From: Reuters
Published May 22, 2008 08:08 AM

American Airlines to slash jobs, charge for bags

By Kyle Peterson

FORT WORTH, Texas (Reuters) - American Airlines' shares fell 24 percent on Wednesday as it said it will cut thousands of jobs, retire old aircraft and charge passengers to check bags in a move to counter record fuel prices and a weak U.S. economy.

The world's largest airline, owned by AMR Corp <AMR.N>, said it would reduce domestic capacity by 11 percent to 12 percent in the fourth quarter, its biggest service cutback since the attacks of September 11, 2001.

"The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel and certainly not when record fuel expenses are coupled with a weak U.S. economy," AMR Chief Executive Gerard Arpey said in a statement.

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"The industry will not and cannot continue in its current state," Arpey told shareholders at the company's annual meeting in Fort Worth, Texas on Wednesday.

As all the major U.S. airline stocks slumped amid a brokerage downgrade for the sector, AMR shares fell $1.98 to close at $6.22.

U.S. crude oil futures soared to a record above $133 on Wednesday, more than twice the price a year ago.

American Airlines plans to charge $15 for many passengers' first checked bag starting in mid-June, an unprecedented move by a major U.S. airline as it tries to claw back more of its extra fuel costs.

Rivals are considering following suit.

A spokeswoman for UAL Corp's <UAUA.O> United Airlines said it was "seriously studying" American's $15 charge and a spokeswoman for Delta Air Lines Inc <DAL.N> said it was looking at every area of its business, but "at this time" has no plans to charge for a first checked bag.

RETIRING OLD PLANES

American said it would take at least 75 mainline and regional aircraft out of its aging fleet, including some of its old MD-80s, which were grounded last month because of maintenance issues.

The airline said it would cut domestic capacity, as measured by available seat miles, by 11 percent to 12 percent in the fourth quarter.

Only last month, it had projected a 4.6 percent drop in capacity from the fourth quarter of 2007.

Available seat miles is the standard way of gauging the scale of a carrier's operations, reflecting the number of seats available for sale and the length of the flights.

The capacity cut will mean work force reductions at American and its American Eagle regional unit.

Asked if the job cuts would run into the thousands, Arpey said they would and added that every work group will be impacted.

"We are not doing our best by employees if one of our considerations is not being competitive," Arpey said.

More than 100 employees protested outside the annual meeting, calling for management changes.

"Our message is that we want new leadership," said Laura Glading, president of the Association of Professional Flight Attendants.

American's $15 checked bag fee will not apply to international flights, some of its AAdvantage reward program members, or people with full-fare tickets.

The company also increased fees for services such as reservations, pet handling and oversized bags. Most of the increases range from $5 to $50.

In the last two years, most U.S. carriers have removed capacity from less profitable domestic routes and introduced charges for checking extra bags as they try to keep up with rising fuel costs and fierce competition.

On Wednesday, the Soleil brokerage cut the U.S. airlines sector to neutral from outperform, according to flyonthewall.com, which tracks analyst ratings.

Shares of United Airlines parent UAL Corp <UAUA.O> fell 29.5 percent to $8.15, Continental Airlines <CAL.N> fell 13 percent to $14.20 and Delta Air Lines <DAL.N> fell 16.4 percent to $5.77.

The Amex airline index <.XAL> fell 11.95 percent.

(Additional reporting by Bill Rigby and Mark McSherry, Editing by Andre Grenon, Tim Dobbyn, Gary Hill)

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