AMR Corporation Reports Second Quarter 2011 Net Loss of $286 Million

FORT WORTH, Texas, July 20, 2011 /PRNewswire/ — AMR Corporation (NYSE: AMR), 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 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 2010. As a result, the Company paid $524 million more for fuel in the second quarter 2011 than it would have paid at prevailing prices from the corresponding prior-year period.

“This past quarter was challenging in many respects,” said AMR Chairman and CEO Gerard Arpey. “We remain acutely focused on taking the necessary steps to manage through our near-term challenges while continuing to lay the foundation for long-term success. We believe we have the right framework under our Flight Plan 2020 strategy to achieve our long-term objectives for the benefit of all our stakeholders, and today we took several major steps forward. I would also like to thank all of our employees for their efforts to serve our customers, particularly during the extreme weather conditions and tornadoes in April and May, and for their hard work and dedication during a very busy summer.”

Arpey outlined 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 American’s 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 it intends to discontinue operating its reservations office in Dublin, Ireland, to reduce its operating costs.
American also applied for a waiver from the U.S. Department of Transportation to temporarily suspend service from New York’s 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.

AMR Corporation Announces Landmark Fleet Agreements with Boeing and Airbus to Transform American’s Narrowbody Fleet

AMR today announced landmark agreements with Boeing and Airbus that will enable 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.

Under the new agreements, American will acquire 460 narrowbody aircraft from the Boeing 737 and Airbus A320 families beginning in 2013 — the largest aircraft order in aviation history. As part of these agreements, starting in 2017 American will become the first U.S. network airline to begin taking delivery of “next generation” narrowbody aircraft that will further accelerate fuel-efficiency gains.

These new deliveries are expected to pave the way for American to have the youngest and most fuel-efficient fleet among its U.S. airline peers in approximately five years. American also will benefit from approximately $13 billion of committed financing from the manufacturers through lease transactions that will help maximize balance sheet flexibility and reduce risk. The financing fully covers the first 230 deliveries. (AMR provided additional details in a separate news release issued this morning. Please refer to that release for more details).

In addition, American now has eight Boeing 777-300ERs that are scheduled for delivery in 2012 and 2013, including three additional aircraft for which options were recently exercised. These 777-300ERs will complement American’s fleet, offering additional network flexibility, and providing increased efficiency due to better seat mile economics and performance characteristics.

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.

(AMR provided additional details regarding American Eagle in a separate news release issued this morning. Please refer to that release for more details).

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 than in the second quarter 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 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 in Dallas/Fort Worth and the continued impact of the earthquake and tsunami that struck Japan in March.

American’s passenger yield, which represents the average of fares paid, increased 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 second quarter 2010, 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 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 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 2011, compared to $16.1 billion a year earlier.

AMR’s 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 2010.

Other Second Quarter and Recent Highlights

Malaysia Airlines announced it is joining oneworld®, adding one of aviation’s most frequent award winners to the world’s leading quality airline alliance. Malaysia Airlines and its subsidiaries serve almost 100 destinations globally in more than 30 countries across Asia, Australasia, Europe, Africa and North and South America. Malaysia Airlines is expected to start flying as a member of oneworld late next year.

American Airlines and Qantas announced they are seeking regulatory approval for a joint business agreement (JBA) on their services between Australia/New Zealand and the United States, within these regions, and to countries beyond. If approved, the JBA will create a new strategic partnership between Qantas and American involving close commercial cooperation and resulting in significant benefits for consumers.

In July, American entered into a sale-leaseback arrangement with AerCap, a leading independent aircraft leasing company, to finance up to 35 Boeing 737-800 Next Generation aircraft, including 29 firm deliveries, scheduled to be delivered to American. The arrangement also covers six Boeing 737-800 Next Generation aircraft subject to purchase rights that, if exercised by American, would be scheduled for delivery in 2013 – 2014.

On July 7, Priceline said that its online airline ticketing service is now booking more than 1,000 tickets a day through American Airlines AA Direct Connect. Priceline.com has been booking tickets through AA Direct Connect for approximately six months.

American Airlines and Citi Cards have launched the Citi Executive(SM) / AAdvantage® World Elite™ MasterCard® (Citi Executive / AAdvantage card), which will deliver premium travel services and experiences to American Airlines customers. The new Citi Executive / AAdvantage card offers unprecedented airline benefits that allow cardmembers to travel in comfort and style.

Guidance

Mainline and Consolidated Capacity

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 2011 to be 1.0 percent higher than third quarter 2010, 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 year-over-year.

Fuel Expense and Hedging

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 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).

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

Fuel prices are expected to continue to be a significant cost headwind in 2011. AMR remains intensely focused on containing costs, despite significant fuel price and other headwinds in a number of areas, including facilities and healthcare costs. As a result, cost per available seat mile for 2011, excluding fuel and the potential impact of any new labor agreements, is now expected to increase 0.5 percent to 1.5 percent compared to 2010.