American Airlines' lesson: Being big isn't enough

Another dip in the economy means trouble for airlines, especially for AMR Corp., the parent of American Airlines. Like Alaska Air Group, AMR went through the tough times after 9/11 without going through bankruptcy reorganization. But the resemblance ends there. Alaska shares are trading above $60, while AMR stood at $2.73 this morning. For weeks, fears have grown that the carrier will be forced into Chapter 11.

American, once one of the nation's most innovative and service-oriented airlines, faces high labor costs, more than $12 billion in outstanding debt and big unfunded pension costs (why weren't those highly compensated executives fulfilling their duty and funding the pensions...?). Its fleet is aging, hence the recent 460-jet order split between Boeing and Airbus.

Unions have concessions but it hasn't been enough to save the airline from repeated losses and now speculation about its future. The conventional wisdom, of course, is another merger, perhaps with US Airways. That's the last thing AMR needs.

Recall that the 2001 merger with TWA was supposed to make American stronger. It didn't work. Thousands of jobs were lost to "make the numbers work," including, based on calculations at the time, some 12,000 jobs and more than $600 million in annual wages in Missouri, where TWA had its key St. Louis hub. With or without the event of 9/11, history shows that airline mergers, like most big deals, don't deliver beyond quick gratification. They do add debt, eliminate competition (even if TWA had filed for bankruptcy, it might have emerged as a healthy competitor, or been replaced by a new one) and hurt customer choices. No wonder: Management is too distracted by merging rather than focused on serving customers.

(Via The Seattle Times)