American Can Compete Whether It Merges Or Not - CEO
American Airlines doesn't need to take part in a big merger to stay competitive in an industry set to be transformed by consolidation, the chief executive of its parent company said on Wednesday.
Speaking after AMR reported a hefty quarterly loss due to skyrocketing fuel costs, Gerard Arpey said the No. 1 US airline has not decided what its role in a consolidated industry might be, two days after Delta Air Lines announced its plan to buy rival Northwest Airlines.
"We're fortunate to have a very strong network regardless of any consolidation that may or may not take place in the industry," Arpey said.
"We may or may not participate in consolidation," Arpey added. He said, however, that the airline would be alert to opportunities to buy assets that could be sold during the merger of rivals.
AMR on Wednesday reported a first-quarter loss as the company grappled with the soaring fuel prices that have walloped the industry overall.
Those rising costs combined with a weak economy helped prompt the proposed Delta/Northwest deal on Monday and could spur a wave of further consolidation amid fears of falling travel demand.
AMR said it would cut capacity and accelerate its fleet renewal plan in hopes of boosting revenue and cost savings. Its shares 10 percent after an 8 percent sell-off on Tuesday, but pared those gains later in the day.
"The first quarter proved yet again that fuel prices remain one the of the biggest threats to our industry and our company, and we also can't ignore the ongoing concerns about the US economy and the potential impact on travel demand," said Arpey in a statement.
AMR is still smarting from last week's public relations debacle when it canceled 3,000 flights for maintenance checks. Arpey apologized again to passengers who were affected.
The impact of the crisis will not be clear until the release of second-quarter results, although Chief Financial Officer Tom Horton reiterated that the cancellations probably would cost the airline "tens of millions" of dollars.
Also on Wednesday, AMR said it would sell American Beacon Advisors, its asset-management subsidiary, to Lighthouse for about USD$480 million.
The carrier's first-quarter loss amounted to USD$328 million, compared with a profit of USD$81 million a year earlier.
Revenue rose to USD$5.7 billion from USD$5.4 billion a year earlier. AMR ended the quarter with USD$4.9 billion in cash and short-term investments.
AMR shares closed Wednesday 4.1 percent higher at USD$8.92 on the New York Stock Exchange.
Jet fuel was by far the carrier's biggest expense in the quarter. AMR paid USD$2.1 billion for fuel -- USD$2.74 per gallon, which is a 48 percent increase over the same quarter a year earlier. The company predicted a fuel price of USD$3.01 per gallon for the second quarter.
The airline industry has been hit this year by high fuel prices, which are directly related to the price of oil. Nymex crude oil notched a record high above USD$115 a barrel on Wednesday.
American and other major carriers have attempted to offset this burden by raising ticket prices, although fare increases have not kept pace with rising fuel prices.
The carrier said it planned to reduce its 2008 mainline capacity by 1.4 percent for the year. It would cut domestic capacity by 3.6 percent and increase capacity on lucrative international routes by 2.5 percent.
Additionally, AMR said it will speed the replacement of its aging, thirsty MD-80 aircraft with more fuel-efficient Boeing 737-800s. The company expects to take delivery of 34 737s in 2009 and 36 737s in 2010.