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AMR Posts Profit on Fuller Planes, Higher Fares

Reuters
Wednesday, 18 Apr 2007 | 1:13 PM ET

AMR, parent of No. 1 U.S. air carrier American Airlines, swung to an $81 million profit on Wednesday from a year-ago loss as it filled more seats on planes, charged higher fares and paid less for fuel.

AMR, whose shares rose more than 2.8%, is the first major U.S. airline to report first-quarter results. Its profit may set the tone for the industry, which endured several high-profile, weather-related cancellations in the first three months of this year.

Airlines have been battered since 2001 by terrorism concerns, low-fare competition and soaring fuel prices. In 2006, the companies started to mount a recovery, which experts predicted would continue in 2007.

"This is a good omen, despite the problem in the first quarter with storms," said Ray Neidl, an analyst at Calyon Securities. Neidl said AMR's results were strong in light of a spike in oil prices, which were directly related to jet fuel prices, in March.

Net profit of $81 million, or 30 cents a share, in the first quarter, compared with a loss of $92 million, or 49 cents, in the same quarter of 2006. Analysts had expected AMR
to earn 30 cents a share, according to Thomson Financial.

"In spite of significant weather challenges, we continued to build on our momentum by generating a profit in the first quarter. This is ... the first time we have generated a profit in the first quarter since 2000," said AMR Chief Executive Gerard Arpey in a statement.

Revenue increased 1.6% to $5.4 billion from the year-earlier period. The company estimated that weather disruptions reduced revenue by $60 million.

More Seats Filled

Mainline capacity -- the number of seats for sale -- in the first quarter decreased 2.5% compared with the same period in 2006. The percentage of total seats filled rose to a record 78.1% during the quarter from 77.2% in the year-ago period.

AMR said it expects to cut mainline capacity by 1.8% in 2007, mainly on domestic routes, including a cut of 3.1% in the second quarter.

American's first-quarter yield, which represents average fares, increased 3.3%.

The carrier said the airline's costs, or mainline costs, per available seat mile rose 0.9%. AMR paid $1.4 billion for fuel in the first quarter, compared with $1.5 billion a year ago.

Aside from cutting capacity and raising fares, AMR and its rivals have focused on cutting costs. AMR has said it plans to trim costs by $300 million in 2007.

Unlike rival UAL, parent of United Airlines; Delta Air Lines; and Northwest Airlines, American Airlines reorganized its business outside of bankruptcy protection.

AMR said it has 34% of its anticipated second-quarter fuel consumption capped at an average price of $2.04 a gallon and 26% of its anticipated full-year consumption capped at $1.96 a gallon.

Last month, American Airlines said it would begin replacing its Boeing MD-80 aircraft with more fuel-efficient planes.

AMR ended the quarter with $5.9 billion in cash and short-term investments, including a restricted balance of $471 million.

During the first quarter, AMR stock slipped 1%, compared with the Amex airline index, which fell 9.8%.

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