Strike Cuts Deeply Into AMR’s Profit
In a financial blow that was worse than many had expected, American Airlines on Tuesday said last month’s crippling flight attendants strike will slash after-tax profit by more than $160 million--far above management’s initial estimates.
The Ft. Worth-based carrier said it lost 1.3 million passengers--many to rival carriers--when the five-day strike left it without enough qualified flight attendants to operate normally. Less than 50% of American’s flights carried passengers during the walkout.
In reporting its November results, American said the cost of the strike, as expected, will result in a “significant” loss for the quarter and wipe out the $143 million in profit earned during the first nine months of the year. Industry analysts had expected the airline to return to profitability this year after suffering three years of losses.
“It’s much higher than expected,” said airline industry consultant Ernest Arvai, who had initially estimated American would lose about $100 million on the strike. “It’s a significant amount of cash. You are talking about the cost of three airplanes.”
While the strike cost American dearly last month, United Airlines boarded 8.3% more passengers in November as American customers searched for alternative flights.
The strike began a week before Thanksgiving and ended after President Clinton intervened and American and the Assn. of Professional Flight Attendants agreed to binding arbitration to settle the dispute. Both sides had deadlocked over pay and American’s demands for concessions.
“It was never our intention to hurt this company,” said Alan Fahringer, a union negotiator and spokesman. “We did everything we could to prevent this strike. Hopefully, American will learn something from this unfortunate circumstance and won’t repeat this.”
During the strike, American Chairman Robert L. Crandall had estimated the walkout was costing the carrier at least $10 million a day. But estimates by industry observers and union officials were far higher.
“We simply didn’t know at that point,” said American spokesman Al Marucci. “We just have better data now.”
On the New York Stock Exchange on Tuesday, the company’s stock rose $1.625 to $67.50. Many investors had already taken the strike’s financial damage into account and were pleased to see the company report increased bookings for January and February, industry analysts said.
The strike’s losses pose no serious danger to American’s financial health. But industry analysts wonder what American has to show for taking the costly strike.
“The problem with this loss is that American didn’t achieve its final objective” of boosting productivity, said airline consultant Jon F. Ash. “Can you get that . . . in binding arbitration? I don’t know.”
The union and airline are expected to reach an agreement on the arbitration process later this week, Fahringer said. It might take two months or more before a final settlement is reached.
Despite moving forward with arbitration, American and union officials have tangled over the firing of 15 flight attendants the company claims harassed workers who did not honor the strike. Nine of the flight attendants--some of whom organized local strike efforts--were fired Tuesday in San Juan, Puerto Rico.
The union has asked the Labor Department to investigate the firings and what it alleges are American’s harassment and discrimination against its members who took part in the walkout.
