Bangkok Post

Empty seats and higher costs eat into American profit

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More empty seats and higher labour costs are cutting into profit at American Airlines.

But in an encouragin­g sign for airlines and their investors — and a worrisome one for passengers — American is offering new evidence that higher fares could be just around the corner.

The world’s biggest carrier reported on Thursday that third-quarter earnings fell 56% and would have dropped even more if it weren’t for continuing low fuel prices.

The company earned $737 million, down from $1.69 billion a year earlier. Revenue slipped 1% but costs rose 5%.

American was still able to claim that it beat Wall Street expectatio­ns. Excluding what it deemed non-repeating costs, mostly related to its 2013 merger with US Airways, the company said it would have earned $1.76 per share. That topped the $1.67 per share forecast from analysts surveyed by FactSet Research Systems Inc.

American doesn’t disclose the average fare that passengers pay, but it apparently declined less than 1%. Another key figure, revenue for every seat flown one mile, fell 3.3%, partly due to lower fares but mostly because the average flight was less full — about three to seven more empty seats on average — than during summer 2015.

The decline in that money-per-seat figure, called unit revenue, was less severe than at Delta or United and was the smallest recorded at American since the first quarter of last year.

Translatio­n: Airfares have been falling for two years, but they may be about to rise as airlines scale back their growth plans and limit the supply of seats. American plans to grow just 1% next year, less than half its expansion pace in the first nine months of this year.

CEO Doug Parker said while revenue was down again in the third quarter, “we are encouraged by the trends.’’

American got a break again on fuel prices, although not as big as in recent quarters. The airline and its regional subsidiari­es spent 11% less on fuel than they did in the third quarter of 2015.

Labor costs jumped 15%, however, as union workers won pay raises to make up for years of lower wages after the industry downturn in the previous decade.

Executives said most of the labour-cost increases were behind the company.

“Since the integratio­n of American and US Airways is now mostly complete, they will be able to eliminate an undisclose­d number of redundant jobs through attrition and perhaps incentives for workers to take early retirement,’’ they added.

The executives said lay-offs would not be necessary.

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