Are Labor Costs Bloating American Airlines?

American Airlines (NYSE:AMR) was off 5.4% even though other airline stocks were in take off mode, after Southwest Airlines (NYSE:LUV) released excellent numbers for its third quarter.

Southwest (NYSE:LUV) reported revenues of $4.3B, up 35% Y/Y which beat market expectations by $70M. EPS was $0.15, higher than expectations by $0.02.

In striking contrast, American (NYSE:AMR) posted a $162 million loss, bringing up its 14th loss in 16 quarters. The airline has lost more than $12 billion since 2001.

What plagues American (NYSE:AMR)? Bloated labor costs compared to other airlines, for one. Its labor costs are higher by more than $600 million, and efforts to reduce costs are not likely to make headway considering the unions are seeking pay rises.

Also, he airline has to revamp its degrading service and on-time image in an environment where the traveler has many alternate options. “American (NYSE:AMR) used to be the industry leader,” says Henry H. Harteveldt, a travel industry analyst with Atmosphere Research Group. “Now it’s in the middle of the pack and falling.”

The existing fleet needs to be upgraded to modern planes that reduce maintenance and fuel cost. 460 planes are on order and are expected not until 2013, however.