American to spin off Eagle

photo by caribb

American Airlines announced today that it will be spinning off its regional carrier American Eagle. In a press release earlier today, parent company AMR said that the spin off, which is expected to be completed by 2008, "is in the best interests of AMR and its shareholders". American Eagle could be spun off to AMR shareholders or to a third party (or in yet another way).

AMR went on to say that the spin off will allow American to focus on its mainline operations but still have access to a "cost-competitive regional feed". However, this depends upon how the spin off proceeds - if Eagle gets sold in parts (i.e., if one airline were to take its operations at Miami, and another airline were to take its operations at Chicago), then this might be a bit problematic.

A possible explanation for the spin off (besides the official corporate explanation) that I've seen comes down to finances. American Eagle uses a capacity purchase agreement with American Airlines. Eagle only makes money if it can operate for less than American Airlines pays it. But if Eagle's costs go up compared to other, similar carriers, the cut that American Airlines gives Eagle might have to go up to. It might be that AMR is looking for lower-cost regional feed in the future.

Since the event was only announced today, there are certainly going to be a lot more details announced in the future - stay tuned.