American Airlines Posts Best Result
By Aaron Karp, Air Transport World | Jul. 20, 2006
American Airlines parent AMR Corp. earned $291 million in the second quarter ended June 30, widened from a profit of $58 million in the same period last year and only the carrier's second profitable quarter in the last 5.5 years.
Executives said they were "pleased" with the high quarterly earnings following years of steep losses but warned that the carrier still faces significant "obstacles" to reach consistent profitability. "Fuel costs continue to raise the bar in terms of revenue generation, while the growth of low-cost carriers and continuing competition from bankrupt carriers with significant cost advantages drive the need for increased efficiencies and cost savings across all areas of our business," Chairman and CEO Gerard Arpey said.
Second-quarter revenues were $4.7 billion, 10.7% above the $4.3 billion for the year-ago quarter. Expenses increased 12.5% to $6 billion from $5.3 billion, with fuel costs jumping 26.5% to $1.7 billion from $1.3 billion last year. Operating income totaled $476 million, more than doubling operating income of $229 million in the year-ago period.
Mainline RPMs increased 3% to 36.8 billion as capacity dropped 0.9% to 44.6 billion ASMs. Second-quarter mainline load factor rose 3.1 points to 82.6%. Yield grew 7.6% to 12.81 cents, RASM was up 11.7% to 10.58 cents and CASM rose 8.5% to 10.85 cents.
Arpey said the airline is on track to achieve another $700 million in annual savings this year and is continuing to search for ways to cut costs. "We obviously have a lot more work to do," he told analysts in a conference call yesterday. As part of ongoing efforts to reduce costs, AA will return 19 leased 757s it inherited in its 2001 buyout of TWA's assets when the planes' leases expire in 2008 and 2009, Arpey announced.
He added that the company is watching closely efforts by the US Congress to change pension liability laws and expressed confidence that its retirement programs will not be scrapped. "We're not anticipating that we'd freeze these plans. We'll work with unions in hope of continuing to fund defined pension plans," he said.
For the first six months of 2006, AMR reported net income of $199 million, a significant increase over a $104 million net loss in the first half of 2005. Half-year revenues increased 12.5% to $11.3 billion while expenses rose 9.4% to $10.7 billion and operating income jumped more than 100% to $591 million.