American Air profit aided by cost cuts, record revenue

Reuters

* Adjusted profit $1.38/share vs Street view $1.34

* Revenue rose, costs fell

* Merger partners open to settlement of U.S. suit, CEO says

Oct 17 (Reuters) - American Airlines parent AMR Corp reported higher-than-expected earnings on Thursday asit cut costs and revenue reached a record for any quarter.

The U.S. carrier, which is looking to emerge from bankruptcyby merging with US Airways Group Inc, has renegotiatedplane leases, cut management and frozen pension plans to lowercosts since filing for bankruptcy in November 2011. New laborcontracts with unions have also made it more cost-competitive.

Henry Harteveldt, a travel industry analyst with consultingfirm Hudson Crossing LLC, said the results, which representedAmerican's second consecutive quarterly profit, showed thatinitiatives the carrier began since its Chapter 11 filing paidoff in the seasonally strong third quarter, which includessummer vacation travel.

"Many of the moves American is taking in terms of refiningits network, adding flights for international travel were smartbusiness decisions," Harteveldt said.

Shares of AMR were up 8 percent to $5.56 in over-the-countertrading on Thursday. Other U.S. airline stocks also gained.

BETTER RESULTS AHEAD

AMR Chief Executive Tom Horton said more revenue and profitimprovement was to come as the carrier upgrades its fleet withnew planes and expands service to higher-growth markets. Forexample, a new flight from Dallas/Fort Worth to Hong Kong was announced this week.

"There are more cost savings to be had," Horton said in aninterview. "A number of new contracts with suppliers and vendorsdon't actually take effect until the day we exit restructuring."

Net income came to $289 million, or 76 cents a share, in thethird quarter, compared with a loss of $238 million, or 71 centsa share, a year earlier.

Excluding restructuring costs and special items, profit was$530 million, the most profitable quarter in company history,Horton said.

Adjusted for restructuring costs and other items, profitcame to $1.38 a share. Analysts' average estimate was $1.34,according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $6.8 billion, the highestquarterly total for that measure. Yield, a gauge of the averagefare paid per mile flown, rose 4 percent from the year earlierto 16.36 cents a mile, also a record. Passenger revenue peravailable seat mile, or unit revenue, rose 3.4 percent.

The revenue gain "indicates American is getting and keepingbusiness travelers and that it is also able to raise and managefares at the rate of inflation," Harteveldt said.

Operating costs fell about 4 percent, as expenses tied tosalaries fell 13 percent.

U.S. airlines have scaled back flying, pared money-losingroutes and gained new revenue sources with bag and seat fees torestore profitability. Most U.S. carriers will report earningsnext week.

American was once the largest U.S. airline but now ranksthird behind United Continental Holdings and Delta AirLines, both of which used Chapter 11 to cut costs. Foryears, American's higher cost structure put it at adisadvantage.

The U.S. Justice Department and several states sued to blockthe proposed merger with US Airways in August, arguing the $11billion deal would harm consumers by boosting airfares. A federal trial in the case is set to beginNov. 25.

American and US Airways contend the combination, which wouldform the world's biggest carrier, is needed to compete with United and Delta, which have already been allowed to merge.

Horton, who would be nonexecutive chairman of the mergedAmerican, said the companies were open to "a reasonable andcommon-sense settlement" of the U.S. lawsuit. He added that therecent agreement reached with Texas under which that statewithdrew its merger opposition showed that "cooperation canproduce results."

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