American Wary of Expanding Seat Capacity

AMR Corp., the parent of American Airlines, is taking a cautious approach to expanding seating capacity, and it is not clear whether airline consolidation could improve industry finances, a company executive said Thursday.

Speaking at the Calyon Securities Airline Conference in New York, AMR Chief Financial Officer Thomas Horton said the industry has lost more than $40 billion in the last five years because of the terrorist attacks, increased costs, reduced demand and overcapacity that has depressed ticket prices.

While the industry has struggled, American has lost $8 billion since 2001.

A near-bankruptcy filing in 2003 forced the company and its unions to slash costs and wages, Horton noted in his Webcast presentation.

But while nearly every other net work carrier has filed for bankruptcy, AMR has reported two consecutive profitable quarters. In the third quarter, AMR had a net profit of $15 million, or 6 cents per share.

Fort Worth-based AMR, which reported a $291 million net profit in the second quarter, had a net loss of $153 million, or a loss of 93 cents a share, in 2005's third quarter.

Horton said American cost-cutting efforts have been effective.

In 2000, American's costs -- excluding fuel -- per available seat mile were 8.9 cents. Before the wage concessions and cost-containment efforts began, American's cost per available seat mile rose to 9.48 cents in 2001 and 9.38 in 2002 -- among the highest in the industry.

In 2003, American's costs per available seat mile dipped to 8.5 cents. They decreased again the next two years, to 7.6 cents in 2004 and 7.48 cents in 2005. In the first nine months of 2006, American's costs per available seat mile were 7.5 cents.

In the third quarter, American flew 36.38 billion revenue passenger miles, down 1.7 percent from the same period a year ago, on a capacity decrease of 2.4 percent. A revenue passenger mile is flying one revenue passenger one mile.

Horton noted that AMR is adopting a "very cautious" strategy toward capacity expansion in 2007.

During the first nine months of this year, American flew 131.88 billion available seat miles, up 1.2 percent from a year earlier.

In 2007, American, which employs more than 7,000 people in Tulsa, plans another 1 percent reduction in capacity, Horton said.

The airline industry's return to profitability will be largely dependent upon its resistance to expanding capacity, Horton said.

The proposed merger between Delta Air Lines and US Airways is a case in point, he said. US Airways executives said the company could reduce capacity 10 percent by combining the two carriers.

"This is still a troubled industry," Horton said. "If this Delta-US Air deal were to proceed and were to result in a rationalization of capacity, that could only be healthy for the industry."

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