AMR Corporation Announces Significant Capacity Reductions

[WingNaPrayer]

AMR Corporation Announces Significant Capacity Reductions, Aircraft Retirements and Additional Revenue Growth Efforts


Actions Taken in Response to Record Fuel Prices, Economic Concerns and a Difficult Competitive Environment

FORT WORTH, Texas, May 21 /PRNewswire-FirstCall/ -- AMR Corporation, the parent company of American Airlines, Inc., today announced significant reductions to its 2008 domestic flight schedule, including a fourth quarter mainline domestic capacity reduction of 11 percent to 12 percent from the previous year. It also 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 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."

Additional 2008 Capacity Reductions

AMR, which is holding its Annual Meeting of Shareholders today, said it will reduce American Airlines domestic capacity -- or available seat miles flown -- in the fourth quarter of 2008 by 11 percent to 12 percent, compared to the fourth quarter of 2007. According to its April 16 guidance, AMR previously expected domestic mainline capacity in the fourth quarter to decline by 4.6 percent compared to the same period in 2007.


FULL STORY

 

[Hopeful]

AMR Corporation Announces Significant Capacity Reductions, Aircraft Retirements and Additional Revenue Growth Efforts


Actions Taken in Response to Record Fuel Prices, Economic Concerns and a Difficult Competitive Environment

FORT WORTH, Texas, May 21 /PRNewswire-FirstCall/ -- AMR Corporation, the parent company of American Airlines, Inc., today announced significant reductions to its 2008 domestic flight schedule, including a fourth quarter mainline domestic capacity reduction of 11 percent to 12 percent from the previous year. It also 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 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."

Additional 2008 Capacity Reductions

AMR, which is holding its Annual Meeting of Shareholders today, said it will reduce American Airlines domestic capacity -- or available seat miles flown -- in the fourth quarter of 2008 by 11 percent to 12 percent, compared to the fourth quarter of 2007. According to its April 16 guidance, AMR previously expected domestic mainline capacity in the fourth quarter to decline by 4.6 percent compared to the same period in 2007.


FULL STORY

We've only just begun!

 

[WingNaPrayer]

However, 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 percent 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 percent 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.

"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."


[The chart of reductions is easier to read in the article.]

 

[1 VF-1 2NV]

hOPEFULLY other airlines will follow suit...when does aa employees start getting their rif notices...

 

[LGA Fleet Service]

hOPEFULLY other airlines will follow suit...when does aa employees start getting their rif notices...

The legacy airlines might, but there will always be a low cost carrier to backfill the capacity removed from markets.Remember when the FAA told UAL and AMR to trim schedules at ORD a few years back? What happened? Other carriers took it as an opportunity to add capacity into ORD.


Meh.

 

[Hopeful]

hOPEFULLY other airlines will follow suit...when does aa employees start getting their rif notices...

The Q&A on the company site says they'll know the final numbers in 4-6 weeks

 

[TIME FOR CHANGE]

They just brought back 10 heads at MIA and cut out the OT
I guess the OT will be back after they RIF the guys they just brought back

 

[Joe Patroni]

Man, I feel bad for the people that just went back on the recall. But, on the other hand, who didn't see this coming?

 

[Skymess]

The Q&A on the company site says they'll know the final numbers in 4-6 weeks

I am in agreement with management that taking steps to reduce capacity now will help us in the long run. Look at the disaster in our work force that happened because they didn't immediately reduce capacity after 9/11.

I am not in agreement that management ranks shouldn't be cut.

Read on:
2008 Capacity Reductions Q & A
5/21/2008

2008 Capacity Adjustments, Aircraft Retirements and Revenue Growth Initiatives Q&A

How much are we reducing capacity?
American Airlines will reduce domestic mainline capacity in the fourth quarter of 2008 by 11 to 12 percent compared to the fourth quarter of 2007 (vs. 4.6 percent reduction previously announced). In addition, regional capacity, which includes flying by American Eagle, is expected to decline by 10 to 11 percent compared to 2007 levels.

Why are we doing this?
The industry has been hurt by some airlines growing too fast, and that impact has worsened with the weakening economy and soaring fuel prices. We have made a lot of progress in recent years and are better prepared to manage through the current uncertainty. We have worked hard to strengthen our balance sheet, reduce and refinance debt, and build cash reserves, and are in far better shape to endure these challenges, but continued action is required. While these are difficult decisions, they are necessary steps to help us overcome these challenges and secure our future. We have to remain competitive to protect everyone's long-term future; otherwise we jeopardize our employees' long-term future and retirement.

What specific route and schedule adjustments are currently planned?
We are still assessing the schedule impact of the capacity reduction at both American and American Eagle. We will share more information as we make these decisions.

What about international capacity adjustments?
We still expect our international capacity to grow slightly compared to 2007, although not as much we had planned. In light of record fuel prices, we need to reduce costs and eliminate unprofitable flying, but we still see a reason to grow overall international capacity. Specific schedule adjustments are being evaluated and we will communicate this information as it becomes available.

Are we also retiring aircraft?
Yes. Based on the reduced schedule, American expects to retire at least 40-45 mainline aircraft, primarily MD-80s and a limited number of A-300s, and 35-40 regional jets, along with some number of turbo-prop aircraft.

Are lay-offs planned based on these changes? If so, how many employees will be affected?
Unfortunately these changes are expected to result in employee reductions companywide at both American and American Eagle, and could result in facility closures and/or consolidations. It will take about 4 to 6 weeks to determine the specific schedule adjustments and the resulting effect on employees. We are committed to updating you as information becomes available.

Why cut frontline employees, who are responsible for interacting with the customers? Can't you just cut more AA management employees?
Unfortunately it will be necessary to reduce employees in all workgroups across the company. It's important to note that management has taken aggressive measures during the past several years to reduce its own ranks by nearly a third since 2001. For example, today American represents the best-in-class performance, as measured by our ranking in ratio of officers and director level employees to employees, tied with Delta Air Lines overall.

Best-in-class: American and Delta lead the industry with one officer or director for approximately every 330 employees

Worst-in-class: Northwest has one officer or director for approximately every 95 employees

Industry Average: Most of the top airlines have one officer or director for approximately every 214 employees

When will we know if lay-offs will take place in my location?
It will take approximately 4 to 6 weeks for the company to determine the specific schedule adjustments and the resulting effect on individuals. Additional information will be shared with employees as it becomes available.

Will I be able to take a stand-in-stead or other voluntary program?
Historically, AA has been able to offer many of our employee groups voluntary options to reduce the impact of any involuntary reductions and we are evaluating all of these options. Additional information about any necessary reductions will be shared with employees as it becomes available. In the meantime, employees may visit the People Reduction Information section available on Jetnet to learn more about American's policies regarding employees affected by a voluntary or involuntary reduction. Pilots may visit https://www.aapilots.com/private/furlough/f...information.asp for more information on stand-in-stead. Flight attendants may refer to the AA/APFA Collective Bargaining Agreement (CBA) area of the Flight Service Web site or refer to the AA/APFA Contract, Article 16.

Can I retire early?
Jetnet offers AA employees many retirement planning resources. If you're considering retirement visit the Retirement Planning page to learn more about eligibility, watch retirement videos and find out when AA Retirement Counselors may be in your station.

Are more capacity adjustments expected?
We hope not, but it's difficult to predict in the today's environment. American has been conservative in managing its capacity for the past several years, and AA's growth has been very disciplined relative to some in the industry. We have done a number of things in recent years to be more efficient and to stay focused on efforts to move the business forward and as a result we are in far better shape to endure these challenges.

Is American in trouble financially?
Obviously, this is a difficult time in the airline industry, which lost nearly $2 billion in the first quarter. Eight U.S. airlines that have filed for bankruptcy protection this year, including five that have ceased service. Since announcing our first quarter loss of $328 million, the price of oil has continued to rise. Every $1 increase translates to $80 million per year. The bottom line is that fuel prices are likely to present a significant challenge for us for the foreseeable future.

Fortunately we have done a number of things in recent years to be more efficient and to stay focused on efforts to move the business forward. We have worked hard to strengthen our balance sheet, reduce and refinance debt, and build cash reserves. We have made a lot of progress and are better prepared to manage through the current uncertainty.

Aren't there other things we can do besides cutting routes and services?
Beyond our ongoing cost-containment measures and in an effort to help revenues keep pace with increasing costs, we have consistently sought to improve revenue through fare increases and other initiatives. In addition to participating in 14 at least partially successful fare increases since mid-April, we are adding and increasing fees for several services, expected to produce several million dollars in additional annual revenue.

What fees have we implemented? How much money will they produce?
The new and increased fees announced this month are expected to generate several hundred million in additional revenue each year.

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; those with international itineraries (except to and from Canada and U.S. territories, such as Puerto Rico and the U.S. Virgin Islands), and non-revenue travelers.

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.

Fees Effective May 21
From
To

Change Fees

Domestic
$100
$150

International
$100-200
$150-300

AAdvantage Award (Domestic & International) Itinerary Changes
$100
$150

Ticketing Fees

Res Ticketing & AAdvantage Fee
$15
$20

External Res Handling Fee
$15
$20

Airport Service Fee
$20
$30

Pet Fees

Cabin ( Domestic, Mexico, Canada, Caribbean)
$80
$100

Checked ( Domestic, Mexico, Canada, Caribbean, Central/South America)
$100
$150


Won't customers be frustrated with all these fees and charges?
While we understand that these fees affect customers, we also believe that our pricing remains extremely competitive in the industry and offers our customers plenty of choice to pay for the services that they value. Our revenues, which include ticket sales and fees, must keep pace with our increasing costs. All of today's announcements are necessary steps to help us overcome these challenges and secure our future. We have to remain competitive to protect everyone's long-term future.

Does this change AA's fleet renewal plans?
It doesn't change previously announced fleet renewal plans. We intend to take delivery of 34 737-800s in 2009 and 36 737s in 2010 as part of our MD-80 fleet replacement plans.

How does this affect contract negotiations with the APA, TWU and APFA?
These changes are independent of our contract negotiations with our unions. These moves underscore the difficult environment in which we're operating and further demonstrate the financial constraints that make it impossible for us to meet many of the unions' more aggressive demands.

If saving money is so important, why don't we pay our executives less?
There has been a lot of rhetoric framing this issue at our company in recent years, but our executives' contributions to the company's recovery and current viability are undeniable. Because of steps taken by this management team, we are in far better shape to endure a slowing economy, coupled with record fuel prices, than we would have been a few years ago and that serves the best interests of our employees, customers, and shareholders.

The current compensation program - while conservative when compared with the industry - is designed to retain this management team. Now more than ever we benefit from having a skilled, experienced leadership team. Avoiding bankruptcy has allowed us to continue to provide good, well-paying jobs and long careers to tens of thousands of employees around the world Today's announcements are further evidence that our management team continues to take decisive action to survive our near-term challenges and secure our company's long-term future.

 

[RowUnderDCA]

The legacy airlines might, but there will always be a low cost carrier to backfill the capacity removed from markets..

Will there always.

Maybe WN,

but what about,

F9, NK, B6, FL?

 

[eolesen]

F9 is bankrupt, B6 is selling aircraft, and the jury is still out on FL and NK.

The LCC's won't be rushing to backfill right now....

 

[RowUnderDCA]

Yes, I was just observing that..... I'm way too subtle on the internet.

 

[Flyboy4u]

Is it just me, or did this reduction announcement happen to fall on the same day unions are picketing on HDQTRS? Hmmmm

 

[WingNaPrayer]

The unions are picketing the Annual Stockholder's Meeting

 

[WingNaPrayer]

From AMR's 8K filing with the S.E.C.


SEC FILING