Bloomberg News

United Continental, Delta Air May Gain From AMR’s Bankruptcy

December 06, 2011

Nov. 29 (Bloomberg) -- United Continental Holdings Inc. and Delta Air Lines Inc., the two largest U.S. carriers, stand to benefit from the bankruptcy filing by American Airlines parent AMR Corp., analysts said.

AMR filed for court protection today after failing to win cost-cutting labor accords and sitting out industry mergers that dropped it from the world’s biggest airline to No. 3 in the U.S. American will continue normal operations as Fort Worth, Texas- based AMR restructures, while trimming jobs and other costs, new Chief Executive Officer Thomas Horton said on a conference call.

United and Delta “are likely immediate and longer-term beneficiaries of today’s actions by AMR on the capacity front and on the cost front,” Gary Chase, a Barclays Plc analyst in New York, said in a research note.

“Both contributed to this outcome for AMR by becoming more cost competitive and amassing larger, more powerful networks that eroded some of AMR’s historical revenue premiums,” said Chase, who rates United and Delta “overweight.”

The shares of Chicago-based United advanced 6.1 percent to $17.59 at 12:44 p.m. in New York, while Atlanta-based Delta rose 2.8 percent to $7.64. AMR tumbled 80 percent to 33 cents.

Other airline gainers included US Airways Group Inc., which rose 6.1 percent to $4.53, and JetBlue Airways Corp., up 6 percent to $3.90. The Bloomberg U.S. Airlines Index, which includes AMR and 10 other companies, increased 0.7 percent.

AMR’s filing makes American the last of the large U.S. full-fare airlines to seek bankruptcy protection, after Delta, Northwest Airlines Corp. and United. Delta acquired Northwest in 2008, while United and Continental merged in 2010.

Management Change

Horton, 50, takes over the posts of chairman and CEO from Gerard Arpey, 53, who retired from AMR and is becoming a partner at Emerald Creek Group, a Houston-based private equity firm. Horton also keeps the president title.

American accounted for about 15 percent of U.S. carriers’ October passenger traffic, compared with 21 percent for United and 20 percent for Delta, according to data compiled by Bloomberg.

The AMR filing should be “good for the entire industry” and “especially good” for JetBlue and Alaska Air Group Inc., which have code-sharing and passenger-connecting agreements with American, James Higgins, an analyst at New York-based Ticonderoga Securities LLC, said in a note today.

Kevin Crissey, a UBS Securities LLC analyst in New York, said in a report that investors should buy shares of major airlines such as Delta.

AMR was determined to avoid bankruptcy in the years after the 2001 terrorist attacks, as peers used court protection to shed pension and retiree benefit plans and restructure debt. As other carriers combined, they gained route networks that were larger than American’s and more attractive to business trvalers, who generally pay higher fares.

American has been in contract talks with unions for all of its major work groups since as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.

--With assistance from Mary Schlangenstein in Dallas, Phil Milford in Wilmington, Delaware and Natalie Doss in New York. Editors: John Lear, Niamh Ring

To contact the reporter on this story: Mark Clothier in Southfield, Michigan at

To contact the editor responsible for this story: Jamie Butters at

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