Some of you may have noticed that airfares have been really low the past few months on a lot of routes. We have done a lot more flying on family trips to take advantage of this. With US Airways in bankruptcy, United Airlines a likely candidate to follow US Airways into Chapter 11-land, and American Airlines' announcement today that it is cutting back on its schedule, retiring aircraft, and laying off 7,000 employees (see article below), I think there are a couple of ramifications of this trend:
1. As investors, we probably should not touch airlines with any hint of possible insolvency. LUV is probably still a good LT investment, Delta and American will probably be ok once the TA charts show they have bottomed out, but everybody else should be avoided IMO.
2. As consumers, we should not expect the gravy train of low leisure fares to continue. I have grown accustomed this year to paying as little as ten cents per mile for West Coast flights from Chicago and 20-25 cents per mile for other flights. At those levels, flying is cheaper than the IRS reimbursement level for driving, even though the actual costs of operating airplanes are far higher. We should not expect this to continue indefinitely, and if you are thinking about taking a trip by air, the rest of this year might be a good time to do it. I expect most airlines (except Southwest) to cut capacity before year's end rather than continue giving seats away at below cost.
Here's the article:
story.news.yahoo.com
American Air to Cut Jobs, Shrink Airline
Tue Aug 13,11:26 AM ET
By Kathy Fieweger
CHICAGO (Reuters) - American Airlines, the world's largest air carrier, unveiled plans on Tuesday to cut another 7,000 jobs, retire aircraft, and cut back on more flights in a major effort to restore profits in the wake of the post-Sept. 11 industry downturn.
American, a unit of Dallas/Fort Worth-based AMR Corp., will retire 74 costly Fokker 100 aircraft and defer 35 aircraft deliveries in 2002. The airline will also "seek every opportunity" to defer or cancel new deliveries going forward.
AMR will take a charge against earnings, but the amount is not yet known, said spokesman Tim Doke.
The job cuts will be made by March 2003 and will be widespread across the system, he said, with about 40 percent coming from the ranks of pilots and flight attendants.
No cuts are expected in the maintenance and engineering side, Doke said.
As of March, American had 101,706 employees.
Jarring news in the airline industry has yet to abate. Demand for air travel is still off since the Sept. 11 attacks, particularly from lucrative business flyers that big, full-service carriers like American rely on to generate profits.
NO STONE UNTURNED
AMR Chief Executive Don Carty warned at the airline's annual meeting in May that he would leave no stone unturned in his quest to restore profitability.
"They're doing the kinds of things that I thought some months ago would need to be done," said Robert Crandall, former CEO of AMR, in a telephone interview. "The kind of structural changes they announced this morning has to happen."
American's cutbacks come two days after the No. 6 U.S. carrier, US Airways Group Inc., filed for Chapter 11 bankruptcy protection.
That renewed fears that UAL Corp., the parent of No. 2 carrier United Airlines, might also file for bankruptcy before the end of the year as it faces huge cash outlays in the fourth quarter.
The industry has lost more than $10 billion since the attacks and the bleeding shows no signs of stopping.
Citing recent economic and consumer confidence reports, American said it aims to reduce capacity by nine percent by November, compared with levels this summer.
After the attacks on New York and Washington, which involved two American Airlines planes, AMR laid off about 20 percent of its staff and cut back capacity by 20 percent as well, moving in step with most other major U.S. airlines.
Industry capacity has recovered some ground since then. After the new round of cutbacks, American's capacity will be about 13 percent lower than it would be had the Sept. 11 attacks not happened, Doke said.
As part of the new capacity reduction, American said it will accelerate the retirement of nine Boeing 767-300 aircraft to November 2002.
SAVINGS OF $1.1 BILLION
The new moves, along with those already implemented, will save more than $1.1 billion annually, the airline said.
Merrill Lynch analyst Michael Linenberg called the announcement good news that is "well-aimed" at returning the company to profitability. He rates the stock a buy.
AMR shares rose slightly in early midday New York Stock Exchange ( news - web sites) trading, up 2.5 percent to $8.57. But on Monday they dropped to $8.15, their lowest level since the attacks.
American has "undertaken both long-term structural change and measures responsive to current industry conditions," CEO Carty said in a statement.
He said the initiatives are focused on cutting costs and improving profitability. AMR lost $1.8 billion in 2001 and another $1.1 billion in the first half of this year.
The initiatives announced on Tuesday will increase efficiencies at American's largest hub, Dallas/Fort Worth, by utilizing people, gates and aircraft more productively, simplifying its fleet, and adjusting capacity for the fall and winter, the company said.
Cutting aircraft types will reduce the fleet to seven different aircraft models from 14. The first F100 will leave the fleet in the third quarter of 2003 and the last plane will retire by the third quarter of 2005. |
