Posted on 02/06/2012 6:56:47 AM PST by SeekAndFind
As is well known now, American Airlines filed for bankruptcy toward the end of last year. In one certain sense this shouldn’t surprise us given how its legacy competitors did much the same earlier in the new millennium.
After that, the origins of our best-known and oldest air carriers perhaps foretold their modern problems in ways most don’t understand today. As T.A. Heppenheimer put it in his 1994 book Turbulent Skies, “Government actions brought forth the first air carriers in both Europe and the United States.” Rather than creations of the private sector, politicians formed notable carriers such as American (and TWA, which it acquired not long ago) as a way of moving mail around the country.
SNIP
a good place to look in order to truly understand its modern demise is the decline of the U.S. dollar over the last 10 years. The latter is the one thing American didn’t have control over, and it ultimately crushed the airline.
To understand why, it has to be remembered that oil is priced in dollars, and when the dollar declines as it has since 2001, the commodities in which it’s priced increase. Never in the last 10 years has oil been expensive, instead the dollar has been cheap.
The logical answer to the above is that all airlines, including American, deploy hedging strategies to work around oil price fluctuations that naturally feed into fuel costs necessary to transport their passengers. That’s no doubt true, but as became apparent years ago, Southwest Airlines was one of the few carriers that properly hedged its exposure to fuel prices that were set to go through the roof. American apparently did not hedge effectively, and having failed to do so, its dollar costs of transport in recent years have moved up substantially.
(Excerpt) Read more at forbes.com ...
Only part of the problem at AA, I’m afraid.
Yes, they avoided bankruptcy in 1999-2003, unlike the rest of the industry, but a LOT of today’s problems can be laid at the feet of management, this time.
AA bet that Obama could improve the economy, as he claimed, and positioned itself with extra capacity to capture market share from shrinking carriers when it did improve.
OOPS...
It’s more complicated than that, too, but that’s the gist of it.
American Airlines problem was they BLAMED the govt. Now, if they would have pandered to the King, they may have gotten a sweet bailout deal.
The fact is there should be no governmental dollar policy. Let the market decide what it's worth.
I'm also glad to learn that the reasonable people at the TSA strip-search didn't diminish the market, and that the government workers unions and outstanding government management policies didn't have anything to do with fouling up operations.
Nor did the teeny seats, ban on honey roasted peanuts, extra charges from bags to breathing or crappying service cause it.
In related news, China has been thanked for their wonderful currency manipulation attack on the US where they wildly strengthened the US dollar relative to the Yuan.
< / sarcasm >
Actually, each year since 9/11 those unions have given billions to AMR in efforts to keep the company afloat. Unfortunately, those at the receiving end of those dollars spent it foolishly ... including big, fat bonus checks even when the company was in the red.
This is one of those extremely rare occasions where it is hard to blame only the unions. They just might come out on the good side of this debacle.
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