AMR Corp. or American Airlines Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMR)") else Response.Write("(NYSE:AMR)") end if %>
4333 Amon Carter Blvd.
Fort Worth, TX 76155
http://www.amrcorp.com/

Alexandria, VA., July 17, 1996/FOOLWIRE/ - - - American Airlines (American) reported Q2 1996 results yesterday. Historically, it was the company's best quarter in terms of absolute earnings. The year over year earnings were up, excluding last years $13 million dollar after tax debt buy-back, to $102 million dollars in absolute terms. American, as a whole, had revenues up 5.7%. The company earned $293 million, or $3.25 a share, in the second quarter, compared with $178 million, or $2.31 a share, a year earlier. The big news was the completion of the legal separation of the Sabre division on July 2. Now, the Sabre Group is a wholely owned subsidiary of AMR Corporation rather than a division of American.

Despite a 0.8% reduction in capacity, system traffic rose 2.6%. As a result, the domestic load factor rose to 69.4%, 2.3 points higher than last year. The international load factor also rose 2.2 points. This is the highest Q2 load factor in the company's history with the exception of the period in 1985 when United Airlines Pilots striked. Jet operations yield was 13.16 cents, up 2.3% on an absolute basis. The combination of the yield increase and traffic increase pushed the revenue per seat mile up 5.7% during the quarter.

American's non-airline business also improved on a year over year basis. The Sabre division revenues rose 7% during the quarter to $410 million. Sabre's revenues were driven by higher booking values and higher revenues from its consulting business. As a part of the reorganization, which is reported in an amended 10Q, American put into place a number of market rate agreements as well as made some accounting changes retroactive to January 1 of this year. The net effect of these changes is the $31 million pretax transfer from the Sabre group to American, of which $7million is related to the first quarter. Without the impact of these changes Sabre's pretax income would have been $111 million or $31 million higher than reported.

So, if you look at the pre-tax line in the income statement, American reported its jet operations year over year revenues improved by 86.7% while Sabre's revenue operations declined by 19.2 %. If you take out the $31 million transfer, the airline would have had pretax earnings up only 71.4% and Sabre would have improved year over year rather than declined 19.2%.

The Management Group Services had a solid increase in revenues. The division's revenues were up 8.6%. Operations grew at a lower rate resulting in a pre-tax earnings increase of 17% year over year to $21 million.

On a segment basis, the airline's pre-tax earnings were $379 million, $176 million higher than last year excluding debt by back. The Sabre division pre-tax profit was $80 million. This is a $19 million decline in pre-tax earnings as compared to last year. The decline in pre-tax profit is a result of the $31 million transfer to American. Finally, the Management Group Services pre-tax profit of $21 million is $4 million higher then the profits reported in the second quarter of last year.

Analysis of the company's numbers indicate that its jet operations were solid during the quarter. The load factor for domestic flights increased 7.5% as compared to last year and had the highest yield in unit revenue growth in the system. Obviously the industry is benefiting from the laps of the 10% domestic excise tax. However, the degree of benefit is difficult to estimate.

Internationally, all jet operations with the exception of the Pacific were also solid. The load factor was up 2.2 points, the yield in revenues was up 1.3% and the revenue per seat mile was up 4.5%. Europe posted the highest yields and a load factor improvement of 7.8% in revenues per seat mile this quarter over last year. The company benefited from the fare increases as well as higher premium passengers.

Pacific operations were a disappointment to the company. The decline in yield was due to the weakening Japanese yen. Although the load factor was up 6 points, this increase was not enough to offset the effects of the weak yen.

American's other entities continued to be strong this quarter. The company is especially pleased with the year over year revenue growth of its Dallas Fort Worth operations. Two factors contributed to this growth. First, the load factor increased 2.7 points, despite the fact that the airline added 4.5% in capacity to the hub. Second, the Dallas Fort Worth operations experienced higher year over year yields.

The company's American Eagle unit also benefited on the revenue side because traffic was up 4.7% and the load factor was up 4 points in the quarter. American Eagle flew 1.31 billion revenue passenger miles, up 14.9% from a year ago. The units relative revenue performance is solid on a per seat mile premium basis as compared to the industry.

On the cost side of the balance sheet, the second quarter was dramatically impacted by higher fuel prices. Cost per seat mile for jet airline operations was 8.84 cents, 1.1% higher than last year excluding the impact of fuel. The increase in fuel price plus the fuel tax of 4.3 cent resulted in a 10 cents increase per gallon this year as compared to last year. Effectively, the company had an 18% increase in fuel expenses this year, spending 70 million dollars more of fuel expenses than last year.

Significant progress has been made to improve American's balance sheet and lower its debt responsibilities. The company reached an agreement with Boeing to pre-pay the walk away leases on 12 of Boeings 767-300 aircraft. Exact details can not be disclosed at this point; however, the move effectively reduces American's debt by $600 million. Also, American called its convertible debentures and preferred stock which eliminated $62 million a year in interest payments and another in $5 million in dividends. The effect of this move is the conversion of debt to equity and a lower net debt as percent of total capitalization. Since 1994 American has repaid $2 billion in outstanding debt and capital leases. In 1994, debt as percent of capitalization was 83%. Today debt as a percent of capitalization is 71.5%.

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