American Airlines Cuts Fourth-Quarter Capacity by 3 Percent

American Airlines announced that it is cutting its late fall and winter schedule, which translates into a 3 percent cut in its fourth-quarter mainline capacity on a year-over-year basis. It is also retiring up to 11 Boeing 757 aircraft in 2012, which will be replaced by new fuel-efficient jets the airline recently ordered from Airbus and Boeing.

“While our advance bookings are generally in line with last year, we are taking these additional steps in light of the uncertain economic environment, ongoing high fuel costs and to ensure we run a reliable schedule for our customers given additional pilot retirements we anticipate throughout the fourth quarter," said Virasb Vahidi, American's chief commercial officer.

American has moved on a few occasions throughout the year to reduce its capacity as fuel prices moved upward and improvement in the broader economy failed to materialize. With these latest moves, American expects full-year capacity to be up about 0.4 percent year-over-year for mainline, and consolidated capacity will be up approximately 1.2 percent. This represents an approximate 3 percent reduction in the company's capacity expectations versus American's initial guidance provided in January 2011. These reductions will modestly increase 2011 unit costs compared to those incorporated in the guidance provided last month.

In addition, compared to prior guidance, third-quarter unit costs will be adversely impacted by quarter-end volatility in WTI crude oil prices and foreign exchange rates.  WTI prices decreased, while jet fuel prices remained high, which will result in a $29 million non-cash fuel hedging ineffectiveness charge, which will be recorded in fuel expense. In addition, the U.S. dollar strengthened, which will drive a $22 million incremental charge as a result of foreign exchange volatility.

In July, American ordered 460 fuel-efficient jets from the Airbus A320 family and the Boeing 737 family, which is backed by $13 billion in manufacturer-committed financing.  The 757s retiring next year are in anticipation of the new Airbus and Boeing deliveries that start in 2013. The retirements will result in maintenance and fuel cost savings beginning in 2012. The upcoming new deliveries are expected to pave the way for American to have the youngest and a most fuel-efficient fleet among its U.S. airline peers within approximately five years.