Airline Says Capacity Cuts May Spur Layoffs

American Airlines has announced that it will cut its capacity three percent more than it forecast in January this year, retiring 11 of its Boeing 757s, but not just because of falling demand or fuel efficiency concerns. The airline says its pilots are choosing to retire in numbers way beyond expectations.

In what the French news service AFP calls a "hemorrhage," the airline lost 200 pilots in August and September, eight times the expected number. The attrition rate was so conspicuous that on October 3, the Allied Pilots Association felt the need to issue a news release making clear that the pilots did not have any insider information about an impending bankruptcy, but were likely reacting to the general decline in the stock market.

Citing the FAA's relaxation of the mandatory pilot retirement age from 60 to 65, and the resulting delay in some retirements, APA noted, "As many of these pilots now approach age 65, they are making individual judgments about the right time to retire. Stock market volatility—along with concerns about the global economy and, by extension, prospects for the industry and our airline—has likely prompted a number of them to decide that now is a good time to conclude their careers.

“By way of explanation, a pension provision enables pilots to protect part of their pension benefit from recent market fluctuations. When pilots age 60 and older retire, a portion of their pension is based in part on a 60-day ‘look back.’ As an example, pilots who retired on Sept. 30 secured the pension unit value that was in effect on July 31 before the bulk of the stock market’s decline.

"APA’s rank-and-file members are not privy to inside financial information. Our advisers have in fact indicated that the airline does not face any immediate liquidity crisis and possesses respectable cash reserves."

The stampede to the exits by pilots, and the company's strategy to respond, may unfortunately have impacts on cabin crews and other employees. Airline spokesman Sean Collins tells The Dallas Morning News, "These capacity adjustments could have a significant impact on operations and, unfortunately, could result in employee reductions company-wide. However, we are still working on the specific schedule adjustments and will know more in coming days."

Bloomberg reports the cuts will come in routes with lower-than-average load factors, but quotes the airline as stating its costs per seat-mile will actually rise modestly.

Regarding the impact of the airline's financial struggles on its announced plan to buy 460 newer, fuel-efficient planes from Boeing and Airbus, American Airlines notes on its own website that it has financing in place to move forward. "In July, American announced the largest aircraft order in history...backed by $13 billion in manufacturer-committed financing...The upcoming new deliveries are expected to pave the way for American to have the youngest and most fuel-efficient fleet among its US airline peers within approximately five years."

FMI: www.aa.com