The world's largest carrier, American Airlines (AA), announced drastic steps Wednesday to "remain viable," even as oil prices surged dramatically to new highs. Emergency steps announced by American include new fees for all checked baggage, lesser domestic flights and laying off thousands of workers.

American announced these measures even as the price of oil jumped Wednesday to $133.17 a barrel, up a remarkable $4.19.

American said it intends to scrap 75 planes and also reduce the number of seats available on domestic routes by between 11-12% this year. It did not specify the number of jobs that will be lost from its 85,000-strong payroll as it closes and merges its facilities.

The aircraft to be retired will largely be regional jets, which burn more fuel per passenger than larger planes. Transatlantic services, which bring in more profits, are unlikely to be downgraded in any way.

Under the new rules, most American passengers will have to pay $15 for checking a single bag, starting  starting 15 June. The fresh charge comes on the back of an earlier decision, announced just two weeks ago, to charge $25 for a second bag.

American justified these moves as a compulsion forced on it by an "extraordinary" environment.

Speaking at AA's annual meeting in Texas, chief executive, Gerard Arpey, said: "The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak US economy." Each increase of $10 in a barrel of oil means a cost of $800 million for AA. If the price increases in oil, since the start of the year, is taken into account then AA's annual costs have already risen by $3bn.

Industry analysts said other airlines may now be expected to announce similar measures as airlines begin to battle rising oil prices and a weak economy. Higher fares for passengers are looming as the industry steps into the busy holiday season. Domestic airfares for summer travel are already up 20%, compared with a year ago.

"There is no sugar-coating the fact we are facing an extraordinarily difficult economic environment," Gerard Arpey, chief executive of American's parent, AMR Corp., said during a conference call with reporters Wednesday. "The industry cannot continue in the current state."

Wall Street experienced a four-day selling wave in airline stocks with AMR, parent of AA, plunging $1.98, or 24%, to $6.22, its lowest since 2003. Keeping company on the down-slide were UAL Corp., parent of United Airlines, which sank $3.41, or 29.5%, to $8.15, and Continental Airlines, which lost $2.15, or 13%, to $14.20.

Industry airlines now say that at current fuel prices a major carrier filing for bankruptcy was a "question of when, not if..."