AMR soldiers through loss
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Oct. 20-- AMR Corp. executives reaffirmed that the company would not use bankruptcy protection as a means to lower labor costs, even as the airline reported a $162 million third-quarter loss on Wednesday.
Fort Worth-based AMR blamed higher fuel prices for grounding net income again for the parent company of American Airlines.
AMR has now logged four straight quarters of losses going back to the third quarter of 2010, when the company had net profit of $143 million. It has lost money in 14 of the last 16 quarters. AMR has lost some $884 million through the first three quarters of 2011.
The losses come even as AMR improved quarterly revenue by $534 million and passenger revenue by $371 million, compared to the third quarter of 2011.
The airline company claimed an extra $642 million in fuel costs -- a 40 percent increase -- for the third quarter compared to the same period a year ago.
The company said costs rose because of higher jet fuel prices and losses from fuel hedging.
The continued losses come as the company tries to renegotiate labor agreements with mechanics, pilots and flight attendants.
Wages, salary and benefit costs increased 2.6 percent from a year ago.
Some have said the company should use Chapter 11 bankruptcy protection as a means to avoid legacy labor costs, as many of their competitors have. But the issue has been a non-starter with unions, and AMR executives have said they will not file for bankruptcy.
"For our company to be successful, we've got to have competitive costs across the board, and that obviously includes labor costs and the freedom to run the company the way our competitors run their companies," CEO Gerard Arpey said.
The company is reportedly inching closer to new labor agreements with unionized pilots, mechanics and flight attendants after four years of negotiations.
Company officials said the company had a strong balance sheet, despite losses, with $4.8 billion in cash and other easily liquid assets. Those assets could keep the company afloat while it takes steps to return to long-term profitability.
Because of higher costs, American Airlines also will cut flights throughout the rest of the year.
Isabella Goren, chief financial officer, said the company's 2012 capacity will either be flat or down based on current projections. Despite more passengers and overall revenues increasing 8.1 percent to $4.8 billion, operating profits for the third quarter totaled just $39 million.
The company's costs per seat mile, a measure of an airline's efficiency, is expected to rise in the coming three months because of volatile fuel costs and "the potential impact of any new labor agreements," AMR said in its thirdquarter earnings statement.
The third quarter losses equaled about 48 cents per diluted share, compared to a profit of 39 cents a share for the same period a year ago.
American Airlines employs more than 7,000 people at its Tulsa maintenance base.
AMR execs said
AMR Corp. CEO Gerard Arpey and other company executives spoke with analysts and reporters Wednesday to discuss their third-quarter results. Here are highlights from the 90-minute session.
On bankruptcy rumors: Company officials continued to reiterate that AMR will not seek bankruptcy protection as a means to renegotiate debt or restructure labor agreements. "We are well aware of the fact that all of our legacy competitors have used Chapter 11 (bankruptcy) to reduce their labor cost," said AMR and American Airlines president Thomas Horton. But Horton also said the company would need to lower labor costs to remain competitive with other airlines.
On labor negotiations: AMR Corp. has been locked in four years of labor negotiations with pilots, mechanics and flight attendants. Arpey said new contracts with lower costs were the key to returning the company to consistent profitability. "The most important element of becoming more cost competitive and efficient is to achieve next-generation labor contracts that will allow us, over time, to be more competitive." He said the company is looking for "transformational" contracts that will lay a framework for future contracts.
On cutting flights: AMR announced that it would cut American Airlines flights by another 3 percent in the coming months to combat higher fuel costs and other expenses. This is done through cutting the frequency of flights and reducing the number of days in a week the airline flies between certain airports. Isabella Goren, chief financial officer, said that means the 2011 capacity will be flat compared to 2010.
AMR Corp. earnings at a glance
Revenue: $6.37 billion. Passenger revenues climbed $361 million thanks to price increases. Another $117 million was gained from regional affiliates.
Expenses: $6.33 billion. Expenses were up $837 million compared to a year ago as fuel costs climbed nearly 40 percent.
Cash: $4.8 billion, including short-term investments. A large pile of liquid assets is helping the company avoid bankruptcy while logging more than $884 million in losses so far in 2011.
Earnings: $162 million loss, compared to a gain of $143 million during the same period in 2010. AMR has now lost money in 14 of the last 16 quarters. Stock price: $2.61 a share. AMR Corp. fell 7.5 percent, or 21 cents, in trading Wednesday.
Kyle Arnold 918-581-8380