This article from NYTimes.com has been sent to you by psa188@juno.com. American Airlines to Cut Jobs, Planes and Flights August 14, 2002 By EDWARD WONG Acknowledging that the economics of its business are fundamentally flawed, American Airlines, the world's biggest airline, said yesterday that it would lay off 7,000 workers, retire inefficient jets, retool its hub schedules and cut back on flights going into the fall. Coming two days after US Airways filed for bankruptcy protection in a last-ditch attempt to streamline itself, American's move is further evidence that big airlines are beginning to address the overcapacity that has left the industry with billions of dollars in losses over the last couple of years, analysts said. American said its cutbacks would save it $1.1 billion a year. The announcement bolstered investor confidence, with the stock of American's parent company, the AMR Corporation, jumping 38 cents, to $8.74. But the stock is still down 61 percent since Jan. 1. Shares of other carriers were mixed yesterday. Most of the steps planned by American emulate efficiencies that other carriers - from full-service rivals to no-frills airlines - have undertaken. But many analysts said that American, bloated by a merger with Trans World Airlines last year that added planes, routes and workers just as travel dropped precipitously, needed to act if it hoped to move toward profitability. "We grasped the need for fundamental change in the airline industry some time ago, and have undertaken both long-term structural change and measures responsive to current industry conditions," Donald J. Carty, the chief executive of American, said yesterday in a written statement. Several newspapers reported American's plans yesterday. For passengers, the retooling is part of a larger overhaul at American that will generally make travel less comfortable, with longer waits between connecting flights and permanent cutbacks on amenities like hot food. American is betting that customers will not mind the more spartan conditions and that its full-service rivals will follow in its footsteps. But some industry experts say American could end up alienating business passengers accustomed to being pampered. American's competitors said yesterday that they were watching the carrier's moves, but did not regard them as particularly trailblazing. For example, American's plan to reduce capacity in its November schedule by 9 percent from its July schedule mirrors similar strategies at United Airlines and Northwest Airlines, which expect to cut capacity by 9 percent and 13 percent, respectively, for the winter season. Both of those airlines also said they had no plans to follow American's potentially innovative change in hub scheduling, which will spread flights throughout the day to improve productivity. That could give competitors an advantage in attracting customers because American would have slower connection times. Rival companies also said American's layoffs, which will cut 7 percent of the work force by March 2003, were a move to shed workers that it acquired during the T.W.A. merger or rehired too quickly after it eliminated 20,000 jobs following the Sept. 11 attacks. Nevertheless, American needs to stanch its bleeding however it can, analysts said. AMR lost $495 million last quarter and $1.76 billion last year and is expected to lose close to that amount this year. The stock has been hovering at its lowest point in years. "I view today's moves as very positive moves in the right direction," said Jim Corridore, an analyst at Standard & Poor's. "There is too much supply out there right now. It's reflected in the average pricing and in the profit-loss statement of these airlines." American's unions were less sanguine about the changes. The pilots will lose 550 jobs, all of them from the St. Louis operations acquired from T.W.A., said Gregg Overman, a spokesman for the Allied Pilots Association. After Sept. 11, AMR put on furlough 800 pilots from American Airlines and several hundred from T.W.A. and later recalled 200 to the American operation. The company expects to cut 2,500 flight attendants, said George Price, a spokesman for the Association of Professional Flight Attendants. It had put nearly 2,000 on furlough after Sept. 11 and recalled a fifth of them. "It's a very dark day in aviation for us," Mr. Price said. "It's left a lot of employees pretty shell shocked." American also said it would retire its entire fleet of 74 Fokker-100 jets between 2003 and 2005. The jets do not generate a lot of revenue because they have fewer than 90 seats, and they are costly to operate. Regional jets are more efficient for the same purposes. The company is reconfiguring or redeploying several of its Boeing jet types to streamline operations. For example, it has two configurations on its 777's, one for trans-Atlantic flights and one for trans-Pacific routes. By next year, it will use only one type of 777. Nine Boeing 767-300's acquired from T.W.A. will be retired by November. Models of that plane flying to Hawaii, Latin America and some European cities will be trimmed from three classes of seating to two, with first class being eliminated. That change follows reconfigurations that Continental Airlines and Delta Air Lines have already done to their planes. In fact, the whole idea of streamlining fleets and plane types is one that other airlines have already used to their advantage. Gordon M. Bethune, the chief executive of Continental, turned his carrier around partly by cutting the types of planes in that fleet down to five. No-frills airlines like Southwest Airlines and JetBlue maximize efficiency by flying only one type of jet. Southwest also perfected another strategy now being adopted by American at two of its hubs: turning planes around quickly. At Dallas-Fort Worth International Airport, American's use of that technique will end up distributing flights more evenly throughout the day, instead of having up to 50 or 60 planes arriving within 20-minute periods. That allowed passengers to make connections quickly, but it also created a lot of schedule lulls that decreased productivity, said Jeff Campbell, the chief financial officer at American. The drawback is that some passengers will have to wait 15 to 20 minutes longer for their connections. Since April, American has been trying this experiment in Chicago, and it said the trial had not cost the airline market share, but had allowed it to save on the use of five planes and the equivalent of three gates. Mr. Campbell said this "rolling hub" system would eventually be used in St. Louis. The danger is that if travelers are bothered by the longer connection times, they could switch to another carrier running the same route. "With our hub system, we have high-frequency flights into the hubs and high utilization of the gates, and we think it benefits the consumer because there are shorter connecting times to get the flights," said Joe Hopkins, a spokesman for United Airlines. Michael Boyd, an airline consultant in Evergreen, Colo., said he did not think passengers would be too troubled by American's longer travel times, but said that the company's overall cost-cutting efforts amounted to "nickel-and-diming" the customer. For example, he said, passengers might be turned off by having to pick up brown-bag lunches at the gate rather than having hot meals served to them. "I think they're going in the right direction, but they're working on the wrong side of the equation," he said. "What have you done to get your passengers to want to get on your airline more?" Still, many analysts said American's efforts were a positive step forward. And it is ahead of its biggest rival, United, in addressing issues of high cost. Yesterday, shares of UAL, the parent company of United, plunged $1.06, or 28 percent, to $2.74, amid further fears that the airline might have to seek bankruptcy protection. Sam Buttrick, an analyst at UBS Warburg, downgraded the stock from a buy to a sell rating, writing in a note to investors that the risks of bankruptcy are "now too high for us given the company's reliance on government funding." United is struggling to persuade the federal government to give it a $1.8 billion loan guarantee. Jack Creighton, the chief executive, said in a phone message to employees this week that the government wanted to see more participation from stakeholders in cost-cutting efforts. "We believe at this point that we have some work to do to make our application a success," he said. http://www.nytimes.com/2002/08/14/business/14AIR.html?ex=1030330249&ei=1&en=d3bfba2338919c0f HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company