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AMR Third Quarter 2010 Financial Results


AMR Reports Third Quarter Profit of $143 Million, Substantial Improvement Compared to Last Year, Despite Higher Fuel Prices


Gerard J. Arpey
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Thomas W. Horton
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Isabella D. Goren
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AMR Corporation, the parent company of American Airlines, Inc., today reported a net profit of $143 million for the third quarter of 2010, or $0.39 per diluted share.

The current quarter results compare to a net loss of $359 million for the third quarter of 2009, or $1.26 per share, which included the impact of approximately $94 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 third quarter 2009 loss was $265 million, or $0.93 per share.

“We are pleased to report our first profitable quarter since the third quarter of 2007, excluding special items,” said AMR Chairman and CEO Gerard Arpey. “Our entire team is intensely focused on building strong momentum from our Cornerstone, partnership and alliance strategies that enhance our global network reach. We are excited about our recently launched joint business in the trans-Atlantic with British Airways and Iberia and the forthcoming opportunity with Japan Airlines in the Pacific; as well as additional network enhancements in key markets. While there is clearly much more work to do, our results show significant improvement in revenue and reflect our continued dedication to controlling costs.”

Arpey also highlighted several recent developments that demonstrate the Company’s progress in executing on its strategic initiatives under Flight Plan 2020.

Joint Business with British Airways and Iberia

  • Since the end of the third quarter, American Airlines, British Airways and Iberia launched their joint business between North America and Europe after receiving approval from regulatory authorities earlier this year.


  • The AA, BA and IB trans-Atlantic business, initially representing approximately $7 billion in combined revenue between the carriers, will offer seamless service to approximately 433 destinations in 105 countries, with 5,178 daily departures worldwide.

  • As part of enhancing the new joint business, American, British Airways and Iberia announced service to four new key routes, service to which will begin in the Spring of 2011. They are: New York JFK-Budapest and Chicago-Helsinki (operated by American Airlines), London Heathrow-San Diego (operated by British Airways) and Madrid-Los Angeles (operated by Iberia). Also in the Spring of 2011, American will start offering additional frequencies from JFK to Barcelona and Miami to Madrid.


  • As American capitalizes on the new business opportunities with British Airways and Iberia, continues to strengthen its Cornerstone hubs and, in preparation for a pending alliance with Japan Airlines, the Company was pleased to announce recalls from furloughs of 545 flight attendants and 250 pilots.

Tentative DOT Approval for Antitrust Immunity with Japan Airlines


  • Since the close of the third quarter, American Airlines and Japan Airlines received tentative approval of the antitrust immunity application filed by the two airlines in February. By this action, the Department of Transportation has moved another step closer to granting antitrust immunity to the two airlines.


  • Under an immunized agreement, the two airlines anticipate cooperating commercially on flights between North America and Asia. This joint business opportunity represents significant growth opportunities for American long term as the Pacific region currently accounts for only about 4 percent of American’s total system capacity.

Enhancing Strategic Position in Los Angeles

  • Today, the Company announced the next step in its Cornerstone strategy, enhancing service in Los Angeles with a 28 percent increase in daily departures. AMR plans to launch new service from Los Angeles to Shanghai, China; as well as an additional nine new domestic markets by Spring 2011. New flights between Los Angeles and Shanghai are scheduled to begin on April 5, 2011.

Operating Results

  • AMR reported third quarter consolidated revenues of approximately $5.8 billion, an increase of 14.0 percent year-over-year.

  • American, its regional affiliates, and AA Cargo, all experienced double-digit, year-over-year increases, as total operating revenue was approximately $715 million better in third quarter 2010 compared to the third quarter of 2009.

  • Consolidated passenger revenue per available seat mile (unit revenue) grew 10.7 percent compared to the third quarter of 2009, and mainline unit revenue at American also grew 10.7 percent. Improving economic conditions and strong load factors drove higher unit revenue.


  • Passenger yield, which represents the average fares paid, increased at American by 10.7 percent year over year in the third quarter.


  • Mainline unit costs in the third quarter of 2010 decreased 0.7 percent year over year, excluding fuel costs and 2009 non-recurring charges.


  • Including the impact of fuel hedging, AMR paid $123 million more for jet fuel in the third quarter, at an average of $2.24 per gallon, than it would have paid at prices prevailing during the third quarter of 2009, when it paid $2.07 per gallon.


  • Mainline capacity, or total available seat miles, in the third quarter increased by 3.6 percent compared to the prior year’s third quarter, as the Company continues to maintain capacity discipline and selectively allocate capacity for growth markets such as China.


  • American’s mainline load factor – or percentage of total seats filled – was 84.0 percent during the third quarter, maintaining strong levels that are consistent with the year-ago period.

Balance Sheet Update

  • AMR ended the third quarter with approximately $5.0 billion in cash and short-term investments, including a restricted balance of $447 million, compared to a balance of $4.6 billion in cash and short-term investments, including a restricted balance of $459 million, at the end of the third 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 $16.2 billion at the end of the third quarter of 2010, compared to $15.7 billion a year earlier.


  • AMR’s Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $11.6 billion at the end of the third quarter, comparable to the third quarter of 2009.

Guidance

  • AMR expects its full-year mainline capacity to increase by 1.0 percent in 2010 compared to 2009, with domestic capacity up 0.2 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 1.4 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 fourth quarter of 2010 to increase by 3.4 percent compared to the fourth quarter of 2009, with domestic capacity expected to be up 0.5 percent and international capacity expected to be up 8.2 percent compared to fourth quarter 2009 levels. AMR expects consolidated capacity in the fourth quarter of 2010 to increase by 4.1 percent compared to the fourth quarter of 2009.

    Fuel Expense and Hedging


  • While the cost of jet fuel has been increasing recently and remains very volatile, based on the October 1 forward curve, AMR is planning for an average system price of $2.41 per gallon in the fourth quarter of 2010 and $2.31 per gallon for all of 2010. Consolidated consumption for the fourth quarter is expected to be 684 million gallons of jet fuel.

  • AMR has 40 percent of its anticipated fourth quarter 2010 fuel consumption hedged at an average cap of $2.33 per gallon of jet fuel equivalent ($84 per barrel crude equivalent), with 40 percent subject to an average floor of $1.77 per gallon of jet fuel equivalent ($61 per barrel crude equivalent). AMR has 38 percent of its anticipated full-year consumption hedged at an average cap of $2.42 per gallon of jet fuel equivalent ($90 per barrel crude equivalent), with 37 percent subject to an average floor of $1.82 per gallon of jet fuel equivalent ($65 per barrel crude equivalent).

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

  4Q2010 (est.) vs. 4Q2009 Full year 2010 (est.) vs. 2009

  H/(L) H/(L)
Mainline (0.5%) 4.4%
     Excluding Fuel (3.5%) 1.2%
Consolidated (0.2%) 4.4%
     Excluding Fuel (3.3%) 1.1%

  • The estimated 1.1 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.
Albuquerque, N.M. (3) Boise, Idaho (2)
El Paso, Texas (2) Houston Bush Intercontinental, Texas (3)
Oklahoma City, Okla. (1) Phoenix, Ariz. (4)
Shanghai, China (1) Salt Lake City, Utah (3)
Sacramento, Calif. (4) Salt Lake City, Utah (3)

In addition to Los Angeles-Shanghai, American will offer seven additional daily domestic flights from Los Angeles, including two flights each to Dallas/Fort Worth and Miami and one flight each to Chicago, Las Vegas and Orlando. By spring 2011, American and American Eagle will offer 153 daily departures at LAX – a 28 percent increase from today’s schedule. The airlines also have flexibility to add more flights and destinations in the future.

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