If American Airlines is on the ropes, what happens to passengers?

American Airlines right now is the only so-called “legacy carrier” that has never declared bankruptcy. That’s the good news. The bad news is that there’s speculation it is teetering on the edge of going out of business.

“The airline industry's most persistent rumor is that American Airlines will file for bankruptcy, within a few days or weeks, at most,” writes Ed Perkins of Smarter Travel

“As the economic outlook darkens, the airline industry is bracing for trouble. Among the biggest U.S. carriers, American has the most to fear. It faces the highest labor, aircraft and borrowing costs,” writes the AP.
 

"They've become old and feeble," said Vaughn Cordle, chief analyst with AirlineForecasts.

Fears of bankruptcy are widespread. So what does that mean for the air line, but more importantly, what does it mean for passengers?

What’s wrong with the Fort Worth-based American Airlines? Count the ways:

—While many airlines profited in the first half of the year, American Airlines took a hit — a net loss of US$715 million on $11.6 billion revenue.

—Its cash flow is weak, its costs are high, and its market share is shrinking, points out travel columnist Joe Brancatelli

—The airline announced recently that it is cutting its late fall and winter schedule, which translates into a 3 percent cut in its fourth-quarter mainline capacity on a year-over-year basis.

—In fact, parent company AMR hasn't turned a full-year profit since 2007.

 “But American Airlines is actually in worse shape than the numbers show,” said Brancatelli.

The carrier was once regarded as the nation’s best airline. Competitors regarded its management as the “industry leader.”

“None of that is true anymore. American has fallen so far so fast that some industry analysts speculate that AMR is a takeover target for US Airways, which for decades has been a punch line in an industry that has long been regarded as a bad joke,” write Brancatelli.

What's it all mean for passengers?

American will likely do what all of its big "legacy" competitors have done, and file for Chapter 11 bankruptcy, which would eliminate many potential losses, predicts Perkins who writes a column for Smarter Travel. That would allow it to continue flying with an improved cost structure.

If that scenario unfolds, Perkins predicts the bankruptcy would have no immediate impact on passengers. He writes:

“If you have a ticket on American, chances are your flight will operate as scheduled, with no disruption. It you're considering a future flight on American, don't be afraid to reserve and ticket it. It's unlikely that the bankruptcy will have any immediate impact on American's future schedules.”

In fact, the move could have a positive impact on consumers.  If sales falter, passengers can expect some aggressive promotions that could include much lower prices.

 The bankruptcy speculation has some travelers worried about the safety of their AAdvantage frequent-flyer miles. Fears are probably groundless, say observers. Airlines declaring bankruptcy generally continue flying. As long as it is still flying, the miles should continue to be honored  —  until it actually shuts down, anyway.

Who might suffer the most from a bankrupt airline?

Common stock holders, of course, are likely to see much of the value of their investment lost. Retired employees might see pension and retiree benefits cut. Current employees could face job cuts and loss of benefits.

But in the long term, American could merge with some airline. US Airways has long been a rumored candidate.

In the meantime, the bad news may continue. And American’s chief spokesperson will not be around to sugarcoat it. Top PR man Roger Frizzell recently quit.

By David Wilkening