AMR Taking Aggressive Action to Improve Financial and Operational Performance

FORT WORTH, Texas, Oct. 19, 2011 /PRNewswire/ — AMR Corporation (NYSE: AMR), the parent company of American Airlines, Inc., today reported a net loss of $162 million, or $0.48 per diluted share, for the third quarter of 2011, compared to a net profit of $143 million, or $0.39 per diluted share, 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. WTI prices decreased, while jet fuel prices remained high, which resulted in a non-cash item relating to fuel hedging ineffectiveness being recorded in fuel expense. In addition, foreign exchange rates were volatile and the U.S. dollar strengthened during the period, and as a result of revaluing foreign assets, the Company incurred a foreign exchange loss. 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.

“While the third quarter was challenging for American Airlines, we are taking aggressive actions to improve the Company’s performance and strengthen its foundation for long-term success,” said AMR Chairman and CEO Gerard Arpey. “We have put in place many of the critical building blocks for a successful future, including a strong network and alliance partnerships, accelerated fleet renewal plans and innovative products and services to enhance our customers’ experience. At this point, our immediate top priority is to address the key remaining foundational issue, which is our cost structure, so that we can change the competitive dynamics and move our company forward on the path to profitability.”

Arpey also highlighted several recent actions American has taken to address its near-term performance and strengthen the foundation for its success over the long term:

Capacity Reduction

In October, American Airlines announced it will adjust its late fall and winter schedule, which is expected to result in fourth quarter mainline capacity that is approximately 3 percent lower on a year-over-year basis.

While advance bookings are generally in line with last year, the Company is taking these additional steps in light of the uncertain economic environment, ongoing high fuel costs and to ensure it runs a reliable schedule for its customers given additional pilot retirements it anticipates throughout the fourth quarter.

With these latest moves, American expects full year 2011 capacity to be up about 0.4 percent year-over-year for mainline and consolidated capacity will be up approximately 1.2 percent. The Company’s initial plan, announced in January, called for full year mainline capacity to increase and consolidated capacity to increase by more than 3 and 4 percent respectively.

757 Retirements

In October, American also announced plans to retire up to 11 Boeing 757s in 2012. The retirements will result in maintenance and fuel cost savings.

Driving Revenue Performance from Trans-Atlantic and Trans-Pacific Joint Businesses

American is taking additional steps to achieve value from its joint businesses with British Airways and Iberia in the Atlantic and Japan Airlines in the Pacific, including working with its partners to capitalize on strong point-of-sale demand in Europe and Japan.
In an effort to maximize the revenue-generating potential from its joint business with British Airways and Iberia, American recently made adjustments in four areas – pricing, scheduling, co-location and corporate sales.
To improve its performance across the Pacific, American is working closely with Japan Airlines to tailor a more focused schedule of connecting flights to meet the needs of its trans-Pacific customers.
In the third quarter, American signed more than 100 joint corporate deals for the trans-Atlantic and trans-Pacific businesses and has secured commitments for increased revenue from several of its key customers.

$726 million EETC Public Offering

On Oct. 4, American completed a $726 million enhanced equipment trust certificates (“EETC”) public offering, which refinanced in part certain debts that matured or were scheduled to mature in the fourth quarter 2011 and beyond.

Operational Progress

During the third quarter, American improved its arrival performance into Dallas/Fort Worth, Chicago and Miami by approximately 3 percentage points compared to the corresponding period last year. Improved arrivals have also enhanced connections and baggage handling. American’s DOT bag rate improved by approximately 10 percent year-over-year.

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 2011 than in the third quarter of 2010.

Consolidated passenger revenue per available seat mile (unit revenue) grew 8.7 percent compared to the third quarter of 2010, and mainline unit revenue at American also grew 8.1 percent. 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 2011.

In Latin America, the Company’s largest international entity, AMR continues to see strong year-over-year growth, particularly in South American markets. In fact, in the third quarter, 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. During the third quarter, the Company implemented several pricing initiatives in a number of Latin American markets that contributed to these results.

Mainline unit costs in the third quarter 2011 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 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 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 $474 million, compared 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 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 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 2011, compared to $11.6 billion at the end of the third quarter 2010.

Guidance for the Fourth Quarter 2011

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 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 to be a significant cost headwind in 2011. The Company’s cost per available seat mile for the fourth quarter 2011, excluding fuel and the potential impact of any new labor agreements, is now expected to increase between 6.2 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.