Monday, June 28, 2010

Is American Airlines Eagle ready to leave the nest?
Saturday, Jun. 26, 2010

New routes, new first-class seats and a new chief executive have all come to American eagle this year. But is the regional carrier for American Airlines ready to fly on its own? And if it is, can its parent company, Fort Worth-based AMR Corp., find anyone interested in buying an airline with 260 planes that generates around$2.1 billion in revenue? Last month, AMR Chief Financial Officer Tom Horton said the company believes that it makes sense for Eagle to eventually separate from American and will consider such a move in "a more sensible market environment."

A spinoff, public offering or outright sale has been on the table for Eagle in the past. In the meantime, the carrier has added over a dozen flights at Dallas/Fort worth Airport in the past year and has been adding back capacity, particularly to Mexico, that it had dropped during the recession. And this summer, Eagle will begin offering first-class seats on some regional jets for the first time “I don't think I'm looking for any immediate upheaval in what Eagle's been doing," said Dan Gorton, who was named chief executive this month.

"It's focused on providing feed to American Airlines." 'Very profitable places ‘Most of Eagle's fleet still has fewer than 50 seats, but it's no longer the puddle jumper that the flying public might imagine it to be. The carrier has added Bombardier CRJ aircraft that can seat 70 passengers and have a first-class cabin. It's flying longer routes, such as New York City to Atlanta. Out of D/FW, the carrier has added several new destinations such as Cheyenne, Wyo., Fayetteville, N.C., and Manhattan, Kan.

All are close to military bases and facilities. That strategy is helping Eagle boost its revenue, as military airfares are usually higher, airline analyst Mike Boyd said."They've found some very profitable places to put their airplanes," Boyd said.

And while American Airlines has continued to cut capacity compared with last year, Eagle added back flights starting in October. By April, Eagle reported an increase in year-over-year available seat miles of 8.8 percent, and ASMs-- a measure of capacity -- were up 4.9 percent in May.

Eagle is still growing, but labor contracts limit its capacity in relation to American. Eagle represents about 6 percent of the carriers' combined capacity. That's far less than other big carriers' regional operations. Industry analyst Darryl Jenkins says regional jets today account for nearly 16 percent of total industry capacity.

Even as that capacity has declined about 17 percent in the past 15 years, however, regionals have grown by 217percent."If you look at American versus others, such as United, you'll see everybody is increasing regional flying," Jenkins said. What AMR should do with Eagle?

In 2007, AMR got serious about selling or spinning off Eagle. But when the recession hit, the company pulled Eagle off the market. Now, Gorton is considering the options. Gorton, who headed Eagle from 1995to 1998, said that there are growth opportunities for Eagle and that it may make more sense for the carrier to be separate.

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