American Airlines Parent Earnings Climb; Shares Jump


AMR, parent of American Airlines, said Wednesday third-quarter profit rose as it cut capacity, raised fares and paid less for fuel.

The results came in slightly stronger than expected and sent AMR's share price more than 3 percent higher. But the carrier noted that unit costs were likely to rise 4.5 percent in the fourth quarter.

AMR Chief Executive Gerard Arpey said in a statement that the earnings were solid despite soaring fuel costs and volatile weather.

"However, we must step up our continued focus on managing costs, work to improve our profit margins, and continue our momentum throughout 2007 and beyond," Arpey said.

Profit increased to $175 million, or 61 cents per share, from $15 million, or 6 cents per share, a year earlier, when the airline recorded a $99 million non-cash charge.

Year-ago earnings for major airlines also were weakened by a security scare in Britain.

AMR said special items in the third quarter included a charge of $40 million, or 13 cents per share, related to salary and benefit expenses dating back to 2003.

With those items factored in, AMR earned 74 cents per share, which compared with a 73-cents-per-share Wall Street forecast, according to Reuters Estimates.

Quarterly operating revenue rose 1.7 percent to $5.65 billion.

The airline industry has been recovering from a years-long slump, thanks largely to low-fare competition and increasingly high costs. Top carriers, however, have managed to cut capacity - the number of seats for sale - and raise fares.

AMR cut the number of seats on flights it owns and operates by 2.8 percent in the quarter, compared with the third quarter of 2006. Meanwhile it flew fuller planes, selling 83.9 percent of its seats, which the company said was a record.

AMR's third-quarter yield, which represents average fares paid, increased 2.3 percent from the year-ago period.

Outlook Depends on Crude

A recent surge in the price of crude oil has cast a shadow over airline industry as it struggles to building its recovery.

The price of jet fuel is directly affected by the price of crude oil. NYMEX crude futures have traded at record highs above $88 a barrel this week, a sign that airlines may have an even bigger fuel bill in the fourth quarter.

Carriers, however, have hedged their exposure to energy markets, often locking in prices below the market.

As of Wednesday AMR was planning for an average price of $2.27 per gallon of jet fuel in the fourth quarter and $2.10 per gallon for all of 2007. AMR said it has 40 percent of its anticipated fourth-quarter fuel consumption capped at an average crude oil equivalent of $69 per barrel, which is the jet fuel equivalent of $2.01 per gallon.

AMR said it expects to cut capacity by 2.2 percent in 2007 with a 2.4 percent reduction in domestic capacity and a 1.9 percent reduction in capacity on lucrative international routes, where American faces less competition.

AMR ended the third quarter with $5.8 billion in cash and short-term investments, including a restricted balance of $447 million.

Shares of AMR had fallen almost 16 percent in the third quarter, prior to today's gains.