American Airlines parent AMR Corp. loses $505 million,

AMR loses half-billion dollars in 1Q

DALLAS — The parent of American Airlines posted a huge first-quarter loss — a half-billion dollars, more than it lost during the recession a year ago — and dragged other airline stocks down with it on Wednesday.

American’s results showed that airlines are a long way from recovery. Although there are fleeting signs of a slight increase in air travel, and carriers have raised fares and add-on fees, the carriers are now threatened by rising prices for fuel and other expenses.

AMR Corp., the parent of American Airlines, the nation’s second-largest airline, said it lost $505 million, or $1.52 per share. That’s more than twice as much as bigger Delta Air Lines Inc. lost in the same period.

American expects to boost revenue later this year from international alliances with Japan Airlines, British Airways and others. But analysts questioned AMR executives about their plans to turn the company around.

JPMorgan analyst Jamie Baker said American has high costs, low profit margins and its shares lag other airline stocks. With so many problems, he said, you expect an overhaul. Then referring to American’s plans, he added, “Is this really all you’ve got?”

Another analyst, Kevin Crissey of UBS, said AMR’s strategy didn’t seem very bold. Others said American should cut capacity to drive up prices — creating a shortage of seats by eliminating some flights.

AMR executives said things should look better this summer.

“We’ve got to expect that with the recovering economy we’ll be able to drive revenues beyond our cost structure,” said CEO Gerard Arpey. “If we don’t do that, then you’re going to have to start thinking about further capacity reductions.”

AMR, which also owns the American Eagle regional airline, increased spending on fuel and maintenance by double-digit percentages. Fuel prices have risen about 20 percent since early February, and regulators have proposed fining AMR millions for alleged violations of federal maintenance rules.

While the nation’s other largest airlines are expected to post full-year profits for 2010, AMR is expected to keep losing money, according to surveys by Thomson Reuters.

Even the forces of nature seem to be conspiring against AMR. American said it lost between $20 million and $25 million in the first quarter because of the February snowstorms on the East Coast and earthquakes in Haiti and Chile.

In the past week, the airline had canceled 350 flights to and from Europe because of airport closures caused by ash spewing from a volcano in Iceland. Those cancelations will cost American at least $15 million, executives said.

AMR shares tumbled 79 cents, or 9.2 percent, to close at $7.77.

Other airline stocks also fell, from a modest 1.2 percent decline at Southwest Airways Co. to Delta’s 4.5 percent drop and US Airways’ slide of 5.3 percent.

Another big loser was AirTran Airways, down 49 cents, or 8.5 percent, to $5.31, after the company joined AMR in reporting a first-quarter loss, although a much smaller one, at $12 million.

AirTran said revenue rose 11.7 percent, but the Orlando, Fla.-based carrier was hurt by fuel expenses, which jumped more than 50 percent compared with a year ago.

CEO Robert Fornaro said AirTran still expects to make a profit in each of the three remaining quarters this year.

Fornaro also said he’s open to more consolidation in the airline industry. He said he doesn’t plan to initiate talks with another airline, but he would look into it “if someone took a peek at AirTran.”

UAL Corp.’s United Airlines has held separate discussions about combining with US Airways or Continental Airlines Inc., according to people briefed on the private talks. Those carriers could be emboldened by Delta’s 2008 purchase of Northwest, which made Delta the world’s biggest airline and is widely viewed as a success.

Harry R. Weber in Atlanta contributed to this report.