AMR trims 1Q loss as labor costs fall

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Associated Press

Posted on April 18, 2013 at 11:00 AM

Updated Thursday, Apr 18 at 12:00 PM

DALLAS (AP) — American Airlines parent AMR Corp. reported a smaller loss for the first quarter than a year ago on slightly higher revenue and much lower labor costs.

The nation's third-largest airline said Thursday that it would've earned $8 million excluding costs of its bankruptcy restructuring.

The first quarter is the weakest of the year for airlines, and this marked AMR's first adjusted profit in the period since 2007.

"A modest first quarter profit shows that we are off and running for the year," CEO Tom Horton said in an interview.

American stumbled on that running start this week, as a computer-systems outage grounded all of its U.S. departures for several hours on Tuesday, stranding tens of thousands of passengers. The airline has been trying to recover since, but cancelations, including those likely caused by bad weather, continued on Thursday.

Horton said the company has fixed the computer problem and is confident it will avoid another meltdown.

AMR reported a first-quarter loss of $341 million, including restructuring costs, compared with a loss of $1.66 billion in the same period last year.

Revenue rose 1 percent to $6.1 billion. Labor costs declined 17 percent — a savings of $298 million — as American cut jobs. Labor is American's second-biggest expense behind jet fuel.

Horton said the company's bankruptcy restructuring made its costs competitive with other airlines. He said that AMR will show even more savings in the second quarter as it benefits from renegotiating deals with vendors and suppliers for things such as aircraft leases.

AMR is in the process of merging with US Airways and emerging from bankruptcy protection around September. If antitrust regulators approve the merger, the combined airline will be the biggest in the world.

Once that deal is done, mergers will have reduced eight big U.S. airline companies to four. At the same time, airlines have limited the supply of seats, which helps boost prices. American enjoyed it highest average fare per mile ever in the January-March period.

American's on-time performance improved in the first quarter. But it suffered a setback this week with the computer-systems breakdown that caused massive delays and cancellations Tuesday and Wednesday.

At midday Thursday, American had canceled about 140 flights and smaller-jet affiliate American Eagle had canceled more than 300, according to flight-tracking services. Together, they operate about 3,300 flights a day.

American's problems were concentrated in Dallas and in Chicago, where bad weather was interrupting departures, according to the Federal Aviation Administration. United Airlines, based in Chicago, had nearly as many cancellations as American by noon Thursday.

When the computers went down earlier this week, Horton apologized to customers in a YouTube video and blamed the outage on a "software issue." He declined to be much more specific Thursday.

"We do understand the cause of the failure," Horton said. "We're continuing to investigate and do further testing, but we have a high degree of confidence that situation won't recur."

John F. Thomas, an aviation consultant with L.E.K. Consulting, said airline computer systems are among the most complex because of the need to connect with other networks inside and outside the company.

As the airline industry suffered financial problems in the past decade — AMR is just the latest of several to go through bankruptcy — the carriers lacked money to upgrade their systems, Thomas said. Now that most airlines are earning profits, "the tide has turned and ... they are starting to make the investments," he said.

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AP Airlines Writer Joshua Freed in Minneapolis contributed to this report.

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David Koenig can be reached at http://www.twitter.com/airlinewriter

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