American Airlines

Fuel prices are far higher than even the most pessimistic estimates; in fact they are the highest they have been in thirteen years

Domestic revenues for major airlines remain weak

Business travelers post September 11th may have become permanently price sensitive

Only a few attempts to raise prices have been successful

So called "no frills" airlines such as Southwest Airlines are taking market share from full service, higher priced airlines including American

American Airlines has already squeezed concessions from its unionized work force that would have been almost unthinkable a few years ago. Ground crews, pilots and flight attendants have accepted wage cuts. Work rules that benefited union workers have been relaxed. Certain types of work, such as aircraft cleaning have been outsourced to non-union contractors. Pilots have been encouraged to taxi after landing on one engine rather than two to reduce fuel consumption.

These concessions make it clear that the adversarial relationship th

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t airlines have lost altitude since October. Buttrick says high oil prices have played a role, but the bigger factor undermining the recovery is "faltering domestic revenue." From the standpoints of risk and reward potentials, the analyst believes the next 12-24 months "favor the large, leveraged legacy carriers" over high-growth operators. For that reason he advises looking into Northwest Airlines. It's protected by its quasi-monopoly hubs, significant strength in the growing Asia-Pacific market, and predisposition against spending. Also worth a check are Continental Airlines, Delta Air Lines and AMR Corp., parent of American Airlines, Buttrick says. Taking note of oil prices reaching $38 a barrel, the highest level in 13 years, Michael Linenberg of Merrill Lynch last week increased his industry net loss forecast to $2.1 billion, from $700 million. Only a few attempts to raise fares have been successful, he notes, which leaves the airlines out on a limb. The analyst expects network carriers will rethink their 2004 expansion plans and even some low-cost carriers will scale back on growth. He predicts "another year of difficulty" but not as difficult as 2003. On another subject of much interest ù the impact of 100-seat regional j
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Approximate Word count = 1201
Approximate Pages = 5 (250 words per page)

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