Thursday, May 22, 2008

FORT WORTH, Texas (AP) — American Airlines will start charging $15 for the first checked bag, cut domestic flights and lay off possibly thousands of workers as it grapples with record-high fuel prices.

American plans to cut domestic flight capacity by 11 percent to 12 percent in the fourth quarter, after the peak summer season is over. That’s more than double American’s previous plans to cut flights by 4.6 percent n late this year.

In a further sign of the problems facing the industry, Southwest Airlines Co., the most consistently profitable U.S. carrier, won’t earn as much in the remainder of this year as it did in the same period of 2007, Chief Executive Officer Gary Kelly said.

American, the nation’s largest carrier, said yesterday the fee for the first checked bag starts June 15 and that it will raise other fees for services ranging from reservation help to oversized bags. The other fees will mostly range from $5 to $50 per service, the airline said.

Last month, American announced it would join other carriers in charging $25 for second bags checked for some passengers, but it wasn’t immediately clear how yesterday’s announcement would affect that fee.

Its proposed fee for a first checked bag would exempt people who belong to elite levels of its frequent flyer programs, those who bought full-fare tickets and those traveling overseas.

Delta Air Lines Inc. spokeswoman Betsy Talton said the Atlanta airline has no plans to match American’s fee for the first checked bag, but is considering all options with oil at $130 per barrel.

American Chairman and Chief Executive Officer Gerard J. Arpey said he expects the new or increased fees will raise several hundred million dollars for the airline, but that was the best estimate he would give.

The changes were being made to adapt to “the current reality of slow economic growth and high oil prices,” Mr. Arpey said. The fees are an effort to get customers to pay for services they want.

Mr. Arpey didn’t put a figure on the layoffs, but when asked whether he expected the figure to be in the thousands, he said yes.

American Airlines expects to retire 45 to 50 planes, most of them fuel-guzzling MD-80 aircraft. Those were the planes grounded for faulty wiring last month. AMR regional airline American Eagle also plans to retire planes.

American said rising oil prices have increased its expected annual fuel costs by nearly $3 billion since the start of the year.

AMR shares tumbled $1.98, or 24 percent, to close at $6.22 after sinking to a 52-week low of $6 earlier in the session yesterday. The announcement came as AMR shareholders gathered for their annual meeting.

Southwest shareholders also met in co-founder Herb D. Kelleher’s last meeting as chairman.

Mr. Kelly, who added the title of chairman yesterday, said he expects Southwest to remain profitable, as it has in every quarter since early 1991.

“I would love for Southwest to grow modestly next year and in 2010, but at this point we’re not making any announcements,” he said.

Southwest shares fell 57 cents, or 4.4 percent, to close at $12.43 on the New York Stock Exchange yesterday.

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