AMR Posts Adjusted Profit as Unit Revenue Trumps Delay

AMR Corp. (AAMRQ) posted third-quarter earnings of $110 million, excluding bankruptcy-related costs, as the parent of American Airlines reaped more revenue from each seat flown a mile.

Including $348 million in restructuring and other expenses, AMR had a net loss of $238 million, or 71 cents a share, according to a statement today. Fort Worth, Texas-based AMR’s year-earlier loss was $162 million, or 48 cents, ahead of its Nov. 29 filing for Chapter 11 protection.

Revenue on a seat-mile basis, the U.S. industry benchmark for financial performance, rose 4.5 percent. The gain helped temper a drop in the airline’s domestic passenger traffic as flight delays snarled its schedule, reviving questions about whether the third-largest U.S. carrier can fend off a takeover from US Airways Group Inc. (LCC) and exit bankruptcy on its own.

“Our careful review of strategic alternatives continues, but regardless of the outcome, our improvement in both revenues and costs reflects what the new American can be,” Chief Executive Officer Tom Horton said in an e-mail to employees.

The carrier’s load factor, or average number of seats filled per plane, rose 0.6 point to 85.5 percent. That gain and unit-revenue improvement were both bolstered by a 2.5 percent reduction in flight and seat capacity during the quarter.

Travel Demand

Flight delays that began in mid-September reduced unit revenue that month by four-tenths of a percentage point, Chief Financial Officer Bella Goren said in an interview. The operational difficulties were “not material” to financial results, the airline said.

Travel demand this quarter is steady and “on par with our expectations,” Goren said. “We’re seeing less sale activity in the industry, which has a positive effect on yield,” or average fare per mile.

Sales rose 0.8 percent to $6.4 billion in the quarter.

Total operating expense climbed 0.6 percent to $6.38 billion and unit costs, a measure of efficiency, rose 3.8 percent. Excluding restructuring items, total costs fell $170 million from a year ago.

The airline disclosed the quarterly results a day after asking the U.S. Bankruptcy Court in Manhattan to extend its exclusive right to file a restructuring plan until Jan. 28. The current deadline to submit such a blueprint is Dec. 28, and Bankruptcy Judge Sean Lane has yet to rule on the request.

Cost-Cutting

The airline’s cost-cutting initiatives during bankruptcy have focused on cutting labor costs through new union contracts. More than 2,200 senior flight attendants, paid at higher rates, have accepted early retirement buyouts from the carrier as part of their agreement. American said separately today that it plans to hire 1,500 new attendants over the next year, with recruiting beginning next month.

After American imposed concessions on pilots and detailed plans to cut more than 4,000 jobs among mechanics and airport ground workers, about 59 percent of its arrivals were on time in September, and it canceled 2.7 percent of flights.

The same issues led American to trim capacity as much as 2 percent from mid-September through October and by 1 percent during the first two weeks of November.

The airline blamed “labor-related operational disruptions” in a U.S. regulatory filing and said it’s too early to estimate the financial effects.

“It’s fair to say the past few weeks have tested us all,” Horton told employees. “We have taken actions to address our operational challenges.”

American temporarily grounded 48 Boeing Co. (BA) 757s this month after rows of seats dislodged during three flights. The airline later installed a redundant locking mechanism and blamed the looseness on a buildup of spilled-soda and coffee residue that fouled the seats’ fasteners. The same locks also were added on 49 Boeing 767s “as a precautionary measure.”

AMR is the first major U.S.-based airline to report quarterly results. Ray Neidl, a Maxim Group LLC analyst based in New York, projected a combined $1.97 billion profit for nine carriers, excluding AMR.

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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