American Airlines Trimming Expansion Plans
AMR Corp.’s American Airlines said Friday that it’s scaling back 1999 expansion plans as demand for travel shows signs of weakening.
The nation’s second-largest airline said it will take eight DC-10s and two Boeing 727s out of service several years earlier than planned, and will defer plans to start new flights between the U.S. and Moscow, Paraguay and Tokyo.
Taking the 10 planes out of service early will not hurt employment levels and should save $40 million in maintenance costs over the next three years, AMR said.
Continental Airlines Inc. and KLM Royal Dutch Airlines already scaled back expansion plans because slowing economies have begun to reduce international air travel, and more airlines are expected to follow.
“I think the carriers are going to try to take aircraft out of their fleets,” said John Walsh, an independent consultant to aircraft makers, based in Annapolis, Md. “That’s certainly better than discounting air fares to fill them up.”
U.S. airlines had expected to add as much as 6% capacity next year, up from 3% in recent years. Most of the growth was expected to come internationally, largely because the U.S. and Japan reached an agreement that allowed U.S. airlines to add flights to Japan.
The changes at Dallas-based American were made to “reflect changing global economic conditions,” said Gerard Arpey, AMR’s chief financial officer.
The airline scaled back its plans to expand its seating capacity to as much as 4%, from a previously planned 6% growth rate.
Most of the reductions in the industry are expected to come in international service.
“Domestic demand is still strong and they expect it to be as strong next year,” said George Ireland of DM Knott, which owns 177,400 AMR shares.
AMR may take a “minimal” charge to retire the jets, which are some of the oldest in the fleet, said spokesman Tim Kincaid.
The DC-10s are used mostly for domestic transcontinental flights, such as between New York and Los Angeles, and hold about 290 passengers. The Boeing 727-200s are used mostly for domestic service and hold about 150 people.
American Airline’s available seating capacity on international flights shows signs of outpacing demand. While American’s October international traffic rose 4.6%, its seating capacity climbed 8.5%.
“We’re seeing a forecast from just about every direction that the economies of the world are slowing down,” Kincaid said.
AMR said it still plans to accept 45 new Boeing aircraft scheduled for delivery next year.
AMR stock fell 81 cents to close at $66.75 on the New York Stock Exchange.
