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Updated from 2:08 p.m. EDT

American Airlines'



(AMR) - Get Free Report

reported a narrower third-quarter loss, and the world's largest carrier saw revenue trends improve amid higher demand.

Skyrocketing fuel costs kept the airline from repeating its second-quarter feat of logging a profit, and it missed Wall Street estimates by 3 cents.

The Fort Worth, Texas, company said Wednesday it lost $153 million, or 93 cents a share, in the latest quarter, an improvement over the year-ago loss of $214 million, or $1.33 a share.

Excluding special items, AMR lost $95 million, or 58 cents a share, vs. a year-ago adjusted loss of $232 million, or $1.44 a share. The adjusted figure for the latest quarter missed the average analyst estimate for a loss of 55 cents from Thomson First Call.

Shares of AMR fell 57 cents, or 4.8%, to $11.43.

Revenue was $5.48 billion, up 15.2% from $4.76 billion a year before and slightly higher than the $5.46 billion analyst consensus.

"Strong demand, combined with capacity restraint, enabled us to gain some traction on the revenue side of the ledger," said Gerard Arpey, AMR's CEO. "We saw our first significant yield increase in some time.

With passenger demand robust, AMR filled more of its seats, and its load factor on mainline flights, which exclude small, regional flights, rose 3.3 percentage points from a year ago to 81.2%.

Yield, which measures average fares, rose 8%. Both factors combined to lift revenue per available seat mile, a key industry metric also known as RASM, 12.6% from a year before.

"But there is still a disconnect between the price of fuel and the price of air travel," Arpey said. "Just to cover the increase in fuel costs over the past two years, American would have had to raise fares nearly $75 per roundtrip ticket. During this time period, our average fare increased by only $15."

Recent hurricanes, which knocked out refining capacity along the Gulf Coast, sent jet fuel prices soaring at the end of the third quarter. AMR paid $525 million more for fuel in the latest quarter than it would have spent if prices had remained at year-ago levels.

Jet fuel will cost AMR even more during the fourth quarter -- on average, $2.34 a gallon, vs. $1.88 in the third quarter. For all of 2006, AMR predicts an average fuel cost of $2.17 a gallon. At that level, the airline would spend $1.1 billion more for fuel than it expects to pay for all of 2005.

Looking ahead, the airline expects a "significant" fourth-quarter loss if fuel prices stay where they are. On average, analysts forecast a loss of $1.91 a share.

Given the current fuel costs, Arpey said AMR must bring its expenses to levels competitive with low-cost discounters and carriers in, or emerging from, bankruptcy. During a conference call, he stressed the airline would continue to do this by working closely with unions and workers to increase productivity and maximize revenue. He stopped short, however, of pledging that AMR would never go back to workers for more concessions.

Since 2003, when AMR staved off bankruptcy by getting workers to agree to $1.8 billion in concessions, it has refrained from asking unions to the bargaining table.

Earlier this year the airline and its workers brought in outside consultants to help find opportunities to improve operations. The process has helped AMR identify initiatives that could save $500 million more next year and boost revenue by $300 million, company executives said during the conference call.

AMR is in the process of reducing its capacity plans for next year. Combined with already announced capacity reductions from carriers like

Delta Air Lines

( DALR) and

Northwest Airlines

( NWACQ), that should allow carriers to boost fares next year, the executives said.

Right now, AMR expects overall capacity to be unchanged next year from 2005, as domestic capacity declines 3%, but international increases about 7%. Those plans are in line with the current trend among U.S. legacy carriers of increasing international flights, which tend to be more lucrative because they're subject to less low-fare competition.

The company finished the third quarter with the same cash balance -- $3.9 billion -- it had at the end of the second quarter.

On Tuesday,

Continental Airlines

(CAL) - Get Free Report

, the nation's sixth-largest carrier, reported a third-quarter profit well ahead of estimates. Continental has been able to boost revenue by beefing up lucrative international flights and adding more first-class seats to some planes.

A slew of carriers report Thursday, including

Alaska Air Group

(ALK) - Get Free Report

, bankrupt Delta and low-cost airlines

JetBlue Airways

(JBLU) - Get Free Report


Southwest Airlines

(LUV) - Get Free Report