American to cut domestic capacity, retire aircraft

Beleaguered by record-high fuel prices and a down economy, American Airlines will reduce domestic mainline capacity 11% to 12% percent in the fourth quarter of 2008.

According to its April 16 guidance, American previously expected domestic mainline capacity in the fourth quarter to decline 4.6% compared with the same period in 2007.

American also plans to retire at least 75 mainline and regional aircraft and charge most coach passengers $15 for their first checked bag.

"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 American CEO Gerard Arpey. "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."

In addition to cutting mainline capacity, American will cut regional affiliate capacity (American Eagle and AmericanConnection) 10% to 11% in the fourth quarter. Previously, American expected regional affiliate capacity in the fourth quarter to increase 2% from 2007 levels.

American said it "continues to assess the impact of the capacity reductions on specific routes and markets."

As a result of reduced flying, American expects to retire 40 to 45 mainline aircraft, the majority of which will be MD-80s but will also include some Airbus A300s. The capacity reductions will also result in the retirement of 35 to 40 regional jets as well as a number of turboprop aircraft.

American said reduced capacity will result in workforce reductions at both American and American Eagle and could result in facility closures or facility consolidation.

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