Updated from 3:30 p.m. EST

What a difference a year makes.

Last year Wall Street was concerned that

AMR

(AMR)

, parent of American Airlines, would be forced into bankruptcy, but on Thursday, analysts said the airline would be profitable in 2004, thanks in part to massive cost cuts.

In reaction to the carrier's fourth-quarter results, which were released Wednesday and topped Wall Street expectations, brokerages were busy boosting their price targets and earnings expectations. On Thursday, shares of American closed up $2.30, or 15.8%, at $16.85 on volume of 28.8 million shares, more than six times the daily volume.

"We are upgrading the shares of AMR from hold to buy," said Susan Donofrio, analyst at Deutsche Bank. "This is due to not only the airline's impressive cost performance, helped by savings from labor, strategic initiatives and relief from vendors, suppliers and creditors, but also from the company's willingness to not rest on its laurels."

Before the tide turned for American, shares had slumped to a low of $1.41 on March 12, as the U.S. headed toward a war in Iraq that the Air Transport Association, an industry trade group, said could leave much of the airline industry bankrupt if it dragged on too long. With unions unable to agree to wage concession and with a SARS outbreak sapping lucrative international traffic, the outlook for American was seen as grim.

In the last year, AMR's four-pronged approach to restructuring its business has not only helped the carrier avoid bankruptcy, but has also helped it trim billions in expenses. What AMR needed in order to right its ship came about nine months ago, when CEO Don Carty left the company following a disclosure that executives would retain their bonuses and pension plans in the event of bankruptcy.

With Carty out of the picture, the unions quickly agreed to $1.8 billion in annual wage concessions, helping the carrier avoid bankruptcy and line up another $2 billion in cost reductions due to efficiencies, with another $200 million in relief from creditors. All told, American's plan to streamline operations has trimmed $4 billion in expenses, giving it some of the lowest unit costs among the network carriers.

The concessions saved American from the fate currently faced by still-bankrupt

UAL

, parent of United Airlines, and

US Airways

(UAIR)

, which is exploring the sale of assets and needs to negotiate wage concessions from employees. By dodging bankruptcy, American has given investors reason to cheer. Including Thursday's move, shares have jumped more than 1,000% from that March 12 low.

While American said it's concerned that the high price of fuel could sap some of its cost-cutting gains, it stresses its continued commitment to the cost-cut plan. In May, the company will restructure its Miami hub, a process called "depeaking," which allows the carrier to spread more flights across its schedule, using fewer planes to fly more often.

"As we look to 2004, we think American's turnaround plan will continue to gain momentum. For example, we think there are additional opportunities to lower costs, like the recently announced restructuring of American's Miami hub," said Michael Linenberg, analyst at Merrill Lynch. "These cost reduction initiative should mitigate higher fuel prices."

According to Credit Suisse First Boston analyst Jim Higgins, the restructuring and depeaking efforts have given American large amounts of leverage, so much that the analyst boosted his 2004 earnings estimate to $1.50 a share, the highest on Wall Street. In essence, Higgins believes the airline will begin making a lot more money by flying fewer flights and routing them in a more efficient manner.

"The single statistic that best explains this unit cost outlook is that American will have 4.5% fewer flight departures in 2004, yet generate 6% more capacity," said Higgins.

Many on Wall Street, such as Morgan Stanley analyst William Greene, believe that American's 2003 results haven't begun to show the leverage that can be generated by those $2 billion in wage concessions from employees. In Greene's view, American's capacity cuts in 2003, due to the war in Iraq and the SARS outbreak, actually masked some of the benefits. As capacity increases and American returns to growth, the cost cuts could become more apparent. By 2006, Greene said American could have some of the lowest costs of all the network carriers and would actually be in the market for more planes.

"Given the tremendous productivity gains the company won from labor unions, we do not believe management intends to stop its growth after next year. Thus, we conclude that AMR is likely to place a large jet order in 2004, for deliveries beginning in 2006," said Greene. "The pace of the turnaround at American has stunned us."

All of the brokerages mentioned in this story perform or seek to perform business for the companies covered in research reports.