Wednesday, April 16, 2008

AMR’s Despair

AMR Corporation (AMR) the parent company of American Airlines reported Q1 losses. A net loss of $328 million or $1.32 per share to be specific. Fuel costs are up some 48% adding $665 million to costs. Well of course they lost money. Who would not under those circumstances? The market was relieved that it was not worse and actually bid up the stock almost 7% by mid day.

Bad weather did have a negative impact in Q1 but the fuel costs just came out and took a big bite out of the investor. AMR Chairman and CEO Gerard Arpey said. "While our first quarter financial results were disappointing, through our hard work in recent years to contain costs and strengthen our balance sheet and liquidity we are better positioned to withstand today's uncertainty.”

OK you have to give him the point on that one. The real issue that management is not addressing is why do we have to rely on the balance sheet to get us through this problem? Balance sheets are supposed to provide the productive capital to create wealth. They are not pillows to fall down on.

Fuel has been a problem for this and all airlines since the Wright Brothers. No one seems to have an answer other than relying on the balance sheet which means you are consuming your equity. Aircraft manufacturers seem to make money and create wealth. Major oil companies have not disappointed.

AMR and Gerard Arpey need to tell us more about what they are doing to manage the overall strategic challenge that keeps them from reaching the promised land of profitability. Telling us about the menu changes and some adjustments to capacity just doesn’t cut it anymore.