American's desperation casts pall over industry

American dominated yesterday's news cycle, drawing widespread media coverage of its newly announced fee for checked bags.

While the bag fee garnered the bulk of the attention, it was just one of a number of measures alluded to in American's announcement. And the larger picture depicted by American's latest plan is a troubling one, both for American and for the industry overall.

Advertisement

The centerpiece of American's road map for surviving rising fuel costs and declining demand is an 11 to 12 percent cutback in flights in the fourth quarter of 2008. Double-digit capacity cuts from an airline which for years has taken undisguised pride in its position as the world's largest airline? That's huge.

It suggests an unexpected level of desperation and financial vulnerability on American's part.

In response, American's stock price, which in large part reflects financial experts' view of American's future prospects, took a 24 percent nosedive following the announcement. That precipitous falloff suggests that American's news was as surprising as it was disconcerting. And the negativity was not confined to American: As reported by MarketWatch, shares of Continental, Delta, Northwest, and United all fell to 52-week lows.

As I reported here, the locus of recent concern has been the low-cost carriers, which generally lack the deep pockets to survive an extended financial downturn.

But American's troubles make it clear that mainline carriers' deeper pockets don't guarantee they'll be among the survivors of the current economic crunch.

With the prospect of bankruptcies hanging over large and small carriers alike, baggage fees may be the least of our worries.

Read comments or add your own insight!
Please enable JavaScript to properly view and use this web site.