AMR Corporation Reports a Third Quarter Loss of $153 Million
Wednesday October 19, 11:27 am ET
American's Financial Performance in the Quarter Was Undermined By Record High Fuel Prices, the Impact of Growing Low-Cost Carriers and Airlines Restructuring in Bankruptcy
FORT WORTH, Texas, Oct. 19 /PRNewswire-FirstCall/ -- AMR Corporation (NYSE: AMR - News), the parent company of American Airlines, Inc., today reported a net loss of $153 million for the third quarter, or $0.93 per share fully diluted. The loss includes a net $58 million negative impact of two special items -- an $80 million charge for a contract termination and a $22 million credit for the reversal of an insurance reserve. Without these special items, AMR would have recorded a net loss of $95 million, or $0.58 per share. The current quarter results compare to a net loss of $214 million, or $1.33 per share fully diluted, in the third quarter last year. Excluding a special item of $18 million, the net loss in the third quarter of 2004 would have been $232 million, or $1.44 per share fully diluted.
"It is certainly disappointing to have swung to a loss after recording our first quarterly profit (without special items) since 2000 in the second quarter of this year," said AMR Chairman and CEO Gerard Arpey. "The fact that we were unable to sustain profitability despite robust customer volumes says a lot about our inability to pass on fuel-price increases to consumers. This underscores the need to accelerate our cost-cutting initiatives across the board under our Turnaround Plan."
Arpey also pointed out that Hurricanes Katrina and Rita, in addition to driving fuel costs significantly higher, adversely impacted results by temporarily reducing air travel, disrupting airline operations and increasing other costs.
American's revenue performance during the third quarter was marked by record high load factors and significantly improved yields. The mainline load factor -- or percentage of total seats filled -- was 81.2 percent, an increase of 3.3 points compared to a year ago. Yield, which represents average fares, was up 8 percent.
"Strong demand, combined with capacity restraint, enabled us to gain some traction on the revenue side of the ledger," Arpey said. "We saw our first significant yield increase in some time. But there is still a disconnect between the price of fuel and the price of air travel. Just to cover the increase in fuel costs over the past two years, American would have had to raise fares nearly $75 per roundtrip ticket. During this time period, our average fare increased by only $15."
During the third quarter, the Company paid $525 million more for fuel than it would have paid at last year's fuel prices -- and $204 million more than it would have paid using the average price from the second quarter. American's mainline cost per available seat mile in the quarter was up by 9.7 percent year over year. Excluding fuel and special items, the mainline unit cost was down by 2.4 percent year over year.
"The progress we have made in reducing our non-fuel expenses is a big reason why we are in better shape than some of our competitors," Arpey said. "But to assure our future, we must accelerate our rate of progress, and bring our costs to levels that will allow us to compete fully with both the low-cost segment of the industry and the carriers in, or emerging from, bankruptcy reorganization."
Arpey noted that American produces a product people truly enjoy. "Our challenge, as always," he said, "is to leverage the public's love of travel in a way that is as rewarding to our shareholders as it is to our customers. The people of American Airlines are working collaboratively to make that happen."
Arpey pointed out that despite the Company's challenges, AMR contributed $75 million to its various defined benefit plans in the third quarter and another $22 million on Oct. 14, bringing its total contributions to the plans this year to $310 million. AMR ended the period with $3.9 billion in cash and short-term investments, including a restricted balance of $499 million.
Looking forward, the Company expects to post -- at the current level of fuel prices -- a significant loss in the fourth quarter.
