Chart of the Day: Why American Airlines Is in Bankruptcy

American Airlines has been losing money for years -- but so were its competitors. Now it's uniquely unprofitable. 

615_American_Airlines.jpg
Reuters

After years of fighting to avoid bankruptcy court, American Airlines finally threw in the towel yesterday and filed for Chapter 11. The move will allow the company to restructure its burdensome operating costs, which it says are the highest in the industry.  

You'll be forgiven for feeling a little déjà vu. American is the last of the so-called legacy airlines to go through the bankruptcy process. U.S. Airways, United Airlines, Delta and Northwest all filed between 2002 and 2005, after the September 11th attacks and surging fuel costs sent the industry reeling.  

So why is American filing now? Simple. It's become the industry's biggest laggard. Take a look at the chart below, which compares American's profits to the overall income of the domestic airlines. The data comes courtesy of the company's annual reports and the Air Transport Association.


615_American_Airlines_Graph.jpg

It's been a rocky decade. But up until 2010, American's income moved with the rest of the industry. Last year, it took a loss while its competitors made a profit. This year, it's set to do the same. 

The problem, again, is costs. By going through bankruptcy early on, American's competitors shed expensive union contracts and restructured their debt. American chose a different route, opting to bargain for large concessions from its unions. It got to stay out of court, but the savings weren't enough. The company now has the highest unit labor costs of any major U.S. airline. And the situation wasn't likely to improve any time soon. In the last several weeks, the company has been stuck in contentious labor negotiations with its pilots and flight attendants. 

As CEO Tom Horton said on a conference call yesterday, "It became increasingly clear that the cost gap between us and our biggest competitors was untenable." 

American's competition found the path to profit. Now American is following in their footsteps.

Presented by

Jordan Weissmann is a senior associate editor at The Atlantic.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In