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American Airlines
Wednesday, July 21, 2010


Lower Airline Costs: An American Dream
American Airlines took the virtuous path of staying out of bankruptcy while competitors succumbed. But where's the reward? Labor costs ate up 30% of second-quarter revenue reported by parent company AMR on Wednesday. That's in line with AMR's three-year average, according to James Higgins, analyst at Soleil Securities. The average for AMR's rivals, which tore up contracts in bankruptcy court, is less than 24%.
All else being equal, that extra margin, taxed, would have boosted second-quarter earnings per share to 68 cents from the reported loss of three cents. Of the major U.S. airlines that have reported quarterly earnings so far, AMR had the lowest unit revenue and growth, and highest unit costs. Apart from wages, AMR is trying to obtain more flexible work practices in long-running negotiations with unions. In terms of productivity, Morningstar reckons AMR's available seat miles per employee have been the industry's lowest since 2006, on average 25% lower than at its peers. Another result of AMR's virtue, again in contrast with many rivals, is an unfunded retirement benefits liability of $7.6 billion. Net debt is $11 billion. AMR's market capitalization is $2.3 billion.

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