American Airlines announces fare cuts at shareholders meeting

Thursday, May 22nd 2003, 12:00 am
By: News On 6

FORT WORTH, Texas (AP) -- American Airlines, fighting back from the brink of bankruptcy, announced a turnaround plan that includes adding more seats to many planes and limiting fares on a few routes.

New chief executive Gerard Arpey said the moves would help return American to profitability, although he declined to say when. American lost $1 billion in the first quarter.

Arpey, who took the controls of the world's largest carrier last month, announced the turnaround campaign at the company's annual shareholders meeting Wednesday.

Investors and employees gave Arpey a cordial reception, but some said American needs bigger changes to reverse more than $6.2 billion in losses since the beginning of 2001.

Wednesday's announcement on adding seats to many planes marked a retreat from a major initiative of former CEO Donald J. Carty. American launched the "More Legroom in Coach" promotion in 2000 to lure high-paying business travelers by removing seats from all planes.

American will add back 12 coach seats to all 140 of its Boeing 757s and 16 seats to its fleet of 34 Airbus A300s, which mostly operate in the Caribbean, a market dominated by leisure travelers.

"Customers have made it clear in some markets that price is more important than leg room," Arpey said.

The changes will cost $10 million and cover 23 percent of the fleet by next February, he said. Analysts expect American to reconfigure many more planes.

The fare limits -- $299 each way in coach and $599 in first class -- apply only to a few nonstop, cross-country routes including between New York's JFK airport and San Jose, Long Beach and Orange County, Calif.

Those are routes where American faces tough competition from JetBlue Airways, a low-fare carrier. Arpey said customers on those routes considered American overpriced, and said recent cost reductions will help it offer lower fares.

American is still in danger of filing for bankruptcy, officials have told regulators, but Arpey said the company's finances were boosted this month by $360 million in federal aid to airlines. Arpey also was encouraged by an uptick in June bookings, which he said were stronger than last year.

Ray Neidl, an analyst with Blaylock & Partners, praised Arpey's moves and said more changes, including tinkering with fares, would be coming.

Fort Worth-based American has nearly achieved its goal of cutting annual costs by $4 billion, nearly half from layoffs and reduced pay and benefits.

Some of the workers affected by those moves spoke up during Wednesday's meeting, accusing the company of lacking imagination to fix its business. Employees also called for more disclosure and shareholder approval of compensation and severance packages for top executives.