AMR Corporation Reports a Fourth Quarter Loss

19th Jan 2005

AMR Corporation ,
the parent company of American Airlines, Inc., today reported a net loss
of $387 million in the fourth quarter, or $2.40 per share. This compares
to last year’s fourth quarter loss of $111 million, or $0.70 per share.
For the year, AMR posted a net loss of $761 million, compared to 2003’s
loss of $1.2 billion. AMR’s fourth quarter 2004 and 2003 results include a handful of special
items, both gains and losses. Fourth quarter 2004 special items totaled a
net gain of $86 million, or $0.54 per share, and primarily included a $146
million gain on the sale of American’s interest in Orbitz, $42 million in
severance charges, and $21 million in aircraft charges. Fourth quarter
2003 special items totaled a net charge of $16 million, or $0.11 per
share. For the full year, special items totaled a net gain of $135 million
in 2004, and a net gain of $265 million in 2003.

“As expected, the fourth quarter proved to be a disappointing end to a
very difficult year,” said AMR Chairman and CEO Gerard Arpey. “AMR’s
results for the fourth quarter of 2004 reflect the economic woes that
plagued the airline industry throughout 2004—in particular, high fuel
prices and a tough revenue environment.”

During the quarter, Arpey said, the company paid 59 cents, or 67 percent,
more per gallon of fuel than it did during the same period in 2003. That
translated into $477 million in incremental fuel costs, which added about
one cent to AMR’s cost per available seat mile of 10.69 cents. For the
entire year, higher fuel prices cost AMR $1.1 billion. “Unfortunately, low
fares and the continuing high price of fuel are masking a lot of the
progress we have made in reducing costs,” he said.

Meanwhile, American’s revenue per available seat mile declined 3.1
percent, driven by a 6.7 percent drop in passenger yield (passenger
revenue per passenger mile). “As in the third quarter, low fares were
driven by an excess of industry capacity, the continued growth of low cost
carriers, and the pricing behavior of distressed competitors,” Arpey said.
He added that external factors such as these are not an excuse, but rather
a reminder that American must sustain its intense focus on reducing costs
and increasing revenue wherever and however possible.

“The issues we are grappling with are not new to us, and in fact, in 2004
we made a lot of headway in addressing them,” Arpey said. “The
productivity of our people, and of our fleet, is higher than it has ever
been. We are running a smarter, more efficient airline than we were a year
ago. We have improved our performance relative to the rest of the industry
on both the revenue and cost sides of the ledger.”


While these accomplishments were not enough to overcome a difficult
environment, they did enable American to finish 2004 with more than $3.4
billion in total cash and short-term investments (including $478 million
in restricted cash and short-term investments), Arpey said. American
continued to make payments to all of its pension programs in 2004,
contributing $461 million to its defined benefit plans. These payments, on
top of those made in recent years, have helped improved the funded level
of the defined benefit plans from a low of 72 percent in 2002 to about 80
percent at the end of 2004. Since the beginning of 2005, American has
contributed a further $42 million to its defined benefit pension programs.

Arpey said he expects 2005 to be another very difficult year. However, the
company does anticipate positive impacts from many initiatives announced
or launched in 2004. These include reductions in domestic capacity,
additional seats on the airline’s MD80, 737, 767 and 777 fleets, several
new international routes, a simplified domestic operation and various
revenue- producing initiatives.

Several fleet decisions will be particularly helpful to the company going
forward, Arpey said. These include decisions to withdraw from American’s
fleet in 2005 the equivalent of 15 mainline jet aircraft; to forgo
delivery of 18 regional jets for the American Eagle affiliate, and to
defer the delivery of 54 of 56 mainline jets from Boeing. The arrangement
with Boeing allows American to postpone $1.4 billion in capital spending
previously planned for 2005 through 2007 and a total of $2.7 billion in
capital spending through 2010.

The workforce reductions American instituted last year, though difficult
to make, also will help the company as it works to meet continuing
financial challenges in 2005, Arpey said. The reductions resulted from a
combination of factors, including fleet decisions, capacity adjustments
and steps to simplify operations. Although the full extent of the
reductions is still being determined, Arpey said the total impact
currently stands at 3,200 jobs.

Despite much progress, AMR anticipates a loss during the first quarter of
2005. “This simply means our work is not done,” Arpey said. “We must
continue to focus on finding creative ways to lower costs, increase
revenue and provide our customers with the kind of service they value.”



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