AMR Corporation Reports 2Q 2011 Net Loss of $286 Million, Announces Landmark Aircraft Agreement and Eagle Divestiture Plan
Gerard J. Arpey
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Thomas W. Horton
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Daniel P. Garton
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AMR Corporation, the parent company of American Airlines, Inc., today reported a net loss of $286 million for the second quarter of 2011, or $0.85 per share, compared to a net loss of $11 million, or $0.03 per share, in the second quarter of 2010.
The Company's second quarter performance was negatively impacted by fuel prices that increased 31 percent compared to the second quarter of 2010. Including the impact of fuel hedging, AMR paid on average $3.12 per gallon for jet fuel in the second quarter of this year versus $2.37 per gallon in the second quarter of 2010. As a result, the Company paid $524 million more for fuel in the second quarter of 2011 than it would have paid at prevailing prices from the corresponding prior-year period.
Several immediate actions the company is taking to be more competitive and efficient, including the following:
- American has adjusted its network for the fall, with the cancellation of its San Francisco to Honolulu and Los Angeles to San Salvador flights, as well as a number of other adjustments to reduce costs and improve revenue performance.
- In conjunction with Americans trans-Atlantic joint business partners, the company is evaluating its winter flying, and anticipates making seasonal route and day-of -week flying adjustments in early 2012 to improve its results.
- American announced today that it intends to discontinue operating its reservations office in Dublin, Ireland, to reduce its operating costs.
- American applied for a waiver from the U.S. Department of Transportation to temporarily suspend service from New Yor'ks JFK to Tokyo's Haneda Airport through mid 2012. American plans to suspend its service to Haneda beginning in early September, in an effort to help it offer service more in line with market demand, as Japan continues to recover from March's earthquake and tsunami.
- Today, the company announced landmark agreements with Boeing and Airbus that will allow it to transform American's narrowbody fleet. These new aircraft will allow American to reduce its operating and fuel costs and deliver a broad range of state-of-the-art amenities to customers, while maximizing the Company's financial flexibility. Learn More.
AMR Corporation Announces Intent to Move Forward with the Divestiture of American Eagle
AMR announced today its intent to move forward with the divestiture of AMR Eagle Holding Corporation ("Eagle"). AMR currently expects the divestiture to take the form of a spin-off of Eagle stock to the shareholders of AMR. Strategically, AMR believes a divestiture would be beneficial, as it would help ensure American maintains competitive rates and services for its regional feed into the future. A divestiture would also provide Eagle an opportunity to vie for the business of other mainline carriers and allow the carrier to expand its operations. Learn More.
Financial and Operational Performance
- AMR reported second quarter consolidated revenues of approximately $6.1 billion, an increase of 7.8 percent year over year.
- American, its regional affiliates, AA Cargo, as well as the‘other revenue category, experienced year-over-year increases, as total operating revenue was approximately 440 million higher in second quarter 2011 compared to the second quarter of 2010.
- Consolidated passenger revenue per available seat mile (unit revenue) grew 4.9 percent, while mainline unit revenue at American grew 4.3 percent, in each case compared to the second quarter of 2010.
- The Company's second quarter unit revenue performance reflects a modestly improved revenue environment year-over-year. AMR faced a number of revenue headwinds in the quarter, including extreme weather events during the quarter in Dallas-Fort Worth and the continued impact of the earthquake that struck Japan in March. Passenger yield, which represents the average fares paid, increased at American by 4.6 percent year-over-year in the second quarter.
- Mainline unit costs, excluding fuel, in the second quarter increased 1.4 percent year-over-year. Non-fuel unit cost performance reflects the impact of American's cost reduction efforts, offset by weather-related operational disruptions and the previously announced capacity reductions.
- Mainline capacity, or total available seat miles, in the second quarter increased by 2.1 percent compared to the prior years second quarter, as the Company selectively added capacity to key markets, such as Asia.
- American's mainline load factor _ or percentage of total seats filled _ was 83.6 percent during the second quarter of 2011, which compares to a load factor of 83.9 percent in the year ago period.
Balance Sheet Update
- AMR ended the second quarter with approximately $5.6 billion in cash and short-term investments, including a restricted balance of approximately $457 million. This compares to a balance of $5.5 billion in cash and short-term investments, including a restricted balance of $461 million, at the end of the second quarter of 2010. 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 $17.1 billion at the end of the second quarter of 2011, compared to $16.1 billion a year earlier. AM'Rs Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $11.9 billion at the end of the second quarter, compared to $11.0 billion in the second quarter of 2010.
Mainline and Consolidated Capacity
Fuel Expense and Hedging
- In light of incremental 2011 capacity reductions, AMR now expects its full-year mainline capacity to be up 1.9 percent versus 2010, with domestic capacity down 0.1 percent and international capacity up 5.0 percent compared to 2010 levels. On a consolidated basis, AMR now expects full-year capacity will be up 2.6 percent. AMR expects mainline capacity in the third quarter of 2011 to be 1.0 percent higher than last year, with domestic capacity expected to be down 0.8 percent and international capacity expected to be up 3.6 percent. AMR expects consolidated capacity in the third quarter of 2011 to be up 1.6 percent.
Mainline and Consolidated Cost per Available Seat Mile (CASM), Excluding Special Items
- The cost of jet fuel has been increasing and remains very volatile. Based on the July 12 forward curve, AMR is planning for an average system price of $3.15 per gallon in the third quarter of 2011 and $3.06 per gallon for all of 2011. This compares to an average system price of $2.32 per gallon in 2010. Consolidated consumption for the third quarter is expected to be 723 million gallons of jet fuel.
- AMR has 50 percent of its anticipated third quarter 2011 fuel consumption hedged at an average cap of $2.89 per gallon of jet fuel equivalent ($87 per barrel crude equivalent), with 39 percent subject to an average floor of $2.15 per gallon of jet fuel equivalent ($56 per barrel crude equivalent).
- AMR has 48 percent of its anticipated full-year consumption hedged at an average cap of $2.73 per gallon of jet fuel equivalent ($84 per barrel crude equivalent), with 37 percent subject to an average floor of $2.05 per gallon of jet fuel equivalent ($56 per barrel crude equivalent).
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Related Information and Links
The senior management of AMR will review, among other things, details of AMRs second quarter financial results, the industry environment, recent strategic initiatives, the revenue environment, cash flow results, liquidity measures, capital requirements and will provide an outlook for the future during a teleconference on Wednesday, June 20, 2011, at 2:00 p.m. ET/1:00 p.m. CT.