American Airlines parent AMR profit tops estimates

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Published October 17, 2012

| Reuters

American Airlines parent AMR Corp reported higher-than-expected adjusted quarterly earnings on Wednesday as fuel costs fell and international ventures aided revenue.

The company, which filed for Chapter 11 bankruptcy protection last November and is evaluating a potential merger with rival US Airways Group, cited progress in reducing costs.

"American has been very careful about how many of the least expensive seats they are selling and it looks like they've been seeing some good demand for business-class and first-class tickets especially on international flying," said Henry Harteveldt, co-founder and airline analyst with Atmosphere Research Group.

Harteveldt said American likely benefited from problems United Continental had this year when it converted to a new reservation system. United has conceded the process hurt customer service and said issues are being resolved.

Quarterly revenue at AMR rose nearly 1 percent despite well-publicized September flight cancellations and delays that American blamed on a slowdown campaign by pilots. The company said the disruptions were not material to third-quarter results.

Unit revenue, a key measure of pricing power, rose 4.3 percent from a year earlier at American and regional affiliates. The percentage of plane seats filled reached 84.7 percent, a record for the quarter.

"The revenue gains ... show that American is on the right track in a difficult economic environment," said Maxim Group aerospace analyst Ray Neidl.

Still, he said, American had room for improvement, particularly in terms of operating margin. AMR reported quarterly operating margin of 4.1 percent. Neidl said he expects 9 percent at Delta Air Lines and 7.4 percent at US Airways.

Business agreements with British Airways and Iberia in the Atlantic region and Japan Airlines in the Pacific brought American more higher-paying business customers in the quarter.

"We have really been able to leverage these agreements to increase our yields by taking advantage of the distribution and selling and marketing power of our partners on the other side of the ocean," said Virasb Vahidi, chief commercial officer of American Airlines.

AMR's third-quarter net loss widened to $238 million, or 71 cents a share, from $162 million, or 48 cents a share, a year earlier. The latest results included $348 million in costs tied to worker severance and the Chapter 11 reorganization.

Excluding one-time items, AMR posted a profit of 33 cents a share, topping analysts' average forecast by 5 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 0.8 percent to $6.43 billion. Operating expenses were up 0.6 percent, but fuel costs fell 3.3 percent.

American, the third-biggest U.S. air carrier, has grappled with operational problems of late. In addition to the September flight cancellations, incidents in which seats came unbolted from the floor on American flights in recent weeks raised safety concerns.

The carrier, which is currently in contract negotiations with the Allied Pilots Association union, is continuing to cancel flights through the first half of November as it looks to get operations back to normal.

The pilots union has said it called no work slowdown against the airline. It has taken a strike vote among its members but has not yet disclosed the results.

Separately, American said on Wednesday it plans to hire more than 1,500 flight attendants over the next year. It cited a big response to a recent voluntary program in which more than 2,250 flight attendants opted to leave the company.

Shares of AMR were little changed at 37 cents in afternoon trading, while those of other major U.S. airlines were mixed. Delta was up 13 cents at $10.12, US Airways was down 7 cents at $11.51, and United Continental was up 19 cents at $20.54.

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