American Airlines to cut US capacity 9 percent

DALLAS – American Airlines plans to cut U.S. flying by 9 percent this year and trim international capacity 2.5 percent as it battles falling travel demand in a recession.

DALLAS – American Airlines plans to cut U.S. flying by 9 percent this year and trim international capacity 2.5 percent as it battles falling travel demand in a recession.

“If we need to take out more capacity, we’ll do it and we can do it,” said Thomas W. Horton, chief financial officer for American parent AMR Corp.

Horton said Tuesday that bookings over the next four months are running about 2.5 percentage points behind the pace of the same period in 2008, with international bookings running 4.5 points behind โ€” signs that weak February traffic trends could continue through spring and into early summer.

American’s February traffic tumbled 13.5 percent from a year earlier, and all the other major U.S. carriers also reported declines.

While traffic is falling, AMR, which also operates the American Eagle commuter airline, expects to catch a break from falling oil prices. It plans to spend $3.5 billion less on fuel this year than a year ago.

Yet, in the past two weeks analysts for JPMorgan and UBS have switched from forecasting profit to predicting a loss for AMR and United Airlines parent UAL Corp. in 2009 because of weak revenue.

AMR shares jumped 41 cents, or 15 percent, to $3.15 in afternoon trading, lifted by a rally in the broader stock market. It was a rare bit of good news for shareholders.

Fear of plummeting travel demand has pushed airline stocks into a nosedive since early January. AMR’s shares plunged 74 percent for the year through Monday โ€” to less than $3 โ€” dropping the market cap of Fort Worth-based AMR under $800 million.

At an investor conference in New York, JPMorgan analyst Jamie Baker asked Horton if the company saw any advantages to filing for bankruptcy protection.

“That’s not our intent … it’s just not something we think about,” Horton answered, noting that the company staved off bankruptcy in 2003 after unions agreed to wage cuts.

Horton said the company has $3.5 billion in cash and could raise another $3.5 billion by selling or mortgaging assets โ€” it did some of that and issued new stock last year, raising nearly $2 billion. But to do that this year, AMR needs capital markets to be open, he said.

Earlier this decade, several U.S. airlines used bankruptcy to lower their labor costs by walking away from union contracts. American says its labor costs are the highest in the industry, and it is negotiating new contracts with its three unions, who are trying to recover their losses from the 2003 concessions.

“The tougher the situation gets in the industry, the more untenable” the unions’ demands become, Horton said.

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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