American Airlines to cut jobs and flights, add $15 bag fee
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12:00 AM CDT on Thursday, May 22, 2008
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By TERRY MAXON / The Dallas Morning News
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American Airlines said Wednesday that it will slash its domestic flying by 11 to 12 percent in the fourth quarter, eliminate thousands of jobs and begin charging most passengers $15 each way to check their first bag.
MICHAEL AINSWORTH/DMN
Most passengers will be charged $15 each way to check their first bag. 'The U.S. airline industry ... was not built for $125- or $130-per-barrel oil,' said American CEO Gerard Arpey after the AMR Corp. annual shareholders meeting.
Soaring fuel prices prompted the drastic steps to cut costs and boost revenues, according to the airline, and even such steps aren't likely to make American profitable in the face of oil prices skyrocketing over $130 a barrel.
Gerard Arpey, chairman and CEO of American and parent AMR Corp., said the industry is in a "very perilous" period, agreeing with the assessment given last week by retiring Southwest Airlines chairman Herb Kelleher.
"The U.S. airline industry as it is constituted today was not built for $125- or $130-per-barrel oil," Mr. Arpey said after the AMR annual shareholders meeting in Fort Worth.
"The industry will not and cannot continue in its current state," he said. "The fact that four more airlines have liquidated this year and one is operating in Chapter 11 is clear evidence of that fact.
"So we are moving to construct a business plan that, to the extent possible, is constructed for the current reality of slow economic growth and high oil prices," Mr. Arpey said.
News of American's flight reductions and gloomy outlook appeared to shake investor confidence in AMR as well as other U.S. airlines.
AMR's stock fell 24 percent to $6.22 in Wednesday trading on the New York Stock Exchange, dropping to its lowest point since May 2003, shortly after AMR restructured its finances and union contracts to avoid a trip to bankruptcy court.
AMR shares have dropped 56 percent since the first of the year and 77 percent since last year's annual meeting.
For American's customers, the first noticeable impact of Wednesday's announced changes will be the $15 charge for the first bag checked, beginning with tickets bought June 15. Most big carriers recently implemented a $25 charge on the second bag checked by coach customers, but American is the U.S. pioneer on charging for the first bag.
The fee will be charged to everyone except people who belong to elite levels of its frequent flier program, those who bought full-fare tickets and those traveling overseas.
That raises the prospect of a traveler with two pieces of luggage paying $80 round trip just to transport his or her bags; a family of four could wind up paying hundreds of dollars to get its luggage there and back.
Airlines have been turning up new ways to increase revenues, from raising the fee for changing a ticket or making a reservation by phone to checking bags at the curb. They're also trying to find new things to sell on board, such as snacks, meals or consumer goods.
Mr. Arpey unveiled the bad news for American employees, hundreds of whom were outside in a picket line complaining about American executives and their management of the world's largest carrier.
"We're out here today because American Airlines is failing all the constituents that have a vested interest in the success of the company," said Lloyd Hill, president of the Allied Pilots Association, which represents American's pilots. "We're here to deliver a message to the AMR management team: It's time to fix the problems."
Association of Professional Flight Attendants president Laura Glading said pilots and flights attendants were picketing together "to show the company that we're completely unified, that we're going to stand together [and] do whatever we have to do to show the board and the leadership that changes have to be made."
The pilots' union has been negotiating a new contract with the company since September 2006, while flight attendants plan to start their talks June 10. The airline's contracts with its unions became amendable May 1.
Meanwhile, inside the annual meeting at an American Airlines training center, Mr. Arpey was outlining the airline's belief that things are bad and getting worse.
For employees, that means more layoffs at a time when thousands of pilots, flight attendants and workers are already on furlough, the result of cutbacks after the Sept. 11, 2001, terrorist attacks and the 2003 financial restructuring.
With domestic flying now making up about two-thirds of American's capacity, an 11 to 12 percent reduction would mean roughly a 7 percent decline in the airline's overall capacity.
American employed 71,800 people at the end of 2007; a 7 percent cut in workforce would eliminate about 5,000 people.
Mr. Arpey allowed that the layoffs would probably rise into the thousands, answering "I would think so" to a reporter's question. But he avoided putting precise numbers to the scope of the cutbacks and the impact on employees, cities and routes until the airline firms up its plans.
"The objective would be to try to eliminate overheads and costs commensurate with the capacity reduction," Mr. Arpey said. "In terms of what the actual layoffs will be, we don't have a number for you today."
He said the cuts will affect managers and supervisors as well "because of the magnitude of the reductions."
"I think I can say that every work group will be impacted," he said later.
To reduce capacity, AMR will be parking airplanes operated by both American and regional partner American Eagle.
Although there may be adjustments in some international markets, almost all the cutbacks will take place on domestic routes, Mr. Arpey said.
American will park 40 to 45 jets, mainly from its 300-airplane fleet of aging McDonnell Douglas MD-80s. That narrow-bodied plane accounts for 46 percent of American's 654 total airplanes and 39 percent of its seats.
The airline also plans to return some of its 34 Airbus A300s to lessors. American Eagle will retire 35 to 40 regional jets and an unstated number of turboprop aircraft.
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