BIG Layoffs, Capacity Cuts On The Horizon

ANN REALTIME REPORTING 05.21.08 1345 EDT: Things appear to be dire at American Airlines. The Fort Worth-based carrier announced Wednesday plans to slash its flight schedule and workforce, as the airline struggles to cope with high fuel prices.

Passengers will also feel the pain, reports The Associated Press... as the airline will start charging for ALL checked luggage as of June 15. The first bag will cost $15; additional luggage will be hit with the $25 per-bag fee American announced last month.

Elite-level members of American's frequent flier programs will be exempt from at least part of the new luggage fees, as well overseas passengers and full-fare ticketholders. The airline is the first legacy carrier to charge for all checked luggage; it's unclear whether it will be the last, but we wouldn't bet against it.

American also plans to raise other fees by up to $50 per service.

The carrier -- which managed to avoid following its rivals into bankruptcy several years ago -- also plans to cut domestic capacity by as much as 12 percent in the fourth quarter of 2008, mostly through the retirement of its oldest MD-82 and MD-83 jets. American had previously forecast a 4.6 drop in Q4 capacity.

Gerard Arpey, chairman and CEO of American parent company AMR, said the changes (and charges) were being made to adapt to "the current reality of slow economic growth and high oil prices."

As for layoffs at the world's largest carrier, Arpey did not cite an exact number... but when he was asked whether he expects the figure to be in the thousands, Arpey answered in the affirmative.

Not surprisingly, shares in AMR fell over 24 percent following Wednesday's announcement, which came during American's annual shareholders meeting.

FMI: www.aa.com