Wednesday, May 21, 2008 --- 3:30 p.m.

FORT WORTH, TEXAS -- American Airlines' parent company announced Wednesday "significant reductions" to its 2008 flight schedule. It also introduced new fees and raised others.

American introduced a $15 fee Wednesday for the first checked bag, as a result of "increasing costs of transporting checked baggage," according to a press release. This fee is effective for tickets purchased on or after June 15, but does not apply to: American's AAdvantage program members who have achieved Gold, Platinum and 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 also said today that it has increased its fees for certain other services, ranging from reservation service fees to pet and over sized bag fees. The increases mostly range from $5 to $50 per service. The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.

“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,” Gerard Arpey, chairman and CEO of the parent company, said. “The bottom line is that our revenues, which include ticket sales and fees, must keep pace with our increasing costs.”

In a press release, the company said this was a response to "fuel prices, growing concerns about the economy and a difficult competitive environment."

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 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.

In attempts to gain revenue, American Airlines has already increased fare prices and fuel surcharges.

As evidence of the crisis caused by soaring fuel prices, Arpey cited the U.S. airline industry’s first quarter 2008 pre-tax loss of nearly $2 billion excluding special items and the fact that eight U.S. airlines have filed for bankruptcy protection this year, including five that have ceased service. AMR paid $665 million more for fuel in the first quarter than it would have paid at prices from the year-ago period. Its first quarter fuel expense increased by 45 percent year over year, while its total revenue increased by 5 percent. The price of jet fuel has increased by more than 10 percent since April 16, when AMR expected its 2008 fuel bill would be well over $6 billion higher than in 2003.

However, Arpey also noted that AMR has made much progress in recent years to better prepare it for the current uncertainty. At the end of the first quarter of 2008, the company's Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $15.2 billion, down more than 25 percent from the end of 2002. AMR's Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $10.7 billion at the end of the first quarter of 2008, down more than 40 percent from the end of 2002. AMR also ended the first quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $426 million. It had about $2.7 billion in total cash and short-term investments, including a restricted balance of $783 million, at the end of 2002.

“Clearly, we have a lot of hard work ahead of us given the economic realities we face,” Arpey said. “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.“