Three successive rounds of taxpayer bailouts and the recovery of the airline industry should be good news for American Airlines, as it is for other U.S. carriers. However American remains in a more precarious financial position than its competitors and has large maneuvering room than other airlines do facing the headwinds that are on the horizon for the industry.
American’s financial statements show liabilities that are greater than their assets. Liabilities on their second quarter balance sheet total $76.4 billion and assets of $68 billion. No other major airline is underwater in this way, and they face four major challenges that could make things worse:
Even after about $10 billion in direct taxpayer cash, and $5 billion in subsidized loans, American Airlines could wind up in chapter 11 reorganization. It remains the most vulnerable major airline. A recession combined with higher interest rates could both drive costs and sap revenue that the carrier needs to service its debt.
Regardless, American’s prospects for improving its balance sheet are limited, which suggests that it will continue to financially underperform the industry, since it will have higher debt servicing costs than competitors.
They are a high cost airline. They’re moving the needle on revenue generation with the loyalty program, selling status-qualifying miles to partners at a premium compared to how they’ve priced redeemable miles. To further generate revenue they can’t operate as an ultra low cost carrier with low fares. They need to offer a product that customers are willing to pay a premium for – generating higher margins. Even now, with the airline profitable, their margins haven’t recovered. That has to change. The question is how much time they have to make that happen.
