Airlines Squeezed: Fares Drop and Revenues Shrink as Fuel Costs Rise; Job Cuts Announced

Airlines are having a rough go of it. Passengers are traveling less and fares are dropping even as expenses rise. In response, AMR Plans 1,600 Job Cuts, Delta Air May Follow.

AMR Corp.’s American Airlines will shed 1,600 jobs and Delta Air Lines Inc. may pare its payroll again as waning travel demand spurs deeper cuts in seating capacity.

The reductions at American, the world’s second-biggest carrier, amount to about 2.4 percent of the 67,000-person workforce, while Delta, the largest airline, said it would “reassess staffing needs” without giving a figure.

U.S. airlines are seeing revenue vanish as they trim fares to entice customers who are traveling less because of the recession. A 31 percent jump in the price of jet fuel since mid- May is further compounding the carriers’ financial stress.

American’s payroll reductions, which include 1,200 flight attendants, stem from plans to shrink flying by 1 percentage point more than projected for a full-year cut of 7.5 percent, the Fort Worth, Texas-based company said.

Delta will reduce capacity as much as 4 percentage points beyond its original plans, bringing the total cutback to 10 percent this year from 2008, Chief Executive Officer Richard Anderson said in a memo to employees in which he broached the prospect of job cuts. Delta will start getting rid of available seats in September.

Delta reported a $794 million net loss in the first quarter, its sixth such deficit in a row.

Traffic, or miles flown by paying passengers, dropped 11 percent in May, Delta said on June 4. That dragged 2009 to a 10 percent decline. International traffic slid 15 percent last month, and also was down 10 percent for the year through May.

No Pricing Power

Jet fuel prices are rising but there is no way for airlines to raise prices to compensate. Air travel is down. The only choice for airlines is to slash workers and reduce flights.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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