American Airlines posts $214 million loss

Wednesday, October 20th 2004, 4:23 pm
By: News On 6

DALLAS (AP) _ The parent of American Airlines lost $214 million from July through September, as it struggled with rising fuel costs and competition from low-fare carriers, and predicted an even bigger loss in the fourth quarter.

Shares of parent AMR Corp. fell to a 52-week low.

Chief executive Gerard Arpey said Wednesday that American would take steps to cut costs, including reducing capacity 5 percent _ mothballing 15 narrow-body planes _ by early next year and cutting jobs. He declined to put a figure or timetable on layoffs.

Arpey said American would raise revenue by adding more seats to planes, expanding service to Asia and adding flights at its successful Dallas-Fort Worth hub.

Fort Worth-based AMR announced that it lost $1.33 per share, compared to a gain of $1 million or flat per share a year earlier.

Analysts had expected a loss of $1.51 per share in the third quarter, according to Thomson First Call.

Revenue was $4.76 billion, up from $4.61 billion a year earlier but below the $4.81 billion forecast by analysts.

Arpey complained that airlines were adding too many flights _ raising capacity by 6 percent, roughly double the rate of economic growth. Combined with low fares, this resulted in a 2.5 percent decline in AMR's revenue divided by capacity, a key measure in the airline industry.

American said it spent $342 million more on fuel last quarter than in the same three months of 2003 _ turning a potential profit into a loss. The price of jet fuel on spot markets along the Gulf Coast has jumped from 88.9 cents per gallon at the beginning of the year to $1.56 per gallon last week, according to the Department of Energy.

The airline expects high fuel prices to continue in the fourth quarter, which is typically a slow travel period, leading to a ``significantly larger'' loss than that of the third quarter.

Some carriers have partly insulated themselves from high fuel prices by taking options to buy fuel in advance at fixed prices. American couldn't do that because of its weak financial position, so it hedged only 9 percent of its fuel in the third quarter, compared to 80 percent by profitable Dallas-based Southwest Airlines.

Even before AMR released the July-September results, its stock was downgraded to ``peer perform'' from ``outperform'' by Bear Stearns analyst David R. Strine, who also downgraded Continental Airlines Co. and Delta Air Lines to underperform. Strine said he was concerned about AMR's liquidity given high fuel prices and that rivals could benefit from seeking bankruptcy protection.

Shares of AMR fell 20 cents or 3 percent, to $6.49, on the New York Stock Exchange.

American's labor leaders had been bracing for layoffs. Ralph Hunter, president of the pilots' union, told union leaders this week that junior pilots with ``viable alternatives'' to their current job ``should seriously consider leaving.''

Flight attendants' president Tommie Hutto-Blake said government leaders should ``step up and do what they can to resolve this fuel crisis.''

American has furloughed nearly 2,600 of its 11,000 pilots and more than 4,500 flight attendants, although it is recalling 610 attendants for international routes.

Jamie Baker, an analyst for J.P. Morgan, said American should start negotiating cuts with its unions since ``We all know how it's going to play out.''

Arpey suggested that American wanted to see what concessions other carriers take from their workers before talking to his own unions.

American officials laid out a series of fare increases, fees and replacing one of two rows of seats that were removed from Boeing 757s and Airbus A300s, which they said would generate nearly $300 million in revenue _ or about 1.6 percent of AMR's expected annual revenue.

Airlines have had mixed success raising fares, including hikes called fuel surcharges. Several attempts to raise fares have failed when some carriers refused to go along.

Overnight, American, United, Delta and Northwest added a $10 fuel surcharge to round trip tickets, said Tom Parsons, chief executive of discount travel Web site Within the last few days, American has also added a fee of $30 to $50 per roundtrip on international flights and a fee on foreign customers who buy paper tickets instead of electronic ones.

American's Eagle commuter carrier will cancel delivery of 18 regional jets from Brazil's Embraer, saving $330 million. AMR also said it expects to reap a $145 million gain in the fourth quarter for selling its interest in the Orbitz online travel company.

In the first nine months of the year, AMR lost $374 million or $2.33 per share, compared with $1.12 billion or $7.08 per share in the same period last year. Revenue rose 8.1 percent to $14.10 billion from $13.05 billion.