The parent company of American Airlines, the nation`s largest carrier, Wednesday reported a healthy increase in quarterly earnings, an indication that the worst may be over for the financially battered airline industry.
AMR Corp. said its net earnings climbed more than 7 percent to $70.3 million in the third quarter from $65.6 million for the year-earlier period. Revenues rose to $3.52 billion from $3.05 billion.
The increase, moreover, was the second consecutive rise in quarterly earnings for the Ft. Worth-based airline firm.
Because the report was much better than most analysts anticipated, AMR`s stock, as well as the shares of its biggest rivals-UAL Corp. and Delta Air Lines Inc.-rallied on the New York Stock Exchange.
AMR shares climbed $4.12 to close at $65.62. UAL, parent of Elk Grove Township-based United Airlines, advanced $8.12, to $136; and Delta closed up $2, at $70.
The earnings increase and the rally in AMR`s stock weren`t enough, however, to please AMR officials. They called the earnings results
disappointing.
”While we are encouraged by this trend, earnings remain inadequate,”
said AMR Chairman Robert L. Crandall in a statement.
Despite the quarterly increase in earnings, AMR still is in the red for the year thus far, Crandall noted. For the first nine months of 1991, AMR has recorded a net loss of $115 million, or $1.70 a share, compared with a nine-month net profit of $175.5 million, or $2.80 a share, a year earlier.
”The rate of improvement is frustratingly slow and the underlying fundamentals of the airline business are not yet promising,” Crandall said.
Among the few bright spots for AMR in the third quarter, according to Crandall, were the success of American`s new service from the U.S. to London`s Heathrow Airport and American`s continuing strength in Latin America.
Crandall said he continues to be concerned about the increasing costs of running an airline and the continued widespread use of ”uneconomic fare discounting” on the part of several airlines seeking to bolster their anemic cash flows.
To remain competitive, American, more often than not, is forced to match rivals` discounts, even if doing so means operating flights at a loss, he explained.
As a result of these economic concerns, American will go forward with its plans, announced last month, to defer $500 million in capital spending for a variety of ground improvements, Crandall said. In addition, the carrier will continue to delay or pass on options for acquiring $3.8 billion worth of new airplanes that had been scheduled to be delivered beginning in 1993, he noted. ”While we would like to be optimistic, the current environment is simply too uncertain to justify new commitments at this time,” Crandall said.
Analysts, however, said AMR`s results for the third quarter and the fact that the airline recorded its second consecutive quarter of earnings increases are a strong indication that the airline industry may finally be emerging from the economic doldrums.
The industry has been taking a financial beating since the onset of the recession and the Persian Gulf crisis last year.
Moreover, although AMR`s third-quarter per-share earnings slipped to $1.02 from $1.05, after a 10 percent rise in the number of its shares, the result was well above a Wall Street consensus forecast of 66 cents a share, the analysts pointed out.
”It`s better than expected,” said County NatWest USA analyst Rose Ann Tortora. ”People think this is a major turn, and we`re off to the races.”
Meanwhile, officials of Appleton, Wis.-based Air Wis Service Inc., parent company of Air Wisconsin, confirmed Thursday that AMR is expressing an interest in buying their firm.
Air Wis tentatively agreed last month to be bought out by UAL. Nevertheless, officials of the commuter airline said they would examine ”any timely specific proposal that may be made by American” even while they proceed with action on UAL`s bid.
Air Wis` shareholders are scheduled to vote on the UAL purchase at a meeting tentatively scheduled for Dec. 9. UAL is proposing to buy out Air Wis, including the firm`s aircraft and landing and takeoff slots at O`Hare International Airport, with a combinantion of stock and cash.
In response to American`s apparently belated buyout effort, UAL officials said in a statement that in light of Air Wisconsin`s deteriorating financial position and the time it would take American to carry out such a transaction, United ”does not consider American Airlines, Air Wisconsin`s primary Chicago commuter competitor, to represent a viable alternative.”
