American Airlines to Deepen Seat Cuts on Economy, Pilots

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American Airlines joined its bigger U.S. peers with deeper seating cuts and said it would ground 11 jets in 2012 as it faces a weak economy, more pilot retirements and higher fuel costs.

The fourth-quarter capacity reduction of 3 percent means that 2011 costs for flying each seat a mile will increase “modestly” beyond the forecast of as much as 10.1 percent provided on Sept. 21, Fort Worth, Texas-based American said yesterday in a statement, without elaborating.

United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL), the world’s biggest carriers, moved earlier to shrink available seating through this year and next on concerns the economy will sap travel demand. American, the third-largest U.S. carrier, also is grappling with pilot retirements that have been running at least 10 times the normal rate in the past two months.

“The adverse effect on previous unit-cost guidance will be significant,” Robert W. Mann, president of consultant R.W. Mann & Co., said in an e-mail. The effect on revenue can’t be estimated without details of the planned scheduled changes, he said.

American’s reductions, coming amid reports of strong business travel and unit revenue, represent “sizable capacity cuts to AMR’s fall and winter schedules” and suggest that a shortage of pilots is a primary driver, said Mann, of Port Washington, New York.
Trimming Capacity

American said less than a month ago that it would trim fourth-quarter capacity by 0.5 percent as it continued to review plans for 2012. Those cuts reduced flying by varying amounts on lower-demand travel days and included a 13 percent drop in Saturday seating, American Airlines Treasurer Beverly Goulet said on Sept. 13.

The airline had 111 pilot retirements in September and 129 this month as workers sought to protect the value of their pension plans, a portion of which is linked to stock market movement.

American “doesn’t anticipate” leaving any markets as a result of the reductions, said Sean Collins, a spokesman. It will rely primarily on cutting flights based on days of the week, trimming frequencies or moving to smaller planes, he said.

“We are taking these additional steps in light of the uncertain economic environment, ongoing high fuel costs and to ensure we run a reliable schedule for our customers given additional pilot retirements we anticipate throughout the fourth quarter,” Chief Commercial Officer Virasb Vahidi said in the statement. He said advance bookings are “generally in line” with 2010.
Third-Quarter Charge

American also said it will take a $29 million noncash charge in the third quarter for contracts linked to fuel purchases and $22 million related to foreign exchange.

The airline will retire 11 of its 124 Boeing Co. 757s. The twin-engine, single-aisle planes are often flown on transcontinental routes and to non-U.S. destinations such as Mexico. Boeing built the last 757 in 2004.

With the new seating cuts, full-year seating on American’s mainline jets still will rise 0.4 percent. That’s less than the original 3.5 percent growth set for 2011, according to the company. When regional carrier American Eagle is included, full- year capacity will be up 1.2 percent, lower than the initial plan of more than 4 percent.
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