AMR Bankruptcy: How it will Affect American Airlines Travelers

After months of rumors, on Tuesday morning American Airlines' parent company AMR Corp. filed for Chapter 11 bankruptcy protection in New York.

Though bankruptcy reorganization can be a painful ordeal for airline creditors, employees, shareholders, and suppliers, it's typically relatively painless for passengers. The impact on travelers is far less; planes continue flying, frequent flier miles are still valid, and reservations remain honored.

American expects to continue normal business operations throughout the reorganization process, AMR said in a release.

AMR has $4.1 billion in cash to ensure uninterrupted supply of goods and services during proceedings, the company assured.

In the end, the Chapter 11 bankruptcy protection filing by American Airlines and its parent, AMR Corp., will have little direct impact on the airline's passengers. In the short term, travelers might even see a sale to build confidence and entice us to continue flying with American.

According to the release, American Airlines and American Eagle expect to continue to:

-Provide safe and reliable service;

-Fly normal schedules;

-Honor tickets and reservations, and make exchanges and refunds as usual;

-Fully maintain AAdvantage frequent flyer and other customer service programs, and ensure all AAdvantage miles and elites status earned by members remain secure and intact;

-Provide Admirals Club access and similar amenities to members and eligible customers;

-Remain an integral member of the oneworld® alliance, of which American is a founding member, and continue its codeshare partnerships;

-Provide employee wages, healthcare coverage, vacation, and other benefits, without interruption; and

-Pay suppliers for goods and services received during the reorganization process.

Another bonus for travelers: Following in the footsteps of United Airlines and Delta Air Lines, American should emerge from bankruptcy with lower costs.

On the down side, American will likely shrink with a reduced flight schedule.

American fought off bankruptcy for a decade, after spending years trying to avoid it. Last year, American was the only major U.S. airline in the red. Parent company AMR had a net loss of $471 million. Meanwhile, Delta had net earnings of $593 million and United $854 million.

Formerly the largest U.S. airline, American has dropped to No. 3 in terms of passenger traffic. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, has lost money in eight of the 10 previous years. It listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed Tuesday in U.S. Bankruptcy Court in Manhattan.

Though AMR's bankruptcy is not considered a huge surprise, many find the timing to be. Most had assumed any possible bankruptcy filings wouldn't happen until next year or 2013.

Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges, Thomas W. Horton, Chairman, Chief Executive Officer and President of AMR and American Airlines said in Tuesday's release.

Our Board decided that it was necessary to take this step now to restore the Company's profitability, operating flexibility, and financial strength. We are committed to working as quickly and efficiently as possible to appropriately restructure American so that it can emerge from Chapter 11 well-positioned to assure the Company's long term viability and its ability to compete effectively in the marketplace, Horton added.

In the interim period, there will be some inevitable dissatisfaction as workers fight for contracts. Some of this may spill into the passenger cabin but, in the end, American will likely emerge more competitive and with better long-term stability. This is good news for both employees and frequent travelers.

For the 240,000 passengers who fly American Airlines each day, the airline's bankruptcy filing should have little noticeable impact.