American Airlines, one of the major U.S. carriers, and its parent company AMR Corp, filed for Chapter 11 bankruptcy protection this Tuesday. This decision aims to reduce labor costs in response to rising fuel prices and declining travel demand.
Over the years, American Airlines has struggled with high workforce expenses, while its competitors managed to cut these costs through previous bankruptcies. It became evident that the airline couldn’t achieve the necessary cost reductions without undergoing bankruptcy.
Though the company has about $4.1 billion in cash, it still chose to file for Chapter 11, which allows them to negotiate with creditors and create a reorganization plan. However, American Airlines has yet to finalize this reorganization strategy.
Some industry experts worry that restructuring under Chapter 11 might not fully address the operational issues affecting the airline’s revenue. They believe there may be other challenges that need to be tackled as well.
As the busy travel season approaches, American Airlines has assured its customers that they won’t disrupt regular operations. The airline will keep its schedules, honor reservations, process refunds and exchanges, and maintain frequent flyer miles. American Eagle, the regional affiliate, has also committed to continuing normal operations.