Airline Stocks Up on AMR Bankruptcy (AMR, DAL, UAL, LCC, JBLU, LUV, FAA)

This morning’s announcement by AMR Corp. (NYSE: AMR), parent of American Airlines, that it had filed for Chapter 11 bankruptcy protection appears to have pushed up the shares of competing US carriers. Shares of Delta Air Lines Inc. (NYSE: DAL), United Continental Holdings Corp. (NYSE: UAL), US Airways Group Inc. (NYSE: LCC), JetBlue Airways Corp. (NASDAQ: JBLU), and Southwest Airlines Co. (NYSE: LUV) are all up as AMR stock is down nearly -60%.

While it may seem counter-intuitive, the rise in competing companies’ stock prices makes perfect sense. AMR will very likely need to reduce routes as it works through its bankruptcy filing. The routes and gates will then become available to competitors or will simply vanish. AMR’s reductions also mean that competitors will be able to increase both passenger counts and fares. It’s all good for everyone but AMR.

AMR will also be pre-occupied with the bankruptcy reorganization, leaving competitors to poach its passengers with teaser fares and boosts to loyalty programs. Competition to AMR will just get tougher.

AMR’s two full-fare competitors are posting good gains today. Shares in United are up more than 7% and Delta’s shares are up more than 5%. US Airways’ shares are up nearly 12%. Southwest is up more than 1%, due mostly to the fact that it benefits least from AMR’s bankruptcy. The lightly traded Guggenheim Airline ETF (NYSE: FAA) is up about 0.2%.

Paul Ausick