AMR to slash more capacity in 2009
Airline also sets plans to take delivery of more fuel-efficient aircraft
By Christopher Hinton, MarketWatch
Last update: 4:40 p.m. EDT Oct. 15, 2008

NEW YORK (MarketWatch) -- AMR Corp., the largest U.S. airline and owner of American Airlines, said Wednesday that it would slash more of its seat capacity next year to offset an anticipated economic recession.
The Fort Worth, Texas, airline also said it intends to take delivery of up to 100 more fuel-efficient aircraft beginning in 2012.

For the fourth quarter, AMR expects to pull down about 8.3% of its mainline capacity, with domestic capacity expected to decline 12.5% and international capacity to fall less than 1% compared to last year.

AMR said it expects its mainline capacity to decline 3.7% and plans to cut 9% next year, including a 14% reduction of mainline domestic capacity.

"These reductions will help to offset weakness in the revenue environment associated with a recessionary economy and... we think it makes sense to revise our capacity downward further for next year while at the same time accelerating our fleet replacement with more fuel-efficient aircraft," said Chief Financial Officer Thomas Horton on a post-earnings call.

In a note to investors, J.P. Morgan analyst Jamie Baker said that next year's capacity-reduction guidance is consistent with the airline's prior forecast, and said the industry in general has yet to undertake the unprecedented cuts needed to reflect the recent "global malaise."

However, Baker noted, "AMR guidance, while characteristically devoid of demand commentary, portends a fourth-quarter outcome modestly ahead of both our own forecast and that of consensus."

Shares of AMR slipped once cent to close at $8.78.

For the recent quarter, the carrier reported a profit of $45 million, or 17 cents a share, down from $175 million, or 61 cents a share, in the year-ago third quarter.

Excluding one-time items, such as a $432 million gain from the sale of American Beacon Advisors and a $27 million charge related to capacity reductions, AMR would have posted a third-quarter loss of $360 million, or $1.39 a share.

Analysts polled by FactSet Research had expected, on average, a loss of $1.44 a share.
Quarterly operating revenue rose 8% to $6.42 billion from $5.95 billion, helped by higher fares and new passenger fees.

AMR said it would buy up to 100 more fuel-efficient Boeing 787 Dreamliner aircraft beginning in 2012. The company intends to buy 42 Boeing 787s and has the rights to add 58 more starting in 2015.

Dreamliner is its next-generation, wide-body aircraft, built with lighter materials and more efficient engines to help reduce fuel burn.

"While fuel prices have fallen from record-high levels a few months ago, the economic uncertainty, and what that might mean for travel demand, is a serious concern," said AMR's Chief Executive Gerard Arpey. "It would also be shortsighted to conclude that fuel prices, which remain volatile, are no longer a challenge."

For the fourth quarter, AMR said it was planning for an average system price of $2.76 a gallon. The company has 38% of its anticipated jet fuel consumption hedged at an average price of $3.33 a gallon.

AMR paid $3.57 a gallon on average in the third quarter, up 65% from $2.17 in the same quarter last year.

The total fuel bill for the airline increased 56% to $2.72 billion.

AMR said its end-of-the-quarter cash balance was $4.62 billion, compared to $5.5 billion at the end of the second quarter.