Is AMR Getting Healthy in Bankruptcy?

It seems likely that some of the gains in American metrics result from cutting unprofitable routes. American's past strategy of building capacity in Los Angeles and New York, both markets where it is not the leading carrier, has been widely criticized. In a recent report, Wolfe Trahan analyst Hunter Keay said that the carrier's domestic capacity is expected to decline 2.5% year over year, with the biggest decline coming in July. In his report, Crissey noted that American's "fare strength looks to be concentrated mostly in US and Canada/Mexico."

Because American is operating under bankruptcy court protection and its shares are going to be wiped out so that new shares can be issued, its results are not as closely followed by investors as are results from companies whose shares are widely traded and will have value into the future.

In a report issued Wednesday, JP Morgan analyst Jamie Baker said some analysts may have overlooked AMR's strong May RASM numbers in calculating industry RASM, leading to the conclusion that the industry RASM gain was below expectations.

"AMR posted healthy May RASM that contributed to an otherwise normal sequential industry trend, but may have been overlooked as analysts focused elsewhere," Baker wrote. "In particular, we believe some of AMR's strength came at UAL's (UAL) expense, given that carrier's continued operational challenges.

" With AMR operating in Chapter 11 and disclosing monthly financials, we suspect its contribution was overlooked as analysts focused on names investors actually care about," Baker said.

As AMR battles a so-far-hostile merger effort by US Airways (LCC) , the focus is on the two sides' efforts to gain support from AMR's labor unions by limiting the concessions in the post-bankruptcy labor contracts. To date, this has been a battle that US Airways has been winning, helped by its ability to enhance revenue through a merger that would add a strong East Coast presence, which American lacks.

Possibly, a post-bankruptcy independent American -- with reduced costs, reduced restrictions on outsourced flying, a new fleet, and its best hubs in Dallas and Miami - would be at least a strong a carrier as US Airways, with its best hubs in Charlotte, N.C., and Philadelphia, is today. The question is, however: Could it be as strong as Delta and United?

-- Written by Ted Reed in Charlotte, N.C.

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