AMR Sets Low Bar For Airline Sector Earnings (AMR, CAL, LUV)

AMR Corp. (NYSE: AMR) has some pretty disappointing figures, at least until you compare them to analyst expectations.  AMR posted earnings of -$1.39 on a net basis and -$1.14 EPS on a non-GAAP basis as its second quarter traffic fell by 16%.  Revenues was $4.98 billion.  Thomson Reuters listed the non-GAAP consensus as -$1.28 EPS on $4.9 billion in revenue.  This report has likely set the bar very low for Continental Airlines, Inc. (NYSE: CAL) and Southwest Airlines Co. (NYSE: LUV) ahead of their earnings.

The problems for AMR are in demand and in capacity.  It sees mainline capacity down 7.5% in the second half of the year, with the full year domestic capacity down 9% and international down over 4%.

The good news is that costs are down.  Full mainline unit costs are expected to be down  over 9% this year and it sees $2.05/gallon as the norm for gasoline in Q3 and has $1.98 as the 2009 average after paying $1.90 for jet fuel in Q2.  If you back out  the Q2 fuel costs, total costs were up 5% for the mainline unit.  It sees total Q3 mainline unit costs down by 14%, but that is expected to be up by 7.2% on an ex-fuel basis.

AMR’s cash and short-term investments were roughly $3.3 billion at the end of the quarter, while total debt was listed as roughly $14.2 billion.

What AMR has done is just set the bar artificially low for the other airline carriers reporting earnings next week.  AMR shares are up 5% at $4.40 in early trading.  Continental Airlines, Inc. (NYSE: CAL) is up 3.6% at $10.15 and Southwest Airlines Co. (NYSE: LUV) is up 2.5% at $6.99.

Jon C. Ogg