As I re-examine and position myself for post-coronavirus travel, American Airlines is one I will avoid due to bankruptcy concerns.
If you are considering signing up for a new credit card please click here and help support LiveAndLetsFly.com.
American Should Have Been Best Prepared
American Airlines had the largest cash stockpile of any carrier in the world at over $7bn prior to the coronavirus crisis. Much of the airline’s fleet is new, making the flights that are taken more economical and the recovery cheaper on a per flight fuel burn and maintenance basis than peers. But its exposure to markets affected by the crisis was also high as well as the world’s largest carrier, flying to Europe and Asia – the first two markets to close.
Distrusting American Management
I have not been quiet about my distrust of American Airlines management. I left American for United a couple of years ago and have not looked back since. While I was wrong about CEO Doug Parker surviving the summer, my distrust of the management team’s ability to navigate challenging times is evermore heightened in this particular challenge.
Parker has stated the airline would never again lose money, he lost a bet that the stock price would radically increase, and while few anticipated the current situation, Parker’s failed bombastic claims in the past have not made me more comfortable with my remaining redeemable miles.
Last week I highlighted that the company would rather pay cash to Cathay Pacific and charge their frequent flyers 70,000 miles to do so rather than fill their own 777-300ER which had sold just three seats to-date for which they have no available upgrades and charge 175,000 miles one-way. How could anyone have faith in an airline like that to make responsible business choices?
How I Diversify/Hedge
Many readers and colleagues have asked about my outlook on the airlines in this environment. I have disclosed that I invested personally in some airline stocks including American Airlines (I’m not a financial advisor, don’t take my advice.) But my current concern is that of all of the carriers, American Airlines may be the most likely to file bankruptcy. Others disagree with my assessment, and some agree.
While miles have never been sacrificed in the past, if a situation in which the airline was broken up and sold off, all reliability in that balance would be out the window. With revenue down 90% for some carriers, it’s hard to say who will make it – even Emirates is flying to just three destinations, and South African Airways is likely to shut down entirely.
I am taking the following three steps to protect myself from an American Airlines bankruptcy, even if just on a temporary basis:
- Spending has moved from any individual program to solely with credit cards that earn transferrable points to a variety of programs like the Chase Sapphire Preferred or the American Express Gold card.
- I am spending my miles far out in the future and as much as possible redeeming on partner carriers backed by their governments or less likely to fail.
- I am cautious about buying any tickets in cash on suspect carriers.
American Airlines may come out of this crisis just fine, but they also may not. No one has a crystal ball so it’s impossible to say how American or any other airline will come out. That said, I am not playing roulette with my money nor my miles and won’t place any faith in the carrier’s future.
What do you think? Have you dodged carriers that you think may be in trouble? Do you think all the US carriers will come out ok?