AMR Loss Beats Estimates as Airfares, International Travel Demand Increase

American Airlines parent AMR Corp. (AMR) posted a smaller first-quarter loss than analysts estimated and trimmed planned growth as rising prices pushed fuel to its biggest expense.

Excluding certain costs related to aircraft, the loss was $405 million, or $1.21 a share, compared with $452 million, or $1.36, a year earlier, the Fort Worth, Texas-based company said today in a statement. Analysts anticipated $1.32, the average of 13 estimates compiled by Bloomberg.

American paid 24 percent more for each gallon of fuel, compared with a year earlier, and the expense accounted for 32 percent of operating costs. The airline reduced 2011 capacity growth for a second time in less than two months, to 2.2 percent from 3.6 percent, to reduce fuel consumption.

Oil prices have increased substantially and that has made a number of marginal routes and flights less profitable for the airlines,” said Matthew Jacob, an analyst with ITG Investment Research in New York. “As oil prices stay high, and there’s expectations they could go higher, we are likely to see more airlines cut capacity and airlines that already have cut to look to cut even more.”

AMR fell 6 cents to $5.64 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have fallen 28 percent this year.

Airlines’ Losses

American is the first of the five largest U.S. carriers to report first-quarter results. Among them, only Southwest Airlines Co. (LUV) is projected by analysts to post a profit. United Continental Holdings Inc. and Southwest are scheduled to report results tomorrow, with Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) set for April 26.

American and other major U.S. airlines implemented six broad fare increases during the quarter to help offset a 41 percent surge in the average benchmark price of jet fuel. American’s international passenger traffic, which generally carries the highest fares, rose 5.8 percent.

“High fuel prices remain one of the biggest challenges to our industry and our company,” Chief Executive Officer Gerard Arpey said in the statement. AMR expects its fuel bill this year to increase as much as $2.1 billion over the $6.4 billion it spent in 2010, he said on a conference call. AMR spent $1.84 billion on fuel in the first quarter.

The company’s net loss narrowed to $436 million, or $1.31 a share, from $505 million, or $1.52, a year earlier. This year’s loss includes $31 million in one-time, non-cash costs linked to aircraft that AMR sold and then leased back.

Storms, Fire, Earthquake

Sales rose 9.2 percent to $5.53 billion from a year earlier. Winter storms that forced cancellation of 9,000 American flights, a fuel farm fire at the Miami airport, the Japan earthquake and tsunami, and a dispute with online travel agencies reduced revenue by more than $100 million, Chief Financial Officer Bella Goren said today.

American suspended two of six daily U.S.-Japan flights on April 6 because of a drop in demand following the earthquake, and said then the service would resume April 26. The carrier is monitoring demand, Goren said, and hasn’t “made further decisions.” She agreed with some estimates that demand has declined as much as 30 percent.

The airline will retire at least 25 MD-80 aircraft from its fleet this year as it works to replace the aging planes with more fuel-efficient Boeing Co. (BA) 737-800s. American has 219 MD- 80s, with an average age of 19 years. The planes account for 35 percent of American’s total fleet.

The airline is “hoping” it can manage the capacity reduction without employee layoffs, counting instead on expected retirements and attrition, Arpey said.

American also said today it exercised options for two more Boeing 777-300ER aircraft to be delivered in 2012 and 2013. The action brings to five the number of 777-300ERs that will be delivered to the carrier.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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