American Airlines Slashes Capacity, Thousands of Jobs

By Staff Report

May. 21, 2008

American Airlines announced Wednesday, May 21, that it is cutting domestic capacity by up to 12 percent and will lay off thousands by the fourth quarter.

American Airlines executives say it’s too soon to tell how many employees will be laid off and where, and declined to reveal where flight capacity would be cut the most, saying only that unprofitable routes will be the first to go.

The sputtering U.S. economy and surging oil prices suggest the industry is once again headed for a rough ride, after enjoying the two best years of the decade in 2006 and 2007.

The capacity cuts did not surprise airline analysts.

“The industry has been chipping away at its schedule,” said Joe Schweiterman, a transportation expert and professor at DePaul University in Chicago. “There’s been a massive downward shift in supply. The airlines’ business model of operating a massive hub-and-spoke system is threatened by these kinds of spectacular oil prices.”

Oil prices topped $130 a barrel for the first time Wednesday and kept heading upward.

In a sign that nickel-and-diming in the industry just went from bad to worse, the carrier also announced a $15 charge for the first checked bag, starting with flights purchased June 15. It’s the first airline to charge such a fee—so far, most have been levying fees only on the second bag and beyond.

During the past two years, most U.S. airlines have cut capacity on less profitable domestic routes while introducing charges for checking bags to try to offset rising fuel costs and deal with intense competition.

In April, Delta Air Lines, the No. 3 U.S. carrier, and Northwest, the fifth largest, finally hammered out a merger agreement last week that would create the world’s largest airline. The other major airlines—American, United, Continental and USAir—are also likely looking for merger partners.

Delta Air Lines said in March that it will eliminate 2,000 jobs while reducing domestic capacity by 5 percent, in addition to a 5 percent cut that was already planned.

Filed by Hilary Potewitz of Crain’s New York Business, Lorene Yue of Crain’s Chicago Business and Andrew Osterland of Financial Week, sister publications of Workforce Management. To comment, e-mail

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