Higher fares don't help American Airlines
DALLAS — Even higher fares couldn't pull American Airlines out of its financial nosedive.
American's parent, AMR Corp., lost $162 million in the third quarter, hurt by a 40-percent jump in fuel costs that wiped out higher revenue from increased fares and passenger fees. It was the company's 14th losing quarter in the last 16, adding to speculation that it could be headed toward bankruptcy protection.
Even in an industry known for its poor financial track record, American stands out. It has too many gas-guzzling planes and the most expensive work force among major U.S. carriers.
AMR spent $2.3 billion on fuel, which easily topped wages and benefits as its biggest expense and undermined American's average fare increase of 7 percent in the quarter.
Chief executive officer Gerard Arpey called the quarter "challenging for American Airlines," but said the company was moving aggressively to improve. The top goal, he said, was to control costs.
As recently as 2008, American was the world's largest airline, but has since been surpassed by Delta, which bought Northwest, and United, which bought Continental. American is trying to compensate for its smaller size by expanding partnerships with British Airways and Japan Airlines to win more lucrative international travel.
Analysts and investors have grown impatient with AMR management, watching other airlines merge and returned to profitability the last two years. They have skewering executives for failing to show enough urgency in fixing American's problems.
In the latest quarter, the loss of 48 cents per share was wider than projected, disappointing investors and sending the company's stock price down 14 cents, or 5 percent, to $2.68 in afternoon trading.
AMR's stock price has fallen 64 percent this year — far more than any other major U.S. airline company — reflecting speculation that the company could be forced into bankruptcy protection like so many other carriers over the past decade.
The last few days provided more examples of AMR's woes. The company raised expectations it would settle labor negotiations with American Airlines pilots and win money-saving schedule flexibility, but there was no weekend deal and AMR's stock fell 6 percent on Monday. The two sides could still reach a deal any day, a good sign for investors what AMR is trying to control costs.
The airline is also taking steps to lower fuel costs by updating its fleet. It announced in July that it will buy 460 new jets from Boeing Co. and Airbus beginning in 2013. That should reduce fuel and maintenance spending, but the improvement will be gradual over several years.
American has also cut its late-fall and winter flights by 3 percent compared with last winter, anticipating lower travel demand because of the weak economy. That should ease pressure on American to slash fares and help it cope with a high number of pilot retirements.
AMR's stock price has fallen 64 percent this year — far more than any other major U.S. airline company — reflecting speculation that the company could be forced into bankruptcy protection like so many other carriers over the past decade.
Most analysts think that won't happen anytime soon because the company has about $4.3 billion in unrestricted cash and short-term investments that could be liquidated in a pinch.
Standard & Poor's analyst Jim Corridore said he doesn't see a need for bankruptcy in the next year but called AMR shares "high risk." He said problems include pilot retirements, lack of movement on labor talks, and AMR's need to borrow money.