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American Airlines parent reports $162-million loss in third quarter

AMR Corp., which is rumored to be near bankruptcy, blamed the red ink mostly on high fuel costs and unfavorable foreign-exchange rates. The results contrast with a profit of $143 million a year earlier.

October 20, 2011|By Hugo Martín, Los Angeles Times
  • AMR Chief Executive Gerard Arpey said American Airlines hopes to reduce costs with new labor agreements and more fuel-efficient airplanes. Above, an American jetliner at Dallas-Fort Worth International Airport.
AMR Chief Executive Gerard Arpey said American Airlines hopes to reduce… (Tony Gutierrez, Associated…)

Still reeling from industry speculation that AMR Corp. may be near bankruptcy, the parent company of American Airlines reported a third-quarter loss of $162 million, or 48 cents a share, attributing it mostly to higher fuel costs and unfavorable foreign-exchange rates.

The nation's third-largest airline reported that revenue per available seat mile rose 8.1% for the quarter. But airline executives said the higher revenue was eclipsed by a $653-million, or 41%, increase in fuel costs from the same period last year — the last time the company reported a profit.

The heavy loss reported Wednesday by the Fort Worth company contrasts sharply with its $143-million profit in the third quarter of 2010.

AMR's stock price dropped 21 cents, or 7.45%, on Wednesday to $2.61. But that was an improvement from Oct. 3, when bankruptcy speculation sent the stock price plummeting 98 cents to $1.98.

In a conference call with industry analysts, AMR Chief Executive Gerard Arpey said the airline hoped to reduce costs with new labor agreements and more fuel-efficient airplanes.

"The goal is to become more competitive," he said. "It's now become our No. 1 priority."

American Airlines became the first major airline to release its earnings report for July through September. Analysts predicted that American would be the only large U.S. airline to report a significant loss for the quarter.

In fact, American has struggled over the last year while its competitors have enjoyed healthy profits because of increased demand and surging revenue from extra fees for bags, food and seat upgrades.

One reason the company continues to struggle, analysts say, is that it did not follow the lead of other airlines that filed for bankruptcy after the 2001 terrorist attacks and the recession, allowing them to renegotiate costly labor agreements and other contracts.

An unusually high number of pilot retirements in September and October sparked rumors this month of a bankruptcy, which sent AMR stock down as much as 41% to $1.75, the lowest in more than eight years.

Several analysts say AMR has enough cash on hand to avoid bankruptcy but must reduce capacity and deal with its high labor costs to turn the company around.

Bob McAdoo, an airline analyst for Avondale Partners in Nashville, said American Airlines should have been cutting the number of seats available like many of its competitors instead of adding new routes this year.

"Their problem is a revenue problem," he said. "It's a problem largely of their own making."

Likewise, industry researcher and analyst Henry Harteveldt, co-founder of Atmosphere Research Group, said blaming higher fuel costs "is a bit like the dog-ate-my-homework excuse."

He added: "AMR has a number of business challenges that it must address and solve soon."

AMR may have already begun to heed calls to reduce costs. The airline announced last week that it planned to retire up to 11 Boeing 757 aircraft next year to make way for some of the 460 newer, more fuel-efficient planes the airline ordered in July.

It also announced it would reduce the number of seats available on planes by 3% from projections made by the airline in January.

hugo.martin@latimes.com

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