American Airlines will lay off thousands of employees, slash flights, park up to 85 airplanes and begin charging new fees as it struggles to cope with crushing fuel prices.
Fort Worth-based American, which is the largest employer in North Texas, said Wednesday it will begin charging $15 each way for the first bag checked by passengers. Domestic capacity will be cut up to 12 percent later this year, and facilties nationwide could be consolidated or closed. Airline executives would not rule out the closure of a maintenance base, such as the airline's facility at Alliance Airport in Fort Worth.
Airline officials would not specify how many jobs will be lost, but said the cuts will be across the board, including management and supervisor positions. Gerard Arpey, American's chief executive, said the cuts will likely be "in the thousands."
The spike in oil prices, which topped $130 per barrel this week, is a "fundamental game changer" for the airline industry, Arpey said during the annual shareholders meeting of AMR Corp., American's parent company.
"This industry cannot continue under its current structure," he said. "It's not built for $125 or $130 oil."
American has also increased fees for a broad slate of services, ranging from travelers flying with pets to oversized baggage fees. The increases range from $5 to $50 per service.
The new baggage fee is is effective for tickets purchased on or after June 15. It does not apply to travelers with elite status in the airline's frequent flyer program, those flying on full-fare tickets, and on international flights.
Union leaders said they were disturbed by the changes.
"We are concerned that our airline is abandoning its commitment to air passengers and its employees while cutting service to the bone," said Laura Glading, president of the Association of Professional Flight Attendants. "It seems that management is willing to cut everything except its salaries."
Karl Schricker, an American pilot and spokesman for the Allied Pilots Association, said the cuts and fees signaled a failure of airline management.
"They can't count on customer service to fill the seats, they can't count on operational reliability to fill the seats, so they think the answer is to shrink the airline," he said. He added that "customers don't expect to be nickle-and-dimed on American Airlines."
American said it planned to make the domestic flight reductions in the fourth quarter. It also said it would retire between 75 and 85 mainline and regional aircraft, including small jets and turboprops operated by American Eagle.
American had said in April that it expected mainline seat capacity to decline 4.6 percent in the fourth quarter, compared to the same period in 2007.
Airline officials also said they expects American Eagle's capacity to decline 10-11 percent in the fourth quarter. Previously, the airline had projected a 2 percent increase in fourth quarter capacity at Eagle.
“The capacity reductions aim to significantly reduce costs as well as create a more sustainable supply-and-demand balance in the market,” Arpey said.
Analyst Jamie Baker of J.P. Morgan estimated that the industry needs to shrink by up to 20 percent "in order to recalibrate for current fuel prices."
He estimates that the industry will lose a record $7.2 billion this year.
Delta Air Lines told The Associated Press it doesn't plan to match American's fee for the first checked bag.
But Terry Trippler, a travel analyst with Tripplertravel.com, predicted that other airlines would also begin charging for checking the first bag.
"The other airlines will go for it, why wouldn't they?" he said. "It's more revenue."
He also doubted that it would significantly damped travel demand. "I think most people are just going to suck it up and pay it," he said.
Arpey said the airline will retire 40 to 45 mainline aircraft from its fleet, mostly MD-80s, but including some Airbus A300s. The company also plans to retire 35 to 40 regional jets and “a number of turbo-prop aircraft” from the Eagle fleet.
The MD-80 retirement could affect American's maintenance facilities, particularly in Tulsa, where those planes are serviced.
The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.
“While we understand that these fees affect customers, we also believe that 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.”
Meanwhile, across town, Southwest Airlines executives said during their annual shareholder meeting that they plan to eliminate no cities from the carrier's route structure and expect the company's streak of profitable quarters to continue. Click here to visit our Sky Talk blog for more on the Southwest meeting.
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