Earnings Preview: AMR expected to post 3Q loss

By DAVID KOENIG

posted: 38 DAYS 22 HOURS AGO

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DALLAS -AMR Corp., the parent of American Airlines, is scheduled to report third-quarter earnings on Wednesday. Following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: While several other airlines saw in increase in traffic in September, American did not. Traffic fell 3.5 percent compared with the same month in 2008.

Still, that was an improvement from bigger drop-offs in August and July. And the airline succeeded at cutting capacity — and as a result, some costs — by even bigger margins, so that its planes flew fuller this summer than during last summer.

But traffic wasn't the biggest story of the quarter for AMR. It was cash. AMR raised more than $4 billion by offering new stock, selling miles in its frequent-flier program and making other moves. It expects to end the third quarter with nearly $4 billion in unrestricted cash.

That's enough, analysts say, to put aside any suspicion that the nation's No. 2 airline operator could face a financial crisis this winter.

Now the airline has to figure out a way to boost revenue. In the third quarter, it increased fees on checked baggage, which will help at the margins. But American, which is highly dependent on business customers, is still waiting for a rebound in corporate travel.

BY THE NUMBERS: As of Monday afternoon, analysts surveyed by Thomson Reuters expected AMR to report that it lost 95 cents per share, or about $300 million, in the quarter that ended Sept. 30. Analysts exclude one-time gains and charges, so the figure could differ from the net loss that AMR is expected to report Wednesday.

In the same quarter of 2008, AMR earned $45 million, or 17 cents per share, thanks to the sale of its investment business. Without that sale and other one-time items, AMR would have lost $360 million, or $1.39 per share.

Analysts estimate AMR's revenue at $5.09 billion, a decline of 21 percent from $6.42 billion in last year's third quarter.

ANALYST TAKE: Daniel McKenzie, an analyst with Next Generation Equity Research, recently scaled back his forecast of revenue for AMR and worried that the company will lose more in 2010 than Wall Street expects.

"We would love to forecast a 2010 profit for AMR but we can't get there," he said in a recent note to clients. Still, he said, the company was making smart moves including raising cash.

WHAT'S AHEAD: American faces challenges on several other fronts.

The Federal Aviation Administration is reportedly widening an investigation into the soundness of some of the airline's planes. And it faces the potential loss of Japan Airlines as a valuable international partner, because financially strapped JAL is being wooed by rival Delta.

Meanwhile, the pilots union at American has come out against the company's plan to form a joint venture with British Airways and Spain's Iberia. And contract negotiations have bogged down with pilots, flight attendants and ground workers.

STOCK PERFORMANCE: AMR shares nearly doubled in the third quarter, rising from $4.02 to $7.95. That wasn't quite as dramatic as the near tripling of shares in United parent UAL, but topped gains in the stock of rivals Delta and Continental.

In Monday's trading, they fell 21 cents, or 3 percent, to close at 7.45.

2009-10-19 17:01:14