"Triple Trouble for AMR"

Wednesday, October 20, 2004

Triple Trouble for AMR 
By Ross Snel
TheStreet.com


American Airlines parent AMR swung to a loss in the third quarter, a result
of surging fuel prices, fare competition and hurricanes, and said it would
cut an undisclosed number of jobs to help bring costs further in line with
revenue. 

The world's largest airline reported a third-quarter net loss of $214
million, or $1.33 a share, well off the $1 million profit it recorded a year
earlier but better than the $1.51-a-share loss Wall Street had forecast. 

American said total third-quarter revenue was $4.76 billion, up 3.4% from
$4.61 billion a year earlier, but below the $4.81 billion average analyst
estimate from Thomson First Call. 

In reaction, AMR shares fell 20 cents, or 3%, to $6.49. The session's low of
$6.34 marked a new 52-week low. 

"Our business was buffeted by three dramatic and harmful developments during
the third quarter," said Gerard Arpey, AMR's chief executive. "The first was
record-high fuel prices. The second was a weak revenue environment, which
meant that despite our best efforts -- and unlike other fuel-intensive
businesses -- we have been largely unable to pass the higher fuel costs on
to our customers. The third development was the unprecedented series of
hurricanes, which depressed revenue, increased costs and repeatedly
disrupted an important part of our network." 

The airline said "skyrocketing" fuel prices during the quarter added $342
million in incremental costs compared with a year ago. At the same time,
revenue per available seat mile, or RASM, fell 2.5%, driven by a 4.8% drop
in passenger yield (revenue per passenger mile). 

In the company's earnings release, Arpey said the airline's cost structure
remains too high for it to succeed in the face of record-high oil prices.
Accordingly, he said the company will take several steps to increase revenue
and cut costs, including a workforce reduction, the details of which
American still is working out. 

American will cut capacity by the equivalent of 15 narrow-body planes in
2005. At the same time, it will add back some of the coach seats it had
previously removed on its MD80, 737, 767 and 777 planes. Meanwhile, its
regional affiliate, American Eagle, has reached a tentative agreement to
cancel delivery of 18 regional jets it was scheduled to receive between next
July and February 2006. 

Among the moves, the airline also plans to increase revenue by expanding its
international flights in the growing Asia/Pacific market. Longer
international flights are typically more profitable than domestic ones. 

As a result of the initiatives, American said it may incur as
yet-undetermined special charges in the fourth quarter. 

American said it expects record-high fuel prices to continue in the fourth
quarter, with its seasonally weak revenue. As a result, the carrier expects
a fourth-quarter loss "significantly larger" than that of the third quarter.


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