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AMR Corporation Reports Third Quarter 2011 Financial Results

AMR Reports Third Quarter 2011 Results, Takes Action To Improve Financial And Operational Performance

Gerard J. Arpey
Retired Chairman and CEO, 
AMR Corp. and American Airlines 
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Thomas W. Horton
Chairman, President 
& Chief Executive Officer 
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Isabella Goren 
Senior Vice President
& Chief Financial Officer 
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Virasb Vahidi
Senior Vice President & Chief Commercial Officer, American Airlines 
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Jeffrey J. Brundage
Labor Relations Senior Advisor, American Airlines 
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AMR Corporation today reported a net loss of $162 million for the third quarter of 2011 compared to a net profit of $143 million for the same period of 2010.  These results reflect the adverse impact of quarter-end volatility in WTI crude oil prices and foreign exchange rates (details in full release).  Altogether, these items, which the Company described on Oct. 10, increased AMR’s net loss by approximately $50 million or 15 cents per share.

In the third quarter, the Company’s overall performance was negatively impacted by fuel prices, which increased 41 percent compared to the prior year period. Taking into account the impact of fuel hedging, AMR paid on average $3.15 per gallon for jet fuel in the quarter versus $2.24 per gallon in the third quarter of 2010. As a result, the Company paid $653 million more for fuel in the third quarter of 2011 than it would have paid at prevailing prices from the corresponding prior-year period.

American’s Actions to Improve Financial and Operational Performance

American is taking several actions to improve financial and operational performance in the following areas (details in release):

  • Capacity Reduction
  • 757 Retirements
  • Driving revenue performance from Trans-Atlantic and Trans-Pacific Joint Businesses
  • $726 million EETC Public Offering
  • Operational Progress

 

Financial and Operational Performance

  • AMR reported third quarter consolidated revenues of approximately $6.4 billion, an increase of 9.1 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 $534 million higher in the third quarter of 2011 compared to the third quarter of 2010.
  • Consolidated passenger revenue per available seat mile (unit revenue) grew 8.7 percent, while mainline unit revenue at American grew 8.1 percent, in each case compared to the third quarter of 2010.
  • Improving economic conditions and increased load factors drove higher unit revenue.
    • Passenger yield, which represents the average fares paid, increased at American by 7.0 percent year-over-year in the third quarter.
  • In Latin America, the Company's largest international entity, AMR's Latin American unit revenue was up almost 20 percent versus 2010 on both strong yields and load factors, with South America up nearly 25 percent.
  • Mainline unit costs, excluding fuel, in the third quarter increased 3.9 percent year-over-year excluding fuel costs, which reflects the impacts of unit cost headwinds associated with lower than planned 2011 capacity, as well as higher aircraft rent and expenses associated with higher revenues.
  • Mainline capacity, or total available seat miles, was flat in the third quarter of 2011 compared to the prior year's third quarter, as the Company continues to maintain capacity discipline.
  • American's mainline load factor - or percentage of total seats filled - increased 0.9 points to 84.9 percent during the third quarter of 2011 compared to the prior year period.

Balance Sheet Update

  • As of Sept. 30, AMR had approximately $4.8 billion in cash and short-term investments, including a restricted balance of approximately $474 million. This compares to a balance of $5.0 billion in cash and short-term investments, including a restricted balance of $447 million, at the end of the third 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 $16.9 billion at the end of the third quarter of 2011, compared to $16.2 billion a year earlier. AMR’s Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $12.6 billion at the end of the third quarter, compared to $11.6 billion in the third quarter of 2010.

Guidance

Fuel Expense and Hedging

  • While the cost of jet fuel has been increasing recently and remains very volatile, based on the Oct. 7 forward curve, AMR is planning for an average system price of $3.02 per gallon in the fourth quarter of 2011 and $3.01 per gallon for all of 2011. Consolidated consumption for the fourth quarter is expected to be 667 million gallons of jet fuel.
  • AMR has 52 percent of its anticipated fourth quarter 2011 fuel consumption hedged at an average cap of $3.01 per gallon of jet fuel equivalent ($88 per barrel crude equivalent), with 41 percent subject to an average floor of $2.23 per gallon of jet fuel equivalent ($55 per barrel crude equivalent). 
  • AMR has 51 percent of its anticipated full-year consumption hedged at an average cap of $2.77 per gallon of jet fuel equivalent ($83 per barrel crude equivalent), with 39 percent subject to an average floor of $2.08 per gallon of jet fuel equivalent ($55 per barrel crude equivalent).

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

  • Fuel prices are expected to continue being a significant cost headwind in 2011. The company’s cost per available seat mile for the fourth quarter of 2011, excluding fuel and the potential impact of any new labor agreements, is now expected to increase between 6.2 percent and 6.6 percent on a consolidated basis.  This increase is primarily driven by the lag in reducing expenses commensurate with the Company’s recent additional capacity reductions.  The fourth quarter is also impacted by cost pressures associated with higher aircraft rent and higher revenue related costs.  The Company’s cost per available seat mile for full year 2011, excluding fuel and the potential impact of any new labor agreements, is expected to increase 2.0 to 3.0 percent, both on a mainline and consolidated basis.

 


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