
helped make it the world's largest commercial airline. But with many
aviation experts predicting industry consolidation in the wake of the
terrorist hijackings of Sept. 11, can AMR retain that ranking - and the
competitive edge that comes with it? 

Most aviation experts believe that Dallas-Fort Worth-based AMR, the
parent of American Airlines and TWA Airlines LLC, will survive the
latest industry crisis. Where the airline will end up in the pack is
less clear. 

Although a weak economy had led AMR to forecast an annual loss before
the attacks, the company was financially sound, said Richard Aboulafia,
senior aerospace analyst at the Teal Group in Fairfax, Va. 

"There is overcapacity in the industry, but they were in better shape
than the rest," Aboulafia said Friday. "American's profit model is not
broken.... It's strained, but it's not broken." 

After the attacks and subsequent shutdown of air traffic for more than
two days threw the industry into a tailspin, Congress agreed to provide
it with $5 billion in aid and $10 billion in loan guarantees. 

That money has helped keep many of the airlines afloat. But some experts
say they believe it's only a matter of time before reorganizing and
restructuring begin. 

Most planes are flying little more than half full. And fewer people plan
to travel by air this Thanksgiving than last, according to a recent AAA
survey. 

Of the nine largest U.S. carriers, only Southwest, Alaska and
Continental airlines reported third-quarter profits, due in part to
their shares of the government rescue package. 

Despite Southwest's financial strength, some experts say the carrier's
growth is unlikely to come from buying another airline or its assets.
That's because Southwest's no-frills business model, which features
short-haul flights and unassigned seating for quick turnarounds between
flights, makes it difficult to merge with other carriers. 

But Southwest's large competitors may have a tougher time keeping it out
of the major airports, such as O'Hare in Chicago or LaGuardia in New
York, experts say. 

"With the turmoil in the industry, it's questionable whether the majors
will continue to lock them out," said Sean Egan, an airline analyst with
Egan Jones in Pennsylvania. "Airports will be searching for many new
revenue streams and will likely invite Southwest in." 

Some aviation experts say Delta Air Lines, currently the third-largest
carrier, could emerge as the world's biggest carrier with the right
combination of mergers. Overall, the Atlanta-based airline has a cash
reserve second only to Southwest, less debt than its peers and slightly
better labor-management relations, Aboulafia said. 

Experts say it's unclear who will absorb US Airways. The airline, whose
East Coast operation has been hampered by newly imposed limits at Reagan
National Airport near Washington, is less attractive than it was when
United Airlines sought to buy it last year. But many of its airport
slots are valuable. 

Michael Boyd, president of the aviation-consulting firm the Boyd Group
in Colorado, said the operational costs linked to airline mergers could
prevent any mergers from materializing. 

In any case, Boyd said he believes American Airlines has the wherewithal
to maintain its standing as the world's largest airline. 

"Even if (American Airlines) doesn't grow, United (Airlines) - currently
its biggest rival - will shrink because United is cutting back by
reducing service and selling airplanes," Boyd said.

 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/cgi-bin/dcforum/dcboard.cgi?conf=DCConfID8

*****************************************