After losing $6.4 billion over the last two-and-a-half years, AMR (AMR), parent of American Airlines, announced a profit for the third quarter -- just six months after the company sat on the brink of filing for Chapter 11.
On Wednesday, the world's largest airline said that it had net earnings of $1 million, break-even on a per-share basis, which was well above last year's loss of $924 million, or $5.93 a share. While revenue came in at $4.605 billion, up 1.8% over last year, profit was driven by the company's four-part cost-cutting plan, which lowered operating expenses by 24% year over year.
Because both this year and last year included a variety of charges and gains due to restructuring and tax law changes, the company provided earnings data that were more of an apples-to-apples comparison. After adjustments, AMR said it lost $23 million, or 15 cents a share, which tops Wall Street expectations of a 41-cent loss and the year-ago loss of $471 million, or $4.76 a share.
"We are making good progress under the focus and discipline of our four-point turnaround plan," said Gerard Arpey, president and CEO. "Nevertheless, the third quarter is a peak season for the airline industry, and under normal circumstances, we should be doing much better at this time of year than simply breaking even. We have a lot of work to do."Arpey's comments threw cold water on AMR's early gains, sending the stock lower after the company released earnings just after noon ET. In midafternoon action, shares were off 95 cents, or 6.4%, at $13.95, helping weigh down the entire airline sector. The Amex Airlines, which have rallied more than 14% since the end of September, were off 3.4%. While AMR management downplayed the company's strong quarter, it highlighted the effect that employee sacrifices have had in the airline's turnaround. In April, employees saved AMR from a bankruptcy filing, agreeing to wage concessions that will help the carrier save $1.8 billion annually as part of an ambitious plan to lower costs by $4 billion a year.
|Worker Sacrifice Pays Off
After agreeing to deep wage cuts, employees at American Airline have helped the company post a profit in the third quarter, as operating expenses fell 24% from last year, driven by a 20.2% drop in wages, salaries and benefits.
|Expense Line Item||Amount Spent||% Change*|
|Wages, salaries and benefits||$1.693 billion||-20.2%|
|Aircraft fuel||701 million||0.6|
|Depreciation and amortization||345 million||1.5|
|Other rentals and landing fees||302 million||-3.5|
|Commissions, booking fees, and credit card expense||281 million||4.9|
|Maintenance, materials and repairs||223 million||-22.9|
|Aircraft rentals||165 million||-21.4|
|Food service||160 million||-15.3|
|Other operating expenses||594 million||-16.3|
|Total Operating Expenses||$4.44 billion||-24.0%|
|* -- from year-ago quarter. Source: Company report.|