AMR expected to post second-quarter loss on drop in traffic from last year

AMR expected to post second-quarter loss on drop in traffic from last year

DALLAS — American Airlines parent AMR Corp. reports second-quarter earnings on Wednesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: AMR will be the first major airline operator to report earnings from the April-to-June quarter — and it’s expected to be the first of many that will post large losses.

The second quarter includes the beginning of the peak travel season and is usually a good one for the carriers. But the recession and an accompanying downturn in business travel have upset the natural rhythm of the airline industry.

Traffic has fallen sharply since the same period last year, and with fewer high-paying business travelers in the mix, AMR’s revenue is expected to plunge by 20 percent from the year-ago figures.



BY THE NUMBERS: AMR was expected to post a second-quarter loss of $1.28 per share, or about $365 million, according to a survey of analysts by Thomson Reuters as of Monday. Analysts expected revenue of $4.91 billion.

In the same quarter last year, AMR lost $1.45 billion, or $5.77 per share. Most of that, however, was due to a write-down of American’s fleet. Without the charges — which analysts exclude from their forecasts — AMR would have lost $284 million, or $1.13 per share.

Revenue in the second quarter of 2008 was $6.18 billion.

The drop in revenue reflects lighter traffic during the recession.

Traffic on Fort Worth-based American fell in June by 8.1 percent, or 7.9 percent after including regional affiliate American Eagle.

For the first half of 2009, traffic on American and American Eagle was off 10 percent, which was even faster than they could cut capacity by eliminating some flights. As a result, flights have been slightly less full this year than in the first half of 2008.

ANALYST TAKE: William Greene, an analyst for Morgan Stanley, said in a note to clients, “Liquidity is increasingly a concern,” although the company has untapped sources of cash, such as its frequent-flier program.

Greene said American’s challenges include labor negotiations, pension expenses, cost inflation and dependence on business travel.

WHAT’S AHEAD: Analysts say American and other major airlines need to build up cash during the summer vacation season to carry them through what is expected to be a slow winter. If not, they could face liquidity problems and even bankruptcy protection by early next year.

Fitch Ratings analyst Bill Warlick rates AMR among the most vulnerable airline companies — he says only United parent UAL Corp. and US Airways are in more danger of a liquidity crisis — based on cash reserves as a percentage of annual revenue.

Airlines would love to raise prices — that’s one reason they’re cutting the supply of seats by grounding some of their planes. But the slump in lucrative business traffic is forcing them to discount seats instead.

In May, passengers paid nearly 18 percent less per ticket than they did a year earlier, according to the Air Transport Association, a trade group for the big carriers.

Last month, AMR CEO Gerard Arpey warned that advance bookings through August — the peak of the summer travel season — were running behind last year’s pace, a development he called “terribly alarming.”

To cope, American expects to cut about 1,600 jobs and maybe more as it reduces flights to match the weaker demand.

STOCK PERFORMANCE: AMR shares rose 26 percent in the quarter, which sounds impressive until you realize they went to $4.02 from $3.19.

The shares traded at $4.22 at midday Monday, up 5 cents.