American Airlines, the nation's biggest carrier, sold more tickets to passengers who paid higher fares, but its parent company still lost money in the first quarter because the revenue gains were wiped out by sharply higher fuel prices.
Even before AMR Corp. announced Wednesday that it lost $92 million in the first quarter, American raised fares again by $10 per round trip and decided to mothball 27 of the worst gas-guzzlers in its fleet.
AMR shares rose 92 cents, or 3.9 percent, to close at $24.74 on the New York Stock Exchange. They have ranged from $9.80 to $29.14 ober the past 52 weeks.
The loss for the January-March period equaled 49 cents per share. It was, however, an improvement over the loss of $162 million, or $1 per share, in the same period of 2005.
Revenue rose 12.5 percent, to $5.34 billion, beating analysts' prediction of $5.21 billion. Passenger and cargo revenue both increased.
Analysts expected the company to lose 78 cents per share on sales of $5.21 billion, according to a survey by Thomson Financial.
AMR paid $349 million more for fuel than it did in the same quarter of last year.
Chairman and Chief Executive Gerard Arpey said he was pleased that AMR cut its loss despite the headwind of higher fuel prices. But AMR has lost more than $8 billion since 2000, much of it in recent years due to fuel costs.
Arpey said the airline hasn't raised prices enough to fully offset fuel costs, and he hinted that Tuesday night's fare increase won't be the last.
"We have obviously not been doing a very good job the last couple years of taking this cost from the oil industry and passing it on to airline customers," Arpey said. "Ultimately the airline passengers are going to have to pay this or there are not going to be airplanes flying around."
U.S. airlines have raised fares several times this year without seeming to drive away customers. American's planes flew more full in the first quarter - 77.2 percent full on average, up 1.8 points from a year earlier - and average fares rose 8.2 percent.
"It was a very respectable showing," said Philip Baggaley, an analyst for Standard & Poor's credit-rating service. He praised AMR for boosting revenue and cash-on-hand - now more than $4 billion.
But Baggaley said fuel costs are likely to grow worse in the current quarter, and he was also disappointed that American's non-fuel costs rose, mostly because of a 5.2 percent increase in labor costs.
American is working with its unions to boost productivity by moves such as performing maintenance work on other companies' jets.
But if that doesn't save enough money, American could be forced to ask its unions for concessions, said Ray Neidl, an analyst for Calyon Securities. Union workers narrowly approved pay and benefit cuts in 2003, when the company threatened to file for bankruptcy protection.
Neidl said competition from low-cost Southwest Airlines Co. prevents American and others from raising fares fast enough to offset fuel costs.
"If fuel prices stay where they are now, it's going to be hard to recoup that without significant (air fare) price increases, which I'm not expecting," Neidl said.
Southwest pays less for fuel because it locked in purchases when prices were lower in the last few years. American couldn't afford to do that because it was losing billions, although the airline has done more hedging in the last few months.
Still, American has hedged only 23 percent of its fuel for the rest of this year at a price equal to $61-a-barrel of oil. Southwest has options covering about 70 percent of its fuel needs at $36 a barrel.
Pensions are another big expense. In part to maintain labor peace, AMR has been making steady payments to its pension plans, even as other airlines have tried to dump obligations on the federal government. AMR has made $120 million in payments this year, but its plans are still underfunded by more than $2 billion and could require a sizable contribution next year, according to Thomas W. Horton, the company's chief financial officer.
AMR has cut billions in spending since 2001, including eliminating thousands of jobs and reducing its fleet. That will continue, as the company said Wednesday it would mothball 27 of its MD80 aircraft - among the worst gas-guzzlers in the fleet - by July 1.
The airline said the move is temporary. Arpey was asked what it would take to get those planes back in the air.
"Making money," he said.
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