AMR Manages a Tiny Profit

American Airlines, unit of AMR ( AMR), announced second-quarter results that missed Wall Street expectations but unlike rival Delta Air Lines ( DAL), the world's largest carrier posted a profit instead of crippling losses.

American announced second-quarter net income of $6 million, or 3 cents a share, up from the loss of $75 million, or 47 cents a share, it had a year ago. Excluding all items, which is how Wall Street views the airline, the carrier said it lost $25 million, or 15 cents a share, a big improvement from the loss of $357 million, or $2.26 a share, it had a year ago. That said, American's 15-cent loss was lower than the 10-cent loss expected by Wall Street.

"Compared to a year ago, we ran a much more efficient, more productive and smarter airline in the second quarter," said Gerard Arpey, AMR's chairman and CEO. "The progress we have achieved under our turnaround plan, while gratifying, was overwhelmed during the period by the record high fuel prices that afflicted our industry and indeed the entire economy."

On an operating basis, excluding all items, the carrier said that it earned $165 million, the best level it has seen in four years and a $360 million improvement from last year's quarter. In reaction, shares of AMR rose 49 cents, or 5.2%, to $9.86.

Total revenue came in at $4.83 billion, up 11.7% from last year and better than the $4.74 billion expected by analysts. American said that traffic, a measure of demand, rose 10.4% year-over-year, while capacity, a measure of supply, rose 8.5%. As a result, the company filled 75.7% of its seats in the second quarter, up from 74.4% a year ago.

But American had to discount seats to fill them, and revenue per available seat mile, also known as RASM, came in at 8.85 cents, up 1.3% from last year. Revenue yield, a measure of the total money brought in per paying passenger, came in at 11.69 cents, down from 11.74 cents a year ago.

Expenses remain an issue for American, despite the fact it has wheedled deep concessions from its labor unions a year ago. Total operating expenses came in at $4.6 billion, up 9.4% from last year, driven by a 41.7% increase in fuel costs and a 31% jump in maintenance costs. Cost per available seat mile, a key industry metric called CASM, came in at 9.5 cents a mile, a drop of just 0.9% from last year.

Without the big spike in fuel costs, the company said second-quarter net income would have been $232 million higher and CASM would have fallen by 10.8% year-over-year. But as many on Wall Street wonder if American's turnaround plan had run aground, the carrier said that "high fuel prices are not an excuse" and stressed that it will be moving to simplify and streamline operations going forward to cut costs.

"While the spike in fuel prices masked a lot of our progress in the second quarter, the fact is we were able to absorb what a year ago would have been a crippling blow," said Arpey. "Bottom line, while our financial results were driven by the high price of fuel, we are not discouraged. In fact, we are more determined than ever to complete our turnaround."

The April-June period has been a surprisingly difficult one for the industry. Southwest Airlines ( LUV ) surprised analysts by missing earnings forecasts, even though its profit rose during the period. The industry has rushed to boost capacity but carriers have slashed fares on the most competitive routes, eroding profits, ahead of the peak summer season. Continental Airlines ( CAL ) barely managed a profit in the quarter.

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