AMR's Quarterly Loss Narrows

Fuel costs continue to weigh on its results.
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Updated from 2:31 p.m. EDT

American Airlines parent

AMR

(AMR)

said its first-quarter loss narrowed by $70 million, and the carrier signaled that it will reduce summer capacity by placing 27 of its 327 inefficient MD-80s in storage by July.

The world's largest airline also said Tuesday that it has boosted round-trip domestic fares by $10 to partially compensate for higher fuel costs.

"Strong demand and reduced capacity have allowed us to raise fares several times during the past year," CEO Gerard Arpey told reporters and analysts on a conference call, noting that bookings are ahead of last year's pace. "The fare increases we have taken have not driven away passengers."

The aircraft groundings will result in $2 million of savings this year and could extend to $50 million if they continue, said CFO Tom Horton. American will reduce domestic capacity by about 4% this year, but international capacity will increase by about the same amount. Arpey said American needs the MD-80s in the summer, when travel is heavy, but not during the rest of the year.

AMR's first-quarter loss fell to $92 million, or 49 cents a share, from $162 million, or $1 a share, in the same period a year ago. Analysts polled by Thomson Financial had expected AMR to lose 77 cents. Last year's results included a benefit of $69 million, or 43 cents a share, related to excise-tax refunds.

"A loss of any size is never satisfactory," Arpey said. "But it is somewhat gratifying to have improved our first-quarter results by $139 million year over year excluding last year's excise tax refunds, despite the company paying $349 million more for fuel."

The company had positive operating cash flow for the quarter and an operating profit of $115 million, up from $23 million in the same quarter of 2005.

Overall, AMR's revenue from all sources -- passenger, cargo and other categories -- grew in the first quarter by $594 million, or 12.5%, year over year to $5.3 billion. Expenses rose 10.6% to $5.2 billion, including a 34.3% increase in fuel costs, which reached $1.5 billion.

Shares of AMR gained 92 cents, or 3.9%, to $24.74.

American's passenger revenue per available seat mile was 9.93 cents, up 10.8% to its highest level in nearly six years, driven by higher loads and yields. American's load factor for the quarter was 77.2%, up 1.8 points, after rising in each month of the first quarter.

Yield, representing average fares, advanced 8.2%, marking a fourth consecutive quarter of increases. Revenue passenger miles rose 2.1%, despite a 0.2% decline in available seat miles.

JPMorgan analyst Jamie Baker called AMR's results "respectable," and said the company benefited from cargo revenue, "which at $186 million represents a first-quarter record and AMR's third-highest quarterly performance in its history." During the past 12 months, JPMorgan has provided AMR with investment-banking services.

Operating expenses per available seat mile, excluding regional affiliates, was 10.81 cents, up 10.3%. Those expenses excluding both regional affiliates and fuel costs were 7.69 cents, a 2.9% increase from a year earlier.

The company said its average fuel cost per gallon was 45% higher than last year at $1.90. Arpey said fuel costs have risen by 143% since 2000, adding $3.6 billion to American's annual cost structure.

"If you look at the past four years, this industry has given away billions of dollars worth of airline travel," Arpey said. "That can't go on. Ultimately, the consumer has to pay for this. The industry is going to turn around and pass this cost on to its consumers. Otherwise, there won't be an industry."

AMR also said that it successfully renegotiated its agreement with Worldspan, a global distribution system that enables an airline to display its products over an extensive network of travel agencies, at the end of March. The new arrangement provides substantially lower costs and greater flexibility, Arpey said. American is in discussions with some of the other global distribution systems, as well.

AMR ended the quarter with $4.8 billion in cash and short-term investments, including a restricted balance of $510 million. As of April 14, AMR had contributed $120 million to its various defined-benefit plans this year.