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Cost of Fuel Hurts AMR

The airline company's fourth-quarter loss widens. Rival Southwest manages a 54% jump in net income.

January 19, 2006|From Bloomberg News

American Airlines' parent said Wednesday that it lost $604 million in the fourth quarter amid higher prices for jet fuel. Southwest Airlines Co.'s profit rose, bolstered by a financial hedging program that limited its fuel costs.

AMR Corp., which owns American, said its loss widened from $387 million a year earlier as spending on jet fuel increased by a third.

Southwest's net income jumped 54% to $86 million, but the carrier said expenses this quarter would rise from a year ago as its fuel-cost protection hedges lose effectiveness.

"Fuel is controlling the profit and loss statements of every airline right now," said Michael Miller, analyst for Velocity Group, an aviation consulting firm in Washington. "That is unlikely to change in 2006."

AMR and other large airlines, with combined losses of $40 billion since 2000, have been unable to afford financial hedges to protect against record-high fuel prices in recent years.

Southwest, which hasn't reported a loss in 14 years, has bought enough hedging contracts to cover at least 30% of its fuel needs through 2009.

AMR's per-share loss in the quarter was $3.49, compared with a loss of $2.40 in the year-earlier quarter. The airline paid 37% more per gallon for fuel in the quarter, pushing fuel costs to $1.59 billion and helping boost total spending by 13%.

Excluding $228 million in costs to retire aircraft and close offices and a $37-million gain on debt restructuring, AMR's loss narrowed to $413 million, or $2.39 a share. That was less than the $2.55-a-share consensus loss estimate of Wall Street analysts.

AMR shares, which had been slammed in recent days as oil prices climbed anew, rebounded $1.53 to $20.39.

The Fort Worth-based company's revenue rose 14% to $5.17 billion in the quarter.

AMR's traffic, or miles flown by paying passengers, rose 4.2% in the quarter, and the average fare per mile increased 8.5%. The number of seats filled on each plane rose 3.6 percentage points to 77.9%.

Dallas-based Southwest's earnings per share rose to 10 cents from 7 cents a year earlier. Excluding an expense related to the way it accounts for fuel hedging contracts, profit rose 44% to $98 million, or 12 cents a share.

Revenue in the quarter rose 20% to $1.99 billion.

The average forecast of 11 analysts surveyed by Thomson Financial was for earnings of 13 cents a share.

Still, the company's shares rose 89 cents to $16.76 after tumbling in recent days from a 52-week high of $17.13 on Jan. 9.

Passenger traffic climbed 15% in the quarter, while Southwest's average fare per mile rose 4.2%.

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