American Airlines' owner swings to big loss in 2Q
AP
Wednesday July 16, 11:41 am
ET By David Koenig, AP Business Writer

AMR, parent of American Airlines, swings to big second-quarter loss on fuel costs, charges
DALLAS (AP) -- The parent of American Airlines swung to a big loss in the second quarter as high fuel prices swamped an increase in revenue and led the nation's largest carrier to write down the value of its jets.

Still, the results reported Wednesday were not as bad as Wall Street had feared.
Aided by a sharp drop in oil prices, airline stocks surged. Shares of AMR Corp. jumped $1, or 22.7 percent, to $5.41 in morning trading just a day after hitting a 52-week low of $4.
AMR said that for the three months ending June 30, it lost $1.45 billion, or $5.77 per share, compared to a profit of $317 million, or $1.08 per share, a year ago.

Excluding special charges to write down the value of its fleet, AMR said it would have lost $284 million, or $1.13 per share.

Analysts, who typically exclude charges from their forecasts, expected AMR to lose $1.40 per share, according to a survey by Thomson Financial.

Revenue rose 5.1 percent, to $6.18 billion. Analysts expected $6.14 billion.
Fuel costs spiked 47.4 percent, to $2.42 billion -- an increase of about $780 million from a year ago.

A gallon of jet fuel went from $2.09 a year ago to $3.19, and would have been even higher if the company hadn't bought some of its fuel in advance at lower prices. AMR expects to pay $3.81 per gallon in the third quarter.

Chairman and Chief Executive Gerard Arpey called the second-quarter results disappointing, but he said the Fort Worth-based company was taking steps to manage through a tough stretch.
AMR, which also owns the American Eagle airline, is cutting about 6,800 jobs and reducing its U.S. flying sharply to bring down costs while raising fares and special fees to boost revenue. Analysts, however, expect the company to keep losing money at least through 2010.

"Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future," Arpey said in a statement.

Arpey said the company would do whatever it takes -- including cutting capacity, raising revenue and changing its fleet -- to turn things around.

The company announced Wednesday that it would speed up the retirement of its 34 Airbus A300 aircraft by the end of next year instead of the original plan, which stretched through 2012. In all, American and Eagle will ground 103 planes this year.

Over the next three years, American is replacing some of its gas-guzzling MD-80 jets with 70 Boeing 737s, which get better mileage.

AMR also said Wednesday that it has put on hold its plan to sell or spin off American Eagle until conditions improve in the airline industry.

A sale could boost AMR's cash balance, which ended the quarter at more than $5 billion in unrestricted cash and short-term investments. In the quarter, AMR raised $720 million by mortgaging some planes and selling others, then leasing them back. Total debt fell to $15.2 billion, down from $17.3 billion a year ago.

Ray Neidl, an analyst with Calyon Securities, said the quarterly results were "a little better then expected" but the situation "remains dire."

American will be happy to turn the page on the second quarter, which began with a costly grounding of its entire fleet of 300 MD-80s because some failed inspections of the electrical wiring. The March-through-June period ended with AMR taking a $1.1 billion non-cash charge to write down the value of planes and $55 million for severance expenses.

During the quarter, American became the first major U.S. carrier to impose a fee for checking even a single bag, and it raised a variety of other special charges on passengers.
After the peak summer travel season ends, American expects to cut its U.S. capacity 11 percent to 12 percent compared with late 2007. The company said further reductions are expected next year.