From a Notice emailed to AA folks today:
AMERICAN RESPONDING TO NEW INDUSTRY REALITIES
AMR today announced significant reductions to its 2008 domestic flight schedule, including a fourth quarter domestic mainline capacity reduction of 11 to 12 percent from the previous year, outlined plans to retire at least 75 mainline and regional aircraft, and unveiled several revenue growth initiatives, as the company responds to record 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 U.S. economy," said 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 stockholders, 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."
The capacity reductions aim to significantly reduce costs as well as create a more sustainable supply-and-demand balance in the market. In recent years, Arpey added, the industry has been hurt by some airlines growing faster than conditions warranted, and that impact has worsened in light of recent economic trends and soaring fuel prices.
American also expects to retire at least 75 mainline and regional aircraft: 40 to 45 mainline aircraft, primarily MD-80s and some A-300s, and 35 to 40 regional jets and some number of turbo-props.
The changes will result in workforce reductions at both American and American Eagle, and could result in facility closures or facility consolidation. Employee reductions are dependent on scheduling and budgeting decisions that have not yet been made. It will take approximately 4-6 weeks to determine the specific schedule adjustments and the resulting effect on employees. Additional information will be shared with employees as it becomes available.
Arpey said this is obviously news no one wants to hear. But facing the reality of today's market and extraordinarily high fuel costs, these steps are necessary. "That said, we are always going to do our best by our people," he continued, "which means we have to remain competitive to protect everyone's long-term future."
"I believe that if we continue to confront our challenges directly, particularly in this difficult economic environment," said Arpey, "we can continue to strengthen our company and position it for long-term success. We must all remain mindful of the fact that only a strong company can provide the job security and brighter future we all want." Because if AMR is not competitive, he added, then "we're really not protecting anybody's interest in the long run. In fact, we as a company would be jeopardizing the long-term future of employees and their retirement."
As evidence of the crisis caused by soaring fuel prices, Arpey cited the U.S. airline industry's first quarter 2008 pre-tax loss of nearly $2 billion and the fact that eight U.S. airlines 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 one year ago. The price of jet fuel has increased by more than 10 percent since April 16, when AMR expected its 2008 fuel bill would be well over $6 billion higher than in 2003.
Beyond the Company's ongoing efforts to contain and reduce costs, Arpey noted that AMR has consistently sought revenue improvements through fare increases and fuel surcharges. Since mid-April, American has participated in or led 15 fare increases, 14 of which were at least partially successful. In addition, American continues to look for ways to generate additional revenue by charging fees for certain services.
Today, American 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 Gold, AAdvantage Platinum and AAdvantage Executive Platinum level members; 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 U.S. territories, such as Puerto Rico and the U.S. Virgin Islands).
American is also increasing its fees for certain other services, ranging from reservation service fees to pet and oversized bag fees. The increases mostly range from $5 to $50 per service.
The new and increased fees announced this month are expected to 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."
Arpey also noted that AMR has made much progress in recent years to better prepare it for the current uncertainty. As a result of efforts to strengthen the balance sheet, reduce and refinance debt, and build cash reserves, the company is in far better shape to endure these challenges compared to a few years ago. "Clearly, we have a lot of hard work ahead of us given the economic realities we face," Arpey said. "But we have battled through many challenges throughout our long history, and, with the continued dedication of our leadership team and our people, I believe we have the fortitude to continue to do so."
You are all correct. They are going to try to bring everything on. Because they think that if it won't fit, we will gate check it and it will be on the jetbridge for them at their destination.
