Majestic Research

Business Week

AMR Loss Narrows on Reduced Costs for Jet Fuel, Increased Fees

By Mary Schlangenstein
Published: January 20, 2010

American Airlines parent AMR Corp. said its quarterly loss narrowed as the world’s second-largest carrier paid less for fuel and increased fees.

The net loss shrank to $344 million, or $1.03 a share, from $347 million, or $1.24, a year earlier, the Fort Worth, Texas- based company said today. Expenses slid 3.7 percent to $5.45 billion, led by $351 million in savings from jet fuel.

American, the first of the six biggest U.S. airlines to report fourth-quarter results, also benefited from higher charges for checked bags. Analysts expect five of the six carriers to post losses as they slashed fares to encourage leisure travel and the recession kept business passengers at home.

“They’ve been able to grow other revenues,” said Matthew Jacob, a senior analyst at Majestic Research LLC in New York who doesn’t rate the shares. “That seems to be something they are getting traction on.”

AMR rose 8 cents to $8.16 at 10:36 a.m. in New York Stock Exchange composite trading. The stock has fallen 22 percent in the past 12 months.

Sales fell 7.4 percent to $5.06 billion as the company cut capacity to match slower demand in the recession last year.

“The fuel crisis of 2008 was replaced by the worst recession in decades, which hurt travel demand severely, and tight capital markets,” Chief Executive Officer Gerard Arpey said in the statement. It was AMR’s eighth loss in the past nine quarters.

Reduced Asset Values

Excluding $177 million in costs to reduce the value of certain international routes and planes, and benefits from fuel hedging, the loss widened to $415 million, or $1.25 a share, from $221 million, or 79 cents, on that basis a year earlier. The loss was wider than the $1.22 average of 11 analyst estimates compiled by Bloomberg.

Traffic measured in miles flown by paying passengers fell 1.6 percent from a year earlier. American’s average fare per mile declined 7.6 percent, while revenue from each seat flown a mile slid 4.3 percent.

The carrier reiterated plans to increase seating capacity this year by 0.9 percent, including a 3.2 percent expansion on international routes as it restores flights dropped because of the H1N1 virus and begins service between Chicago and Beijing. The airline cut capacity in 2009 to better match the drop in demand.

“AMR ended the year with cash of $4.7 billion, which we think is sufficient to keep it out of bankruptcy over the next year,” Jim Corridore, a New York-based Standard & Poor’s equity analyst who rates AMR “hold,” said in a note today. “We believe AMR will be able to continue to tap capital markets for liquidity if necessary.”

Awaiting Regulatory Approval

AMR said it expects U.S. regulatory approval soon for its antitrust immunity application with fellow Oneworld alliance members British Airways Plc, Iberia Lineas Aereas de Espana SA, Finnair Oyj and Royal Jordanian Airlines. Approval would allow American, British Airways and Iberia to coordinate pricing and schedules on flights between North America and Europe.

American said it remains in talks with Japan Airlines Corp. about investing $1.4 billion in the Asian carrier, which filed for bankruptcy yesterday. American and its Oneworld partners are trying to keep Japan Air from being lured to the SkyTeam alliance under a $1 billion package that includes a $500 million investment and loan guarantees.

Delta Air Lines Inc., the world’s largest carrier, is leading the SkyTeam effort.

Among the six biggest U.S. carriers, only Southwest Airlines Co., the largest discounter, is projected to have a fourth-quarter profit, based on analysts’ estimates.