Modest profits posted by AMR, Southwest

DALLAS —  Their planes bulging with passengers and fuel prices easing, two leading U.S. airline companies reported Wednesday that they turned modest profits in the fourth quarter, a further sign of stability in the long-struggling industry.

The results were particularly good at American Airlines, the nation’s largest carrier. Wall Street had expected parent AMR Corp. to lose money, but AMR recorded its third straight quarter in the black and its first profitable year since 2000.

Southwest Airlines Co., which earned a profit straight through the economic downturn and the 9/11 terrorist attacks that ravaged other carriers, reported another profit but one that was smaller than a year ago.

AMR Chairman and Chief Executive Gerard Arpey called his company’s results a milestone in its turnaround, and he vowed to “build on our momentum in 2007.” But he also called the profit margin “modest” in view of the long industry slump.

“The airline industry as a whole has lost something like $50-plus billion since the year 2001, and so I think it’s quite appropriate to be encouraged by the fact that at least some of us are making a little bit of money,” Arpey said. “But ... we’re going to have to do a lot better.”

AMR said it earned $17 million, or 7 cents a share, in the quarter ended Dec. 31 compared with a loss of $600 million, or 3.5 cents, a year earlier.

Analysts expected a loss of 13 cents a share, according to a survey by Thomson Financial.

Analysts who track AMR had switched from bulls to bears in late December, when the company warned that costs were rising and revenue wasn’t growing as fast as Wall Street expected. That triggered the predictions of a fourth-quarter loss, but December fuel costs weren’t as high as feared.

Revenue rose 4.4% to $5.4 billion, below analysts’ $5.5-billion forecast. AMR was helped because American’s planes ran 78.8% full in the fourth quarter, and strong demand allowed carriers to raise fares throughout the year.

At the same time, AMR cut costs by 6.1%. The company caught a break when fuel prices eased late in the year. It slashed fuel spending by $135 million.

For the full year, AMR earned $231 million, or 98 cents a share, compared with a loss of $857 million, or $5.18, in 2005. Revenue rose 8.9% to $22.56 billion.

Shares of Fort Worth-based AMR sank $1.45, or 3.6%, to $38.78. Dallas-based Southwest fell 67 cents, or 4%, to $15.90.

That was after Southwest reported that its fourth-quarter profit declined 19% from a year earlier, although operating profit rose to meet Wall Street’s expectations and revenue jumped 15%.

Net income fell to $57 million, or 7 cents a share, from $70 million, or 9 cents, a year earlier. Excluding special items including accounting for fuel hedging, the airline said it would have earned $96 million, or 12 cents a share, up from operating profit of $81 million, or 10 cents, a year earlier. That met analysts’ estimates, according to Thomson.

Revenue rose to $2.28 billion from $1.99 billion a year earlier.

But fuel costs per gallon rose 28%. For several years, Southwest offset rising fuel prices by buying options that let it purchase fuel at set prices that were much lower than competitors were paying.

Southwest has hedged virtually all of its fuel for the first quarter, but that tactic has lost some of its muscle because easing fuel prices have greatly helped other airlines that couldn’t afford to hedge.