American Airlines to lay off thousands, add new fees

BY JAMES BERNSTEIN | james.bernstein@newsday.com; This story was su

May 22, 2008

Citing the weak economy and fuel costs that have increased by billions of dollars in the past few years, American Airlines said yesterday it will charge $15 for passengers' first checked bag, reduce its capacity by at least 11 percent and lay off thousands of employees.

Fort Worth, Texas-based American, the nation's largest passenger airline, employs about 8,300 people in the New York metropolitan area and said it is taking the measures to offset soaring fuel costs. Crude oil settled at an all-time high $133.17 yesterday.

Gerard Arpey, American's chairman and chief executive, said at the company's annual meeting that the airline industry was "not built to withstand" such high fuel expenses coupled with "a weak U.S. economy."

A major consumer group and an airline analyst said other carriers may follow American's lead, and airplanes will be even more crowded, particularly during summer's peak travel season.

United Airlines said it was "seriously studying" American's baggage charge - which was seen as unprecedented for a major U.S. carrier. Delta Air Lines of Atlanta, a major operator at Kennedy, said it has no current plans to match American's fee for first checked bags.

Discount carrier JetBlue Airways Corp. of Forest Hills, the largest carrier at Kennedy Airport, said it has no plans to initiate a fee for first checked bags. But JetBlue already announced that beginning June 1, it will begin charging $20 for a second checked bag. JetBlue also said in April it expects capacity to decrease slightly - in the single digits - this year.

In a further sign of airline problems, Southwest Airlines Co., the most consistently profitable U.S. carrier, won't earn as much the rest of this year as it did in 2007, chief executive Gary Kelly said. The company didn't comment on baggage fees.

American said it will begin charging the $15 for a first checked bag on June 15. It said it would exempt people who belong to elite levels of its frequent flier programs, those who bought full-fare tickets and those traveling overseas. Last month, the carrier had said it will charge $25 for second checked bags.

The airline said it plans to reduce capacity - the number of flights per day - by 11 percent to 12 percent compared to the fourth quarter of last year.

The airline has about 4,000 flights worldwide per day.

Arpey said American's job cuts could be "in the thousands." American has about 88,000 employees worldwide. The airline said it expects its 2008 fuel bill to be nearly $9 billion, compared with $2.7 billion in 2003.

Robert W. Mann Jr., an independent airline analyst and consultant in Port Washington, said he believes American will have to reduce capacity further as fuel costs continue to rise.

American's shares tumbled on the stock market during the day, closing at $6.22, down $1.98, or 24 percent.

David Stempler, president of the Air Travelers Association, said the American announcement was "discouraging, disappointing and irritating."

"But I think this is the new reality as airlines seek to find revenue sources in whatever service they provide to passengers," Stempler said.

This story was supplemented with wire reports.