American Airlines cuts flights, adds $15 fee for the first checked bag
Published: 26 May 2008
AMR Corporation, the parent company of American Airlines, Inc., has announced significant reductions to its 2008 domestic flight schedule.
The reduction includes a fourth quarter mainline domestic capacity reduction of 11-12% from the previous year. It also outlined plans to retire at least 75 mainline and regional aircraft and unveiled several revenue growth initiatives, in response to the fuel prices, growing concerns about the economy and a difficult competitive environment.
"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 US economy," said AMR Chairman and CEO Gerard Arpey.
"Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve. We must work to overcome our near-term challenges and to secure our company's long-term future for the benefit of our shareholders, customers and employees. We must find ways to cover the cost of providing our services so that we can remain viable and have the resources to reinvest in our company for the future. Those goals are central to the actions we are outlining today."
American also introduced a $15 fee for the first checked bag, given the increasing costs of transporting checked baggage.
This fee, which is effective for tickets purchased on or after June 15, does not apply to: American's AAdvantage programme members who have achieved AAdvantage Gold, AAdvantage Platinum and AAdvantage Executive Platinum level; those who have purchased full-fare tickets in the Economy, Business and First Class cabins; and those with international itineraries (except to and from Canada and US territories, such as Puerto Rico and the US Virgin Islands).
Arpey cited the US airline industry's first quarter 2008 pre-tax loss of nearly $2 billion excluding special items and the fact that eight US airlines that have filed for bankruptcy protection this year, including five that have ceased service. AMR paid $665 million more for fuel in the first quarter than it would have paid at prices from the year-ago period. Its first quarter fuel expense increased by 45% year over year, while its total revenue increased by 5%. The price of jet fuel has increased by more than 10% since April 16, when AMR expected its 2008 fuel bill would be well over $6 billion higher than in 2003.
Arpey also noted that AMR has made much progress in recent years to better prepare it for the current uncertainty.
At the end of the first quarter of 2008, the company's Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $15.2 billion, down more than 25% from the end of 2002.
AMR's Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $10.7 billion at the end of the first quarter of 2008, down more than 40% from the end of 2002. AMR also ended the first quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $426 million. It had about $2.7 billion in total cash and short-term investments, including a restricted balance of $783 million, at the end of 2002.
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tromba said on 28 May 08:
Obviously, something must be done as the airlines cannot continue to lose money. But, I'm not so sure that charging a US$15 fee for the first piece of checked baggage is a good place to start.
I predict that American Airlines passengers will push the limits as to how large and how stuffed their carry-on luggage can be. In the cheap-seats section of the plane, there is not enough room in the overhead storage bins. Passengers will take longer to get settled as available space in the bins is taken. And this will mean longer loading times and quite possibly delayed departures.