Jamaica must keep tabs on AA's restructuring

Even though it has come in the holiday season, the announcement that AMR Corporation, the parent company of American Airlines, has filed for Chapter 11 bankruptcy protection in its bid to restructure the airline has, so far, not generated uncertainty among passengers. This is presumably because the move is not expected to immediately affect the airline's flight schedule and can, perhaps, be explained by the fact that all the other major United States legacy airline companies [Delta, United, Continental, etc] have already undergone a similar process without disruption.

Also, word had been circulating about the possibility of AMR's filing for several months, as the airline's financial position became more shaky, and AMR's stock price dropped sharply. American Airlines is the only US carrier that did not, after the 9/11 debacle, seek Chapter 11 protection to facilitate deep restructuring of labour and other contracts. Over the period, American, which was once the US's leading airline, has been the biggest loser to low-cost carriers, slipping to the number-three position.

While the airline is expected to keep to its existing flight schedule for now, Jamaicans should, however, keep a careful eye on how American's restructuring process is being implemented. American Airlines, along with Air Jamaica/Caribbean Airlines are the biggest carriers of passengers to Jamaica and, more specifically, of total stopover visitors. For example, in the first seven months of this year, Air Jamaica/Caribbean airlines carried roughly 19 per cent of total passengers to the island, followed by American with approximately 16 per cent.

These two airlines also dominated our tourist traffic in terms of stopover passengers and visitor arrivals from the US. Up to July, they had equal shares of stopover visitors, while American had a larger share of US stopover arrivals with 20 per cent, as against the 18.5 per cent of Air Jamaica/Caribbean Airlines. The most significant fact, however, is that our dependence on American Airlines has not increased with the downsizing of Air Jamaica and, hence, our exposure does not carry any more risk.

Served by most us carriers

With the advent of the open skies agreement with the US, and more aggressive competition from low-cost carriers, Jamaica is now served by most, if not all, major US carriers - legacy and low-cost. While American remains the leading US carrier to the island, we are also served by Delta, United, US Airways, JetBlue, Air Tran, etc, with the market share lost by Air Jamaica being taken up substantially by new entrants.

At the peak of its operations in 2002, Air Jamaica carried nearly 52 per cent of total passengers and 48 per cent of stopover visitors to the island. American's market share in 2002 was virtually the same as it is today. Though its market share has not increased, the airline's direct and connecting flights to Jamaica still remain critical to the supply of reliable air service, not just for the tourist industry but for business and local travel.

The big question is whether the restructuring exercise, which is essential to AMR's survival, will involve cutting back on routes serving destinations, including Jamaica, which may be marginal in terms of profitability. In the past two years, airlines have been forceful in cutting excess seat capacity in order to push up airfares and boost their profits. US airlines raised fares at least eight times in the first half of this year as they trimmed capacity and ran higher load factors. But rising oil prices added pressures to their costs and hurt profits.