AMR takes a hit from safety checks
American Airlines said Wednesday that it may have lost about $75 million because of the cancellation of more than 3,300 flights last week after it was forced to ground nearly half of its fleet because of missed aircraft inspections.
The nation’s largest carrier said the final tally would probably be in the “high tens of millions of dollars” but it wouldn’t know the exact cost until it had calculated the additional expense of reimbursing stranded passengers. Those costs could be offset somewhat by savings from not having had to fly the planes, the airline said.
The revised cost estimates -- far greater than the $30 million initially estimated by some analysts -- came after the parent company of the Fort Worth-based carrier, AMR Corp., reported that it had lost $328 million in the first quarter, primarily because of high fuel costs. In the year-earlier period, the company had a profit of $81 million.
The latest quarter results did not include the lost revenue and expenses related to last week’s cancellations. Those losses will be reflected in its second-quarter report.
“To say 2008 is off to a challenging start would be a serious understatement,” Chief Executive Gerard Arpey said Wednesday in an internal memo to employees. “Our first-quarter challenges, both financial and operational, have clearly followed us into the second quarter.”
Despite the gloomy outlook, shares of AMR rose 4.1% as the airline announced it was cutting back on capacity -- the number of seats for sale -- to cope with escalating jet fuel prices. It also agreed to sell its American Beacon Advisors Inc. investment unit for $480 million, giving it what it called a “cash cushion” to better weather rising fuel expenses.
The cutbacks were the latest efforts to rein in costs. The carrier recently froze hiring of managers and support employees. Spending on fuel, the airline’s largest expense, nearly doubled to $2.1 billion, compared to the year-earlier period, the airline said.
Record oil prices have been partially blamed in the demise of three small airlines this month and prodded Delta Airlines and Northwest Airlines to propose a merger Monday that would create the world’s largest airline.
It has led to speculation that other major airlines including American -- which would be surpassed by a combined Delta and Northwest as the world’s largest in terms of passenger traffic -- could strike a deal.
But in a teleconference with analysts, Arpey said the airline didn’t need to take part in a big merger to stay competitive.
“We’re fortunate to have a very strong network irrespective of any consolidation that may or may not occur,” Arpey said. “The real challenge is being profitable.”
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