AMR Corp. 3Q Profit Increases

DALLAS — The parent company of American Airlines, the nation's largest carrier, said Wednesday that its third-quarter profit surged from a year ago as planes were more full and passengers paid higher average fares.

AMR Corp. said it earned $175 million, or 61 cents per share in the quarter ended Sept. 30, its sixth straight profitable quarter after losing more than $8 billion from 2001 through 2005. The company took a charge of $40 million, or 13 cents per share, for unused employee vacation expense dating to 2003.

Analysts surveyed by Thomson Financial had expected 73 cents per share. Those forecasts usually exclude one-time costs such as the vacation accrual.

In the third quarter of last year, AMR earned $15 million, or 6 cents per share, and took a $99 million charge to write down fuel-hedging contracts.

Revenue this summer rose 1.7 percent from a year ago, to $5.95 billion, a tick below the $5.96 billion forecast by analysts.

Shares of AMR rose 24 cents, or 1 percent, to $24.36 in afternoon trading.

Chairman and Chief Executive Gerard Arpey said the company had overcome record fuel prices to post its best third quarter since 2000.

"However, we must step up our continued focus on managing costs, work to improve our profit margins, and continue our momentum throughout 2007 and beyond," he said in a statement.

Jamie Baker, an analyst with JP Morgan, said AMR's revenue and costs per passenger were both a bit higher than expected, allowing it to post earnings a penny above Wall Street's consensus expectation.

Baker and other analysts had slashed their forecasts last month, after American gave a more cautious outlook for third-quarter revenue.

American reduced its capacity, measured by miles flown and available seats, by 2.8 percent in the third quarter but expects fourth-quarter capacity will rise from late-2006 levels.

Fewer seats resulted in American's average flight operating at 83.9 percent full, up 2.2 percentage points from a year earlier.

Fare increases helped push revenue per seat up 5 percent in the third quarter. The average fare rose 2.3 percent.

But American's costs kept rising, too.

Airlines speak of "unit costs," or expenses spread over available seats for sale and the miles flown. By that important industry measurement, American's costs rose 3.9 percent from a year ago.

AMR said costs rose because of the back-vacation expenses, the cost of refurbishing jet cabins, faster depreciation, food and beverages, credit card fees, and weather-related flight cancelations.

AMR expects to pay $2.27 per gallon for fuel in the fourth quarter, up from $2.165 in the third.

The company has hedged 40 percent of its fourth-quarter fuel purchases with options to buy at the equivalent of $69 a barrel — a bargain compared with current oil prices, which surged to a new record of $89 a barrel Wednesday.

AMR said high fuel costs would send American's unit costs up 4.5 percent in the fourth quarter — and 5.1 percent when commuter subsidiary American Eagle's costs are included.

American is beginning labor contract negotiations with its three unions, and relations have been rocky. Last month, the pilots' union pulled out of monthly labor-management meetings.

On Wednesday, the Allied Pilots Association took issue with a comment by Arpey in which the CEO said the airline must invest in customer service, new planes and new routes.

"What's missing is any mention of investing in the airline's employees, which is the airline's greatest asset in our view," said Gregg Overman, a spokesman for the union. "It's unfortunate the CEO doesn't think enough of the employees to give them a nod."

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