Significant Capacity Reductions, Aircraft Retirements and Workforce Reductions at American Airlines

American Airlines, is to significantly reduce its 2008 domestic flight schedule, including a fourth quarter mainline domestic capacity reduction of 11% to 12% from the previous year. The airline also plans to retire at least 75 mainline and regional aircraft as the company responds to ever-increasing record fuel prices and growing concerns about the economy.

“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 U.S. economy,” said AMR Corporation (the parent company of American Airlines) 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 and have the resources to reinvest in our company for the future. Those goals are central to the actions we are outlining today.”

AMR will reduce American Airlines domestic capacity - or available seat miles flown - in the fourth quarter of 2008 by 11% to 12%, compared to the fourth quarter of 2007. According to its April 16 guidance, AMR previously expected domestic mainline capacity in the fourth quarter to decline by 4.6% compared to the same period in 2007.

In addition, AMR regional affiliate capacity is expected to decline by 10% to 11% in the fourth quarter compared to fourth quarter 2007 levels. Previously, regional affiliate capacity in the fourth quarter was expected to increase by 2% from 2007 levels.

As a result of significantly reduced flying, AMR expects to retire 40 to 45 mainline aircraft from American's fleet, the majority of which will consist of MD-80s but will also include some Airbus A300 aircraft. The capacity reductions will also result in the retirement of 35 to 40 regional jets, as well as a number of turbo-prop aircraft from AMR's regional affiliate fleet.

The capacity changes will result in workforce reductions at both American Airlines and American Eagle Airlines and could result in facility closures or facility consolidation. AMR is assessing the scope and location-specific impact of any workforce reductions resulting from the capacity reductions. In addition, AMR is assessing the impact of these capacity reductions on its overall cost outlook.

Beyond the company's ongoing cost-containment efforts, AMR has sought revenue improvements through fare increases and fuel surcharges. Since AMR released its first quarter 2008 financial results on April 16, American has participated in or led 15 fare increases, 14 of which were at least partially successful.

American has also just introduced a $15 fee for the first checked bag. This fee, which is effective for tickets purchased on or after June 15, does not apply to: American's AAdvantage program members who have achieved AAdvantage Gold, AAdvantage Platinum and AAdvantage Executive Platinum level; those who have purchased full-fare tickets in the Economy, Business and First Class cabins; and those with international itineraries (except to and from Canada and U.S. territories, such as Puerto Rico and the U.S. Virgin Islands).

American has also increased its fees for certain other services, ranging from reservation service fees to pet and oversized bag fees. The increases mostly range from $5 to $50 per service.

“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 bottom line is that our revenues, which include ticket sales and fees, must keep pace with our increasing costs.”

“Clearly, we have a lot of hard work ahead of us given the economic realities we face,” Arpey added. “But we have battled through many challenges throughout our long history, and, with the continued dedication of our leadership team and our people, I believe we have the fortitude to continue to do so.”

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