American Airlines parent AMR on Wednesday posted a smaller-than-expected fourth-quarter loss, but it showed airlines' continuing vulnerability to high fuel costs.
The company said its fuel bill jumped by 29 percent in the quarter as the price of oil flirted with a record-high USD$100 per barrel. AMR predicted another increase in fuel costs in the first quarter of 2008.
AMR is the first major airline company to report fourth-quarter earnings, and its results set the tone for other airlines due to report in the coming weeks.
"Most of the airlines would have made a profit if you hadn't had that that huge spike in oil," said Ray Neidl, airline analyst at Calyon Securities.
He said, however, that demand remains strong despite potential weakness in the US economy.
Nevertheless, carriers are having a hard time passing fuel costs on to customers through fare increases and surcharges. An attempt last week by United Airlines was initially matched by rivals but was later withdrawn.
The airline industry has been battered in recent years by intense competition. A budding recovery, however, is in jeopardy and airlines are seriously considering mergers as a way to cut excess capacity and costs.
AMR on Wednesday announced a cost savings goal of USD$150 million for 2008, compared with a 2007 target of USD$300 million.
"Over the past five years, we've removed over USD$5.8 billion worth of costs from our airline," said AMR Chief Financial Officer Tom Horton. "Given our progress, it obviously becomes more difficult to find high value cost initiatives.
Horton also said AMR's planned divestiture of regional carrier American Eagle likely would take place in the second half of 2008. Horton declined to say what form the divestiture would take.
Shares of AMR rose 58 cents, or 4.39 percent, to USD$13.78 in late-afternoon trade on the New York Stock Exchange. Its shares fell 28 percent in the quarter, compared with a 22 percent drop in the Amex airline index.
AMR posted a net loss of USD$69 million, reversing a year-earlier profit of USD$17 million.
Special items included a USD$138 million gain on the sale of AMR's stake in ARINC, a provider of transportation communications and systems engineering.
AMR said its revenue during the quarter was USD$5.68 billion, up from USD$5.4 billion a year earlier, and it paid USD$1.87 billion for fuel.
"While record fuel prices contributed significantly to our fourth-quarter loss -- our first quarterly loss after six straight profitable quarters -- they are a reminder of the challenges we must continue to overcome as we strive for consistent and adequate profitability," AMR Chief Executive Gerard Arpey in a statement.
For the first quarter of 2008, mainline unit costs -- including fuel -- are expected to increase 13.1 percent compared with a year earlier, it said.
AMR and other carriers have compensated for the fuel spike by cutting capacity and flying fuller plans. AMR said its load factor was 80.2 percent in the fourth quarter, compared with 78.8 percent a year ago.
The company ended the quarter with USD$5 billion in cash and short-term investments.
AMR said it expects its mainline capacity to grow by 1 percent in 2008 over 2007. That increase will be on lucrative international routes. AMR plans to cut its domestic capacity by 0.4 percent.
For fuel, the company is planning for an average system price of USD$2.64 per gallon in the first quarter and USD$2.65 per gallon for all of 2008. AMR has 35 percent of its anticipated first-quarter fuel consumption capped at an average crude equivalent of USD$77 per barrel, which is the jet fuel equivalent of USD$2.21 per gallon.
The company said 24 percent of its anticipated full-year consumption is capped at an average crude equivalent of USD$79 per barrel -- USD$2.31 per gallon of jet fuel.
