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American Loses on Bad Capacity Planning: Analyst

Another problem is that American lacks domestic traffic to feed its international flights at Kennedy, with service to about 50 fewer markets than US Airways (LCC) has at its Philadelphia hub.

On its Chicago-Delhi route, American loses $40 million a year, McAdoo said, noting that "American should not be ashamed if it were to eliminate service to India." The carrier also loses $40 million annually on Chicago-Beijing and $13 million annually on Chicago-Shanghai.

In his report, McAdoo downgraded American to under-perform, with a price target of $7.50.

McAdoo's view, it should be said, is not unanimous.

On Monday, two other veteran analysts upgraded American. Standard & Poor's analyst Jim Corridore upgraded to hold from sell with a price target of $7. Corridore wrote that "lower jet fuel costs than we previously anticipated will allow the company to preserve needed cash [although] we still think AMR faces challenges related to higher labor and other costs vs. peers."

Meanwhile, J.P. Morgan analyst Jamie Baker on Monday upgraded American to overweight from neutral with a price target of $8.50, primarily as a result of fuel price declines. In fact, Baker upgraded price targets for the seven large carriers. American shares closed Monday at $6.69, up 31 cents or about 5%.

American executives have long maintained that the carrier's money-losing, below-average performance is due largely to higher labor costs, resulting from its decision not to go along with the crowd and file bankruptcy in the early part of the last decade. Last year, for instance, American lost $471 million while its peers made money.

McAdoo estimated losses based on third-quarter U.S. Department of Transportation data, the most recent available, and on estimated fuel cost of $94 a barrel, the first quarter average price.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed
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