Loss expected for 2nd quarter at American Airline's parent blames fare war

June 18, 1992|By Bloomberg Business News

FORT WORTH, Texas -- AMR Corp., the parent of American Airlines, said yesterday that a second-quarter loss appears imminent in the wake of brutal fare wars and rising fuel prices.

Donald Carty, AMR's executive vice president for finance, said the nation's largest air carrier "almost certainly would post a loss" for the quarter ending June 30.

AMR revamped its fare structure in April, cutting prices by as much as 38 percent. The new structure was undercut quickly by competitors such as Trans World Airlines. In late May, Northwest Airlines sparked a two-week, half-price fare war for summer travel.

"Fuel prices increased significantly, and the anticipated dilutive effect of our Value Pricing Plan has been compounded by continued price cutting by TWA and others, which depressed fares throughout April and early May," Mr. Carty said in a news release. "The latest Northwest-led fare action will further weaken yields."

In a speech to travel agents June 9, AMR Chairman Robert Crandall said the fare wars had devastated the airline industry and threatened summer profits, but he stopped short of predicting a loss for American.

He warned that American's financial results hinged on the number of full-price tickets it could sell this summer.

The fallout from the fare war was compounded by an increase in fuel prices, AMR spokesman Al Becker said. The airline expected jet fuel prices to hover around 60 cents a gallon during May, June and July. Instead, May prices averaged 64 cents a gallon, and Mr. Becker said the airline now predicts prices will average 68 cents to 69 cents a gallon in June and July.

"When you couple that with the dilutive effect of the fare prices, we felt we needed to clarify that for the market," he said.

American's costs increase $2.5 million a month for every 1-cent rise in fuel prices, he said.

In the first quarter last year, the airline had net income of $10.3 million, or 15 cents a share.

The loss would come just as AMR appeared to be pulling out of two years in the red. The company reported a loss of $39.6 million in 1990 and a loss of $240 million last year but turned a profit of $20 million, or 28 cents a share, in the first quarter of 1992.

Mr. Crandall had predicted that the new fare structure would cut second-quarter revenues by about $100 million but that those declines would be recovered by the end of the year. He said the new fare structure, which was adopted by competitors, is vital to restoring industry profitability

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