AA Boeing 757 - Courtesy AA

It’s no secret that the cost of flying has skyrocketed. Fliers see it in their ticket prices, increased fees and a lowered level of service. But when one of the nation’s largest airlines decides to file for bankruptcy, it raises a lot of eyebrows about the state of industry.

Let’s break down American Airlines’ bankruptcy and see what it means for you:

Why did AA file for bankruptcy?

The airline says that high fuel prices and labor costs contributed to the filing. One contributor has been the older fuel-guzzling MD-80 series plane that American has been using for years as a major part of their fleet. With the high cost of jet fuel, operating these planes at a profit becomes much more challenging. In fact, CNBC took cameras inside American Airlines a few years ago to document how razor thin their profit margins are. Check out this clip and be surprised about how little they make off of a flight:

In addition, investors, aviation experts and even the company itself has said the airline has one of the highest labor cost structures in the industry. In other words, the cost of wages, benefits, and retirement/pension proved to be too much for AA to handle in order to remain profitable and competitive.

What kind of bankruptcy did AA file?

American filed for Chapter 11 reorganization. Meaning, they plan on continuing their business but they need help removing dead weight and starting fresh again. In this case, AA wants help dealing with their debt and will probably ask labor unions to agree to lower wages and benefits for its employees.

Check out this clip to learn more about the different types of business bankruptcy:

Click here to view the video video page for more resources on business bankruptcy

How does this affect me?

It really doesn’t, thankfully. Images of stranded passengers won’t be seen during this bankruptcy as American will continue operations as usual. According to their press release, American will still:

  • Fly a normal schedule
  • Honor tickets, reservations, refunds and exchanges as usual
  • Maintain the AAdvantage frequent flyer program
  • Continue to operate the Admiral Club
  • Remain in the oneworld alliance and continue existing codeshare partnerships
  • Barring any hiccups along the way, American will be fine and will shine once again in a few years. So as they say in the airline industry, sit back, relax and enjoy the ride.

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