AMR Turns Profit Again

Updated from 12:24 p.m. EDT

AMR(AMR) reported a second consecutive quarterly profit for the first time in nearly six years, but said it nevertheless plans to reduce capacity for the fourth quarter and the coming year.

"The industry has lost $50 billion over five years," CEO Gerard Arpey said Tuesday during a conference call. "We should be cautious about declaring victory because of one or two quarters of profit."

American Airlines, the primary unit of AMR, said it will cut domestic capacity by more than 1% in the fourth quarter, while overall capacity will remain flat. For 2007, the airline plans to cut domestic capacity by more than 1%, with a 1% decrease in overall capacity.

Despite the strength of the U.S. and international economies over the last two years, "the industry did not have the pricing power to offset this enormous problem we've had with fuel," Arpey said. "It points to a capacity problem."

In the third quarter, AMR reported earnings of $114 million, or 45 cents a share, excluding a one-time charge. Revenue was $5.8 billion. Analysts polled by Thomson Financial had expected earnings of 42 cents on revenue of $5.9 billion.

The one-time, noncash $99 million charge reduced the book value of outstanding fuel hedge contracts and amounted to 39 cents a share. In the third quarter of 2005, AMR lost $95 million, or 58 cents a share, including charges.