Say So Long To Free Checked Baggage

By: CBS
By: CBS

(CBS/AP) American Airlines will start charging $15 for the first checked bag, cut domestic flights and lay off possibly thousands of workers as it grapples with record-high fuel prices.

American plans to cut domestic flight capacity by 11 percent to 12 percent in the fourth quarter, after the peak summer season is over. That's more than double American's previous plans to cut flying by 4.6 percent in late 2008.

In a further sign of the problems facing the industry, Southwest Airlines Co., the most consistently profitable U.S. carrier, won't earn as much the rest of this year as it did in the same period of 2007, Chief Executive Gary Kelly said.

American, the nation's largest carrier, said Wednesday the fee for the first checked bag starts June 15 and that it would raise other fees for services ranging from reservation help to oversized bags. The other fees will mostly range from $5 to $50 per service, the airline said.

Last month American announced it would join other carriers in charging $25 for second bags checked for some passengers, but it wasn't immediately clear how Wednesday's announcement would affect that.

Its proposed fee for a first checked bag would exempt people who belong to elite levels of its frequent flyer programs, those who bought full-fare tickets and those traveling overseas.

Delta Air Lines Inc. spokeswoman Betsy Talton said the Atlanta-based airline has no current plans to match American's fee for the first checked bag, but is considering all options with oil at $130 per barrel.

Chairman and Chief Executive Gerard J. Arpey said he expects the new or raised fees will raise several hundred million dollars for American, but that was the best estimate he would give.

Amy Ziff, editor-at-large with Travelocity.com, tells CBS Radio News the baggage fee comes at a bad time for the airline industry.

The changes were being made to adapt to "the current reality of slow economic growth and high oil prices," Arpey said. He said the fees are an effort to get customers to pay for services they want.

Arpey didn't put a figure on the layoffs, but when asked whether he expected the figure to be in the thousands, he said yes.

Arpey said he wants to cut overhead and costs about 7 to 8 percent but declined to say whether layoffs would equal a similar percentage of parent AMR Corp.'s work force of about 90,000.

American Airlines expects to retire 45 to 50 planes, most of them gas-guzzling MD-80 aircraft. Those were the plane grounded for faulty wiring last month. AMR regional airline American Eagle also plans to retire planes.

American said rising oil prices have increased its expected annual fuel costs by nearly $3 billion since the start of the year.

AMR shares tumbled $2.01, or 24.5 percent, to $6.19 in midafternoon trading after sinking to a 52-week low of $6 earlier in the session. The announcement which came as AMR shareholders gathered for their annual meeting.

Southwest shareholders also met in co-founder Herb Kelleher's last meeting as chairman.

Kelly, who added the title of chairman on Wednesday, said he expects Southwest to remain profitable, as it has in every quarter since early 1991, but not as profitable as in the second, third and fourth quarters of last year.

"I would love for Southwest to grow modestly next year and in 2010, but at this point we're not making any announcements," he added.

Southwest shares fell 53 cents, or 4.1 percent, to $12.47 in afternoon trading.

© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.


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