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American, Continental look to cut flights

September 30, 2005

By Christian Plumb

NEW YORK (Reuters) – American Airlines plans to cancel 15
daily round-trip domestic flights from its two largest hub
airports because of the skyrocketing price of jet fuel, the No.
1 U.S. air carrier said on Friday.

Rival Continental Airlines Inc. said it was eyeing similar
flight cutbacks, adding that it had raised fares by $10 each
way on domestic flights, also in response to the fuel surge.
American and bankrupt Delta Air Lines Inc. both said they were
matching the fare hike.

Refinery outages caused by Hurricanes Rita and Katrina have
made worse an already bad situation for U.S. airlines. In
addition to record crude prices, the airlines are paying as
much as a 60 percent premium for refined jet fuel.

Surging fuel prices helped push Delta and Northwest
Airlines Corp. into bankruptcy earlier this month, briefly
leaving American and Continental as the only solvent U.S.
“legacy” carriers.

Refined fuel prices are over $100 per barrel, industry
association the Air Transport Association said, after the
hurricanes exacerbated a supply crunch that had already begun
because of strong flight volume as well as demand from the U.S.
military.

“We’re paying enormous amounts for jet fuel right now,”
said ATA Chief economist John Heimlich. “It’s insane.”

The airlines are asking the U.S. government to give them a
one-year tax holiday from a 4.3 cent a gallon federal tax which
would save the industry $600 million annually.

Fort Worth-based American, owned by AMR Corp., said the
cancellations would take effect October 5 and last at least
through October 29.

‘STILL RESTRUCTURING’

After that, flights from Dallas/Fort Worth and Chicago’s
O’Hare to destinations including Atlanta, Newark and Toronto
could be restarted depending on what happens with fuel prices.

In addition to the cancellations to those airports, which
will still be served by other American Airlines flights, AMR
said it plans to discontinue service between O’Hare and Nagoya,
Japan, at the end of October, also because of fuel.

Calyon Securities analyst Ray Neidl attributed AMR’s move
to its inability to raise ticket prices enough to offset energy
costs, noting that Delta and Northwest would use bankruptcy to
scale back capacity even more aggressively.

“American is basically still restructuring, it’s just that
they’re doing it outside of the bankruptcy process,” he said.

AMR shares were up 42 cents, or 3.9 percent, at $11.17 in
afternoon trading on the New York Stock Exchange, while
Continental was up 29 cents, or 3.1 percent higher, at $9.71,
both outperforming the Amex Airlines index.

A spokesman for Northwest noted that it has also suspended
service between New York’s JFK International Airport and Tokyo,
among other international flights, due to fuel prices.

Delta spokeswoman Chris Kelly said the Atlanta-based
carrier has been selectively canceling flights for which there
is limited demand and where there is minimal customer impact,
in an effort to conserve fuel.

UAL Corp.’s United Airlines, also operating in bankruptcy,
said it was not mulling any service cuts but was studying the
fare increase.

The so-called crack spread, representing the difference
between crude oil and refined jet fuel, surged to a record
$58.64 on Wednesday, according to figures provided by American
Airlines, pushing the effective price per barrel to $124.99.

That compares with an average spread for January through
August of $11.26, which in turn was nearly double last year’s

$6.26.

The ATA is estimating that the soaring fuel prices will
push industry losses up to between $9 billion to $10 billion
for the full year, confounding earlier hopes the industry’s
years of pain since the September 11 attacks would finally
start to ease.




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