American Airlines will cut capacity by 11%-12% on domestic routes this winter ” more than double what it previously planned - retire ”at least” 75 aircraft, introduce a $15 fee for checking in a first bag on domestic flights and cut jobs, all to fight rising fuel prices.
Not only did the price of crude oil hit an astonishing $135 a barrel today (22 May), but because of a lack of refining capacity the cost differential between crude and processed jet fuel ” which airlines buy ” has more than quadrupled. Yesterday the difference was $135 and $156 respectively, where the gap used to be around $5. For American, fuel now accounts for nearer half of the company”s costs rather than the 10% it used to, and it is losing $3m every day.
”The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak US economy,” said AMR Corporation [American”s parent company] chairman and CEO Gerard Arpey.
”Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve. We must work to overcome our near-term challenges and to secure our company”s long-term future for the benefit of our shareholders, customers and employees. We must find ways to cover the cost of providing our services so that we can remain viable.”
American only recently started charging customers $25 to check in a second bag ” after 14 June, all except premium passengers (First, Business of full-fare economy) and elite frequent flier members will pay for any luggage in the hold on flights within the US and Canada.
Various other charges are being hiked too, including reservation service and oversized bag fees, with increases ranging from $5 to $50. The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.
”While we understand that these fees affect customers, we also believe that our pricing for the services we provide remains extremely competitive in the industry and continues to offer our customers ample choice and value,” Arpey said.
The carrier could ground as many as 85 jets ” up to 45 mainline aircraft including some Airbus A300s ” and 40 regional jets, which will result in an unknown number of job losses.
As evidence of the crisis caused by soaring fuel prices, Arpey cited the US airline industry”s first quarter 2008 pre-tax loss of nearly $2bn, with eight American airlines filing for bankruptcy protection.
Carriers around the world are openly suffering ” Qantas today announced a 4% increase on international fares and 3% on domestic flights. Japan Airlines yesterday raised international surcharges, and Air France said on the basis of an oil price at $120 its 2008/09 fuel bill ”will rise in the region of ”1bn” and it will therefore ”continue the proactive management of its fuel surcharges.”
Virgin Atlantic and British Airways (BA) both raised surcharges this month ” and BA said last week it is considering grounding some aircraft in October.
BA CEO Willie Walsh said: ”There is no question we will see airlines fail ” if you look at the US market, the airlines there are in a bad state.”