AMR Corporation Announces Significant Capacity Reductions, Aircraft Retirements and Additional Revenue Growth Efforts

FORT WORTH, Texas , May 21 /PRNewswire-FirstCall/ -- AMR Corporation, the parent company of American Airlines, Inc., today announced significant reductions to its 2008 domestic flight schedule, including a fourth quarter mainline domestic capacity reduction of 11 percent to 12 percent from the previous year. It also outlined plans to retire at least 75 mainline and regional aircraft and unveiled several revenue growth initiatives, as the company responds to record fuel prices, growing concerns about the economy and a difficult competitive environment.

"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 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."

Additional 2008 Capacity Reductions

AMR, which is holding its Annual Meeting of Shareholders today, said it will reduce American Airlines domestic capacity -- or available seat miles flown -- in the fourth quarter of 2008 by 11 percent to 12 percent, 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 percent compared to the same period in 2007.

In addition, AMR regional affiliate capacity is expected to decline by 10 percent to 11 percent in the fourth quarter compared to fourth quarter 2007 levels. Previously, regional affiliate capacity in the fourth quarter was expected to increase by 2.0 percent from 2007 levels.

AMR continues to assess the impact of the capacity reductions on specific routes and markets. (For additional information regarding AMR capacity changes for 2008, refer to the table at the end of the release.)

Arpey said the capacity reductions aim to significantly reduce costs as well as create a more sustainable supply-and-demand balance in the market. In recent years, Arpey added, the industry has been hurt by some airlines growing faster than conditions warranted, and that impact has worsened in light of recent economic trends and soaring fuel prices.

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.

Additional Revenue Initiatives

Beyond the company's ongoing cost-containment efforts, Arpey noted that AMR has consistently 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.