World’s largest airline reports heavy loss
FORT WORTH, Texas (AFP) — American Airlines’ parent, AMR Corp, posted a heavy fourth quarter loss Wednesday and vowed to axe costs in a fight for survival against a sluggish economy, fears of terrorism and the threat of war.
The world’s biggest carrier warned that it faced a “treacherous” time and the future of the group could not be assured unless it pared costs by $4 billion a year.
AMR reported a net loss in the three months to December 31 of $529 million or $3.39 a share, compared to a year-earlier loss of $798 million or $5.17 a share.
Sales rose 10.1 per cent to $4.19 billion.
“Clearly, results such as the ones we reported today are unsustainable,” AMR chairman and chief executive Don Carty said in a statement.
In opening trade on Wall Street, AMR shares slumped 49 cents or 10 per cent to $4.41.
“While there are many factors that impacted our results during 2002, including a sluggish economy, high fuel prices, lingering concerns over terrorism and the possibility of a war in the Middle East, the core issue for our company remains a cost structure that is out of step with the revenue environment facing domestic airlines,” he said.
“As we’ve been discussing with our employees, we believe that a permanent shift has occurred in the airline revenue environment which will require us to reduce our annual costs by at least $4 billion.”
The fall-out in air travel, spawned by the September 2001 terrorist attacks on the United States, is being felt by airlines across the world.
Earlier this month, Air Jamaica’s chairman and CEO, Chris Zacca, admitted that the island’s national carrier had been experiencing lower demand and a price equilibrium.
“Earnings are down significantly, and in a high-fixed cost business when your revenues are down that spells trouble,” Zacca had said in an interview in the Sunday Observer.
Since the September 2001 attacks, the world’s major airlines have laid off more than 80,000 employees, cut wages for others and reduced the number of flights, but they still expected to lose $9 billion last year. Two have filed for bankruptcy in the last six months — United Airlines and US Airways.
United, which is struggling to stay alive and emerge from Chapter 11 protection as a re-organised carrier, has said it must reduce wages by $2.4 billion a year over the next five years if it is to succeed.
Over the whole of 2002, AMR said it lost $3.51 billion, compared to a loss of $1.76 billion a year before.
Sales in 2002 fell 8.8 per cent to $17.30 billion.
American Airlines staff had made “tremendous strides” to cut costs by simplifying the fleet, smoothing out peak traffic at Chicago and Dallas/Fort Worth hubs, automating ticketing and check-ins, and through other programmes, Carty said.
Those efforts had saved $2 billion a year.
“Nevertheless, we still have a very big challenge in front of us to achieve our four billion cost reduction target,” Carty said.
“The future of the company cannot be assured until ways are found to lower significantly its labour and other costs,” the company statement said.
American Airlines had started talks with its unions in October. The airline needed to reduce its labour costs “significantly” along with other cost-savings to put the group on a sustainable footing, Carty said.
Carty said he was optimistic solutions would be found.
But he warned: “It remains a treacherous time for our company.”
AMR said it had loan covenants related to more than $800 million of debt that it would seek to renegotiate to remain in compliance with the terms of the borrowing beyond June 30 this year.
“American cannot be certain, but it believes it will be successful in obtaining a modification or waiver of these covenants on acceptable terms,” the company statement said.