American Airlines pulls a Wall Street stupidity - Reuters

fijars.blogspot.com

American airlines jets sit at gates at Washington's Reagan National airport in Washington, April 29, 2020. REUTERS/Kevin Lamarque

NEW YORK, June 21 (Reuters Breakingviews) - American Airlines (AAL.O) is showing precisely how companies can screw up an economic rebound. The Texas-based carrier is cutting flights, in part because it’s short-staffed. The taxpayer-funded bailout given to airlines last year was meant to prevent this sort of thing from happening. But as investment banks proved in previous crises, deep staff cuts can leave businesses – and shareholders – exposed.

The $14 billion airline said that it would trim roughly 1% of its flights in July as a sharp uptick in travel demand put strains on some hubs. The company blamed vendor staffing shortages and bad weather in a statement. But staffing up in advance of the expected pickup would likely have allowed American to avoid cutting routes when the going got good.

In March the company led by Doug Parker raised $10 billion to pay back loans from the U.S. government, hocking its reward program. Some of the cash it received from taxpayers, which included grants, had stipulations that required American to keep its employees on payroll. Yet American found work-arounds, reducing headcount by more than 20,000 by last fall through voluntary leave and extended severance packages.

Nevertheless, investors are expecting big things from Parker and his employees. The company, with a $40 billion enterprise value, is worth almost 50% more than it was before the pandemic. And because sales have fallen so sharply, the company’s enterprise value-to-sales multiple of more than 3 times has quintupled compared to the level before lockdowns.

That means capitalizing on today’s rebound is crucial for the airline’s shareholders. While business travel may slowly recover, tourists are bombarding airports after 15 months of being grounded. On Friday the number of people passing through U.S. Transportation Security Administration checkpoints was up 250% from the same day the previous year. Other airlines are competing for that business, too, so every flight counts.

American’s issues aren’t unlike those that investment banks have faced following Wall Street’s boom-bust cycles. Some firms, like Merrill Lynch before it became part of Bank of America (BAC.N), were renowned for firing too quickly and then missing out on the market’s rebound. Bad planning for takeoff is an understandable concern for American’s customers. Now it’s one for shareholders, too.

Follow @thereallsl on Twitter

CONTEXT NEWS

- American Airlines is cutting around 1% of its flights in July, in part a result of a labor shortage due to a sharp increase in travel demand.

- “The first few weeks of June have brought unprecedented weather to our largest hubs... causing delays, canceled flights and disruptions to crew member schedules and our customers’ plans,” the company said in a statement. “That, combined with the labor shortages some of our vendors are contending with and the incredibly quick ramp up of customer demand, has led us to build in additional resilience and certainty to our operation by adjusting a fraction of our scheduled flying through mid-July.”

SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS <a href="http://bit.ly/BVsubscribe" target="_blank">http://bit.ly/BVsubscribe</a> | Editing by Rob Cox and Amanda Gomez

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

Adblock test (Why?)

"stupid" - Google News
June 22, 2021 at 03:23AM
https://ift.tt/3vOs6Bf

American Airlines pulls a Wall Street stupidity - Reuters
"stupid" - Google News
https://ift.tt/3b2JB6q
https://ift.tt/3febf3M

Bagikan Berita Ini