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American Airlines to cut capacity

Sept. 13, 2011, Dallas, Tx. - American Airlines is reducing midweek and Saturday flights and will further cut passenger-carrying capacity in the fourth quarter because of the weak economy and a spike in pilot retirements.


September 13, 2011
By Carey Fredericks

The reduction of about 4 per cent in Tuesday, Wednesday and Saturday flights began in late August, and the company announced Tuesday that it would trim fourth-quarter capacity by 0.5 per cent from previous plans.

All airlines are worried about the economy undercutting demand for travel. Several airlines, including American, have said that important corporate travel is holding up well, but there are signs that leisure travel is weakening.

Retirements are a particular problem at American, however, where 111 pilots will retire early this month — about 10 times the normal number.

A provision in the pilots' retirement benefits allows them to lock in the value of some of their investments going back 90 days, so pilots who retire now can avoid the slump in the stock market that occurred in late July and August. The company expects that if the stock market remains volatile, many more pilots will retire. American has about 7,800 pilots.

The latest capacity cuts were announced at a Deutsche Bank investor conference in New York, where American's treasurer and vice-president of corporate development, Beverly K. Goulet, had to fend off questions about whether American was headed for bankruptcy.

"I would assume that Chapter 7 (liquidation) is nowhere, ever in a conversation in any context,'' Goulet said. She did not similarly dismiss the possibility of a Chapter 11 bankruptcy reorganization, which many other U.S. airlines went through in the last decade.

"Our performance has lagged the industry,'' Goulet said, "but I think the steps we're taking are all designed to address those and to bring our results better in line.''

American's parent, AMR Corp., was the only major U.S. airline operator to lose money last year, and the losses have continued to mount this year.

The airline's leaders pin turnaround hopes on new joint ventures with British Airways across the Atlantic and Japan Airlines across the Pacific, and on retrenching at five major hubs in the U.S. while shedding unprofitable routes. The company is also trying to win labour-cost concessions from its three unions, but is making little
visible progress there.

AMR also hopes to reduce costs by spinning off its American Eagle regional airline and putting its regional service up for bidding.

American is trying to increase revenue by raising fares several times this year and by new fees — in the latest, called Preferred Seats, American charges customers more for certain desired seats such as windows and aisles.

Cutting capacity, as Goulet promised Tuesday, can help airlines save money on fuel and crews by running fewer flights. It also can help push fares higher by reducing the supply of seats.

American has never said exactly how much fourth-quarter capacity would rise or fall compared with 2010, so Goulet's remarks were a bit vague. American had expected that full-year capacity would be 1.9 per cent higher than last year. In the first eight months of the year, it was up by 1.4 per cent.

Airline stocks rose Tuesday morning. AMR shares were up 12 cents. Or 3.8 per cent, to $3.39. They have fallen 57 per cent this year, a sharper decline than at the four other largest U.S. airline companies.