Following several years of financial losses and industry under performance quarter-after-quarter; last November 29th, American Airlines (NYSE: AAR) joined the long list of previously bankrupt airlines.
- Fuel expense
- Labor expense
- Core costs
- Reducing US Airways core costs to what American currently has would provide $500-$700 million in cost savings synergies. Note American’s core costs are likely to go down at the other end of their bankruptcy reorganization
- American’s current labor costs, via the bankruptcy reorganization, are likely to be reduced by $700-$800 million per annum
- American’s capital/financial costs due to reorganization are estimated to be reduced by $300-$500 million per annum
- The merging of American and US Airways will be a much stronger global competitor to both United and Delta. We estimate this will provide the needed incentive to regain some premium/business revenue increasing annual revenues by 1-2% ($350-$450 million per annum)
- Due to the older age of both American and US Airways pilot groups, pilot labor costs into the future will become 20-30% lower. Note: Over the next 5-10 years, thousands of the most senior pilots for American and US Airways will be forced to retire. They will be replaced by significantly lower cost new pilots.
- Aircraft orders for both American and US Airways will move American from having one of the oldest most fuel/maintenance inefficient fleets to one of the youngest and most fuel efficient fleets. Fuel expense will be reduced by 10-20% as the new aircraft replace the current old fleet.