American's Regionals Experience Major Losses

American’s regional operational expenses increased from $668 million in the first quarter of 2007 to $721 million in Q108, as regional revenues increased 4.1 percent to $581 million. Regional revenue passenger miles dropped 5.3 percent in the quarter to 2,142 billion from the year-ago period and...

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American’s regional operational expenses increased from $668 million in the first quarter of 2007 to $721 million in Q108, as regional revenues increased 4.1 percent to $581 million. Regional revenue passenger miles dropped 5.3 percent in the quarter to 2,142 billion from the year-ago period and available seat miles dropped 5.1 percent to 3.106 billion. Load factor was down 0.1 points to 69 percent, according to AMR’s first quarter report released last week.
The results not only increases pressure on the company to fulfill its plans to sell American Eagle, it contributed to AMR Corporation’s net loss of $328 million for the first quarter of 2008, or $1.32 per share compared to a net profit of $81 million for the first quarter of 2007, or $0.30 per diluted share. Related Story AMR only said that its planned divestiture of American Eagle continues to move forward.
The American regional airline June schedule change includes new service from Chicago to Charlotte, Detroit, La Crosse, Wis. Traverse City, Mich., Northeast Arkansas, and Toronto. Its Dallas schedule change includes Buffalo, N.Y., Jackson, Miss., Mobile, Ala., Greenville, N.C. and Montrose, Colo. Year-round service between Chicago and Central Wisconsin Airport has also been added, restoring service lost in 1999.
To free up Eagle resources to support the increased flying in ORD and DFW, American has asked Eagle to reduce its RJ flying in MIA (retaining 40 daily Eagle and Executive departures), according to press reports. In addition, American will shift some American Connection aircraft from St. Louis to Miami in a move aimed at improving profitability at the former midwest hub. However, American Connection flying will not go up in favor of the new ORD and DFW flying.
In addition, Miami-Fayetteville, Ark and La Guardia-Halifax are being cancelled. However, American will continue Halifax service from New York’s JFK airport.
Record jet fuel prices contributed significantly to AMR losses in the first quarter of 2008. The company paid $665 million more for fuel in the first quarter of 2008 than it would have paid at prevailing prices from the prior-year period. AMR paid $2.74 per gallon for jet fuel in the first quarter compared to $1.85 a gallon in the first quarter of 2007, a 48 percent increase.
AMR is making additional reductions to its 2008 capacity plan and is accelerating the replacement of its MD-80 fleet with more efficient Boeing 737-800s. AMR now expects regional affiliate capacity for 2008 to decrease by 2.1 percent versus 2007, with the majority of the reduction relative to what was reflected in prior guidance occurring in the fourth quarter.
The company expects to take delivery of a total of 34 737-800 aircraft in 2009 and 36 737s in 2010. Of these, the company has firm commitments in place for 27 737s to be delivered in 2009 and three 737s to be delivered in 2010. This compares to the company’s fleet renewal update in January, when it said that it had firm commitments to take delivery of 23 737s in 2009.  The company now expects its full-year mainline capacity to decrease by 1.4 percent in 2008 compared to 2007, with a 3.6 percent reduction in domestic capacity and a 2.5 percent increase in international capacity. The biggest impact on mainline capacity is planned to occur in the fourth quarter, when mainline domestic capacity is expected to decline by 4.6 percent from fourth quarter 2007 levels. On a consolidated basis, AMR expects full-year capacity to decrease by 1.5 percent in 2008 compared to 2007.
For comparison to previous capacity guidance from February 2008, AMR said that it expected mainline capacity for the full year 2008 to increase 0.2 percent from 2007, with a 1.1 percent reduction in domestic capacity and a 2.5 percent increase in international capacity, and it expected consolidated capacity to be flat compared to 2007. The company’s February guidance reflected a decline of 0.6 percent for regional affiliate capacity compared to 2007 levels.
AMR expects mainline capacity in the second quarter of 2008 to decrease by 1.4 percent year over year. It expects consolidated capacity to decrease 1.6 percent in the second quarter of 2008 compared to the prior-year period.