American Will Slash 2008 Capacity, Cut Jobs on Fuel (Update2)
By Mary Jane Credeur and Mary Schlangenstein
May 21 (Bloomberg) -- AMR Corp.'s American Airlines, the world's largest carrier, will slash U.S. capacity as much as 12 percent, retire as many as 85 jets and cut jobs to blunt surging fuel prices and slowing demand.
AMR fell the most since September in New York trading. The reduction in domestic seating is more than twice what American had announced in April, and represents the third cut in 2008. AMR also said it will add a $15 fee for the first checked bag.
``Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve,'' Chief Executive Officer Gerard Arpey told shareholders today in Fort Worth, Texas, where AMR is based.
American's response to an 84 percent jump in jet fuel in the past year went beyond steps taken by its peers, and comes as analysts predict possible bankruptcies among the biggest airlines. The changes will force an undetermined number of job cuts at both American Airlines and regional unit American Eagle.
AMR plunged 92 cents, or 11 percent, to $7.28 at 10:26 a.m. in New York Stock Exchange composite trading. The shares touched $6.93 earlier for the biggest drop since Sept. 24.
The new baggage fee will take effect June 15, as the U.S. summer travel season gets under way. It excludes some members of American's frequent-flier program, travelers buying full-fare tickets and passengers on international flights. The capacity cuts will be in place by the fourth quarter.
As many as 45 planes will be dropped from American's fleet, most of them aging Boeing Co. MD-80s, and as many as 40 regional jets at Eagle, where fourth-quarter capacity will fall as much as 11 percent, the company said. Previous plans called for a 2 percent increase in Eagle capacity. American said some Eagle turboprops also may be parked, without giving details.
As of this month, American had 655 jets in its mainline fleet, and Eagle had 305 planes, according to AMR's Web site.
The changes may result in the closing of some facilities, AMR said, adding that the company still is assessing the costs of the job cuts and possible closures. AMR had 85,500 employees including those at American and Eagle at year's end.
AMR's moves extend an industrywide shrinkage by carriers including UAL Corp.'s United Airlines and Delta Air Lines Inc. Carriers can pare capacity by parking planes, flying less frequently and using smaller aircraft. Combined 2008 losses at the biggest U.S. airlines may reach $7.2 billion, JPMorgan Chase & Co. analyst Jamie Baker estimated this week.
Other fees at American are rising, too, including charges for reservation service, carrying pets and checking oversized bags. The increases range from $5 to $50, and will generate ``several hundred million dollars'' in annual revenue, AMR said.
``Our pricing for the services we provide remains extremely competitive in the industry and continues to offer our customers ample choice and value,'' Arpey said. ``The bottom line is that our revenues, which include ticket sales and fees, must keep pace with our increasing costs.''
To contact the reporters on this story: Mary Jane Credeur in Fort Worth, Texas, at email@example.com
; Mary Schlangenstein in Dallas at firstname.lastname@example.org
Last Updated: May 21, 2008 10:29 EDT