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Despite a Big Loss, American CEO May Overstate Airline's Challenges

While Delta reported a relatively small loss, American's $360 million loss excluding special items was certainly more eye-catching. Without question fuel was a huge contributor to this number, but as was the case with Delta, the outlook has improved significantly. Still, CEO Gerard Arpey sent out a letter to his employees explaining why this is not going to be an easy time.

Arpey cited two main challenges going forward. In his own words . . .

  • "First, the flow of credit -- a commodity every bit as vital to the economy as oil -- has slowed to a crawl."
  • ". . . the growing likelihood of a serious economic downturn."
Well, these seem pretty obvious to me, and as the head of a major company you need to make sure you're following this closely. But that being said, I think the tone of this letter is overly ominous.

Yes, the frozen credit markets are a problem, but there have been signs that they're beginning to unfreeze globally. American shouldn't have any urgent need to access its credit to the point where operations would be interrupted (they've already financed 20 of their deliveries for next year), so assuming that the markets do start working properly again in the near future, the airline will be fine.

And of course a weakening economy is a problem, but as Arpey mentions in his letter, "oil's fall in price is a by-product of the chaos in the financial markets and the uncertain outlook for the economy." If oil prices go down alongside a weakening economy, it significantly improves American's ability to survive and even profit during the downturn.

So yes, there is always something to worry about here, and any good CEO would be paying close attention. But I would imagine that this letter serves a dual purpose. The pilots need to agree to fly the newly ordered 787 now, and if they think things are great, they'll expect more money. I'm not saying things are great, but so far, what Arpey warns are challenges are not as dire as he may make them sound . . . yet.

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