2nd UPDATE: AMR Reports Loss, CEO Cites Tough Conditions
July 15 2009 - 1:33PM
Dow Jones News
The head of American Airlines said Wednesday that the airline
business is in worse shape than it was a year ago.
The current drop in revenue is more painful than the sky-high
fuel costs of 2008, Gerard Arpey, chairman and chief executive of
American Airlines' parent, AMR Corp. (AMR), said in a message to
employees.
Last year, soaring oil prices pushed U.S. airlines to losses
during the peak travel season, and led them to cut unprofitable
routes. Now, oil prices have fallen by half, but the global
recession has sharply cut passenger travel. Arpey said passenger
revenue at AMR fell 23% in the second quarter.
Still, AMR beat Street expectations with a second-quarter loss
of $390 million. Shares were recently trading at $4.26, up 8 cents,
or 1.91%. AMR shares are up 6.2% for the month but are down nearly
60% year-to-date.
The second-largest U.S. carrier by revenue kicked off the
airline sector's reporting season, with most airlines expected to
report second-quarter losses.
Airlines across the board are building up cash as they head into
fall, a weak revenue season. If passenger traffic doesn't begin to
recover soon, some industry-watchers believe there could be airline
bankruptcies in 2010.
AMR has been among the most successful at raising funds -
although borrowing is expensive - and said it has facilities in
place for aircraft deliveries through 2011.
Analyst Jamie Baker at JPMorgan on Wednesday noted AMR's efforts
to shore up its balance sheet, including a negotiation with its
credit-card processor. Other airlines, such as UAL Corp. (UAUA),
parent of United Airlines, and US Airways Group (LCC), are running
out of time to raise needed cash, Baker said, adding that "we
continue to believe Chapter 11 can be averted at AMR."
AMR said it ended the quarter with $3.3 billion in cash and
short-term investments, down from $5.5 billion a year ago.
AMR on Wednesday said its quarterly loss narrowed from a year
ago, reflecting lower fuel prices and cost cuts. The
$1.39-per-share deficit compared with $1.46 billion, or $5.83 per
share a year ago. Excluding one-time charges, mainly related to
falling aircraft values, the loss narrowed to $1.14 per share from
$1.19 per share last year.
The U.S. airline industry has reduced seat capacity this year to
match falling passenger demand. A drop in business travel,
especially on international routes, has taken the biggest bite out
of revenue. AMR said earlier this year it would cut 2009 seat
capacity by 7.5% from last year.
Even though planes have been flying full this summer, with fewer
tickets being sold and constant fare sales, carriers are expected
to record a second year of losses in what is traditionally the
strongest travel season.
The company said it has completed financing for the 84 aircraft
due to arrive through 2011, the largest delivery schedule in the
U.S. industry.
- By Ann Keeton, Dow Jones Newswires; 312-750-4120;
ann.keeton@dowjones.com