Friday, July 23, 2010

AMR Corporation Reports Significant Improvement in Second Quarter 2010 Financial Results

Despite Higher Fuel Prices, Net Loss Reduced to $10.7 Million Compared to Net Loss of $390 Million in Same Period Last Year

Received Regulatory Approval for Joint Business with British Airways and Iberia

Organizational Changes Announced to Capitalize on Continued Momentum

Agreed to Purchase 35 More Boeing 737-800s to Replace MD80s

Announced Expansion of JetBlue Partnership

FORT WORTH, Texas, July 21 /PRNewswire-FirstCall/ -- AMR Corporation, the parent company of American Airlines, Inc., today reported a net loss of $10.7 million for the second quarter of 2010, or $0.03 per share, compared to a net loss of $390 million, or $1.39 per share, in the second quarter of 2009.

These results include the impact of significantly higher fuel prices compared to the year-ago quarter. Including the impact of fuel hedging, AMR paid nearly $334 million more for jet fuel in the second quarter, at an average of $2.37 per gallon, than it would have paid at prices prevailing during the second quarter of 2009, when it paid $1.90 per gallon. The second quarter 2009 results included the impact of approximately $70 million in non-recurring charges related to the sale of certain aircraft and the grounding of leased Airbus A300 aircraft prior to lease expiration. Excluding those non-recurring charges, the second quarter 2009 loss was $319 million, or $1.14 per share.

"Though increased fuel prices added dramatically to our expenses this quarter, we made substantial progress improving our financial performance comparatively, both year-over-year and in sequential quarters," said AMR Chairman and CEO Gerard Arpey. "As we move forward, we remain focused on our primary goals of driving revenue growth, controlling costs, and returning to sustained profitability.

"Our plan to achieve these objectives is distinguished by our cornerstone network strategy, the ongoing implementation of our planned joint business agreements in the trans-Atlantic and trans-Pacific markets, additional alliance and network activities, and our ongoing fleet renewal efforts.

"Taken together, these initiatives are designed to grow revenue, fortify our network, and control our unit costs all central elements of our Flight Plan 2020. We believe our plan, and these initiatives, are paving the way to a more successful and competitive company."

Arpey also highlighted several recent developments that demonstrate the Company's progress in executing the five tenets of Flight Plan 2020: Fly Profitably, Invest Wisely, Earn Customer Loyalty, Strengthen and Defend our Global Network, and Be a Good Place for Good People.

Since the end of the second quarter, American and fellow oneworld® members British Airways and Iberia received final regulatory approval in the U.S. and European Union to operate a joint business between North America and Europe. Capitalizing on the momentum from the granting of antitrust immunity across the Atlantic, and anticipating similar immunity across the Pacific, AMR today announced a reorganization of its senior management team.

Tom Horton, previously Executive Vice President Finance and Planning and Chief Financial Officer, has been promoted to President AMR and American Airlines and will continue to report directly to Arpey. With his expanded responsibilities, Horton will oversee the finance, planning, sales and marketing, customer service and information technology organizations. As part of these changes, Bella Goren will assume the role of Senior Vice President Chief Financial Officer. Goren, formerly Senior Vice President Customer Relationship Marketing, will report to Horton. (More information on the organizational changes is available in a separate press release issued today.)

In addition, American this week announced it will expand its partnership with JetBlue Airways in the coming months, so that members of American's AAdvantage® program and JetBlue's TrueBlue® customer loyalty program will be able to earn AAdvantage miles or TrueBlue points, respectively, when they fly only on American and JetBlue cooperative interline routes. Also, American today extended its fleet renewal efforts by agreeing to purchase 35 more-fuel-efficient Boeing 737-800 aircraft to continue replacing its MD80 fleet.

Financial and Operational Performance

AMR reported second quarter consolidated revenues of approximately $5.7 billion, an increase of 16.0 percent year over year. American, its regional affiliates, and AA Cargo, as well as the 'other revenue' category, all experienced double-digit, year-over-year increases, as total operating revenue was approximately $785 million better in second quarter 2010 compared to the second quarter of the previous year.

Consolidated passenger revenue per available seat mile (unit revenue) grew 16.7 percent compared to the second quarter of 2009, while mainline unit revenue at American grew 16.8 percent. Tight capacity control that drove higher load factors and improving economic conditions drove higher unit revenue.

Passenger yield, which represents the average fares paid, increased at American by 14.0 percent year over year in the second quarter.

Mainline unit costs in the second quarter increased 3.5 percent year over year, excluding fuel costs and 2009 special items. Trans-Atlantic cancellations caused by the eruption of the Icelandic volcano reduced operating earnings by an estimated $17 million.

Mainline capacity, or total available seat miles, in the second quarter decreased by 0.4 percent compared to the prior year's second quarter, as the Company continues to maintain capacity discipline.

American's mainline load factor or percentage of total seats filled was 83.9 percent during the second quarter, 2.0 points higher than the year-ago period.

Balance Sheet Update

AMR ended the second quarter with approximately $5.5 billion in cash and short-term investments, including a restricted balance of $461 million, compared to a balance of $3.3 billion in cash and short-term investments, including a restricted balance of $460 million, at the end of the second quarter of 2009.

AMR's Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $16.1 billion at the end of the second quarter of 2010, compared to $14.2 billion a year earlier.

AMR's Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $11.0 billion at the end of the second quarter, compared to $11.4 billion in the second quarter of 2009.

Second Quarter Highlights

• American received authority from the U.S. Department of Transportation (DOT) to operate daily, year-round scheduled service from New York's John F. Kennedy International Airport to Tokyo International Airport at Haneda (HND). American will serve the JFK Tokyo (Haneda) route starting Jan. 20, 2011.
• American Airlines launched its first flight between Chicago O'Hare International Airport and Beijing Capital International Airport, one of the world's busiest airports, on May 25.
• American Airlines was awarded by the DOT rights to fly 11 new flights per week between the United States and Brazil beginning Nov. 18. American will fly between New York and Rio de Janeiro and between Miami and Brasilia.
• AMR named Daniel P. Garton President and Chief Executive Officer of American Eagle. AMR also reiterated its intent to evaluate the possible divestiture of American Eagle.
• Through the Atlantic Interoperability Initiative to Reduce Emissions (AIRE), American became the first U.S. airline to test next-generation technology and procedures designed to significantly reduce carbon emissions and save fuel on trans-Atlantic routes.

Guidance

Mainline and Consolidated Capacity
AMR expects its full-year mainline capacity to increase by 0.9 percent in 2010 compared to 2009, with domestic capacity down 0.1 percent and an increase of international capacity of 2.4 percent compared to 2009 levels. On a consolidated basis, AMR expects full-year capacity to increase by 1.2 percent in 2010 compared to 2009.

The Company's 2010 capacity levels include the reinstatement of flying that was canceled in 2009 due to the H1N1 virus and the launch of Chicago-Beijing service, which was deferred from 2009.

AMR expects mainline capacity in the third quarter of 2010 to increase by 3.0 percent compared to the third quarter of 2009, with domestic capacity expected to be up 0.3 percent and international capacity expected to be up 7.3 percent compared to third quarter 2009 levels. AMR expects consolidated capacity in the third quarter of 2010 to increase by 3.4 percent compared to the third quarter of 2009.

Fuel Expense and Hedging
While the cost of jet fuel has been increasing recently and remains very volatile, based on the July 8 forward curve, AMR is planning for an average system price of $2.25 per gallon in the third quarter of 2010 and $2.29 per gallon for all of 2010. Consolidated consumption for the third quarter is expected to be 715 million gallons of jet fuel.

AMR has 44 percent of its anticipated third quarter 2010 fuel consumption hedged at an average cap of $2.38 per gallon of jet fuel equivalent ($89 per barrel crude equivalent), with 43 percent subject to an average floor of $1.81 per gallon of jet fuel equivalent ($66 per barrel crude equivalent). AMR has 38 percent of its anticipated full-year consumption hedged at an average cap of $2.43 per gallon of jet fuel equivalent ($92 per barrel crude equivalent), with 37 percent subject to an average floor of $1.83 per gallon of jet fuel equivalent ($67 per barrel crude equivalent).

Mainline and Consolidated Cost per Available Seat Mile (CASM), Excluding Special Items

The estimated 1.2 percent increase in consolidated cost per seat mile, excluding fuel and special items, for 2010 is primarily due to anticipated higher revenue-related expenses (such as credit card fees, commissions, and booking fees), airport-related expenses (such as landing fees and facilities costs), and financing costs related to new aircraft deliveries. The third quarter and full year estimates above exclude the potential impact of current tentative labor agreements that, if they become effective in 2010, would increase full year unit costs by an estimated 0.4 percent, which would result in a full year cost estimate in line with previous guidance. The increased costs are largely the result of the signing bonus and wage increases included in the agreements. If the agreements are ratified, the Company anticipates implementing productivity improvements consistent with the agreements that will help to offset the ongoing cost of salary increases.