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American Cutting Flights, Adding Baggage Charge


NPR's business news starts with more cutbacks in the airline industry.

As the price of oil keeps rising - it's now more than $135 a barrel - American Airlines has announced its biggest cuts in service since 9/11. It's also adding a new baggage fee.

NPR's Scott Horsley reports.

SCOTT HORSLEY: American Airlines' CEO says the industry wasn't built to withstand oil prices that are this high. Eight other airlines have already filed for bankruptcy this year, and five have quit flying altogether.

David Castelveter of the Air Transport Association says airline fuel prices have more than tripled since the year 2000, while airline ticket prices have barely budged.

Mr. DAVID CASTELVETER (Air Transport Association): Every time we see the price of fuel go up a dollar, this industry absorbs about $465 million in additional expenses.

HORSLEY: American is hoping to recoup part of its additional fuel cost with a new surcharge of $15 for a checked bag. The charge goes into effect with tickets purchased starting June 15. Castelveter says this kind of charge is a way for airlines to raise revenue without having to raise overall fares.

Mr. CASTELVETER: The customers have said if I don't want a meal, don't charge me for it. If I don't travel with checked luggage, don't charge me for it. So the carriers have stripped away a lot of those services and now they're charging you for it.

HORSLEY: Some air travelers may prefer this ala carte pricing, but not Mark Standbower(ph), who was getting off an American Airlines flight in Chicago yesterday. He thinks the extra charge on checked suitcases could backfire.

Mr. MARK STANDBOWER (Passenger): It's going to mean more stuff that goes into the plane, people jamming bags up top. One bag checked is actually good for the plane, rather than having people carry everything on and filing up the overhead space.

HORSLEY: And it's not just the overhead bins that are getting more crowded. American is planning to eliminate about 11 percent of its daily flights beginning in October. The Air Transport Association's Castelveter says the announcement of the cutback comes at a time when planes are already flying about 85 percent full.

Mr. CASTELVETER: You know, especially in key markets, heavily traveled, popular markets. Going in and out of Florida, for example, you know, often times you'll find every seat on every airplane full.

HORSLEY: By eliminating flights and parking up to 85 planes, American expects to save on fuel and labor costs.

As planes get more crowded, the airline industry as a whole will be in a better position to raise ticket prices. That's not good news for the corporate travelers that Bill Connors represents with the National Business Travel Association, but he acknowledges airlines don't have much choice.

Mr. BILL CONNORS (National Business Travel Association): They've cut costs everywhere they could cut, and it still hasn't paid off for them because of the oil situation. So yeah, we are very aware that there are going to be some pricing implications over the next few months as long as oil stays where it's at.

HORSLEY: Connors notes that even as they scale back on domestic service, airlines are not scrapping the international routes that are in growing demand with business travelers.

Mr. CONNORS: Big corporations, to be competitive they need to be in places like Brazil and China and India. They need to be in the emerging markets. So we don't think that travel is going to decline, and that's what I think the airlines are betting on too.

HORSLEY: It's those emerging markets and their growing demand for oil that's helping to keep the cost of jet fuel sky high.

Scott Horsley, NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.