Chart of the Day: Why American Airlines Is in Bankruptcy

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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.


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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.

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Jordan Weissmann is a senior associate editor at The Atlantic.

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