American struggles to Q4 loss, still profitable in '07

— -- AMR amr, the parent of American Airlines, provided the first evidence of a new squeeze on major airlines fighting to remain profitable, saying Wednesday that high fuel prices and weather disruptions contributed to its loss in the fourth quarter.

Continental cal reports results Thursday, with most other big U.S. carriers reporting over the next two weeks.

American, the largest U.S. carrier, posted a loss of $69 million, or 28 cents a share, compared with a profit of $17 million, or 7 cents a share, during the same period a year earlier.

The latest results include one-time gains totaling $115 million, or 46 cents a share, with the biggest part coming from the sale of communications and engineering firm ARINC, the company said.

Analysts polled by Thomson Financial had been expecting the carrier to lose 75 cents a share. Those forecasts typically exclude one-time adjustments. On that basis, the company did a penny better per share than analysts expected.

AMR posted a profit in each of the preceding six quarters, according to Thomson.

Consensus Wall Street estimates compiled by Reuters and Thomson show that as a group the major carriers are expected to post a fourth-quarter loss, ending a string of six-consecutive profitable quarters. Analysts generally expect two carriers, Southwest luv and Continental, to be modestly profitable for the October-December period.

Overall, 2007 is still expected to be the second-consecutive profitable year.

For the full year, AMR's profit was $504 million, or $1.78 a share, on revenue of $22.94 billion. That compared with profit in 2006 of $231 million, or 98 cents a share, on revenue of $22.56 billion.

Jet fuel prices in the first week of January averaged $2.78 a gallon vs. about $2.02 a gallon in the first half of 2007. The soaring cost is pushing carriers to raise fares this year after at least 17 successful fare increases in 2007.

AMR said its fourth-quarter fuel costs rose 29% to $1.87 billion.

But slackening travel demand, fears of a recession and the first signs of consumer resistance to higher fares could make further increases difficult or impossible, or even trigger more discounting at a time when the carriers can ill afford it.

On Tuesday, American, Delta, dal US Airways lcc and United uaua backed away from a $25 fuel charge on one-way tickets. United had introduced it Friday.

Early last week, all the big traditional carriers matched a $10 to $20 across-the-board fare increase initiated Jan. 3 by United.

Meanwhile, discount king Southwest is taking prices in the opposite direction to stimulate demand. Last week, it launched a deep and unusually long fare sale that includes prices as low as $108 round trip for some cross-country flights. And it is good for travel into early August, a peak travel time.

Airfares tracker Tom Parsons at BestFares.com says he's never seen Southwest make such low prices available on summer flights this early in the year. That forced other carriers to match Southwest's prices where they compete.

For most of 2007, airlines could make fare increases stick because demand remained strong and the airlines managed to keep in check the number of seats available. An economic slowdown could weaken this year's travel demand so much that carriers would lose that leverage.

If a recession were to slice into personal and corporate spending, "(Travel) demand would drop pretty fast, and the carriers would lose pricing power," said Calyon Securities airline analyst Ray Neidl.