American Airlines to slash jobs, charge for bags

By Kyle Peterson

FORT WORTH, Texas (Reuters) - American Airlines' shares fell 24 percent on Wednesday as it said it will cut thousands of jobs, retire old aircraft and charge passengers to check bags in a move to counter record fuel prices and a weak U.S. economy.

The world's largest airline, owned by AMR Corp, said it would reduce domestic capacity by 11 percent to 12 percent in the fourth quarter, its biggest service cutback since the attacks of September 11, 2001.

"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," AMR Chief Executive Gerard Arpey said in a statement.

"The industry will not and cannot continue in its current state," Arpey told shareholders at the company's annual meeting in Fort Worth, Texas on Wednesday.

As all the major U.S. airline stocks slumped amid a brokerage downgrade for the sector, AMR shares fell $1.98 to close at $6.22.

U.S. crude oil futures soared to a record above $133 on Wednesday, more than twice the price a year ago.

American Airlines plans to charge $15 for many passengers' first checked bag starting in mid-June, an unprecedented move by a major U.S. airline as it tries to claw back more of its extra fuel costs.

Rivals are considering following suit.

A spokeswoman for UAL Corp's United Airlines said it was "seriously studying" American's $15 charge and a spokeswoman for Delta Air Lines Inc said it was looking at every area of its business, but "at this time" has no plans to charge for a first checked bag.

RETIRING OLD PLANES

American said it would take at least 75 mainline and regional aircraft out of its aging fleet, including some of its old MD-80s, which were grounded last month because of maintenance issues.

The airline said it would cut domestic capacity, as measured by available seat miles, by 11 percent to 12 percent in the fourth quarter.

Only last month, it had projected a 4.6 percent drop in capacity from the fourth quarter of 2007.

Available seat miles is the standard way of gauging the scale of a carrier's operations, reflecting the number of seats available for sale and the length of the flights.

The capacity cut will mean work force reductions at American and its American Eagle regional unit.