AMR CEO says high fuel prices have 'erased' progress made since last industry downturn

By Jennifer Lanning Drey

Portland, Ore., June 18 - AMR Corp.'s chief executive officer Gerard Arpey said rapidly increasing fuel prices have eliminated the benefits of the company's removal of more than $6 billion in annual expense since 2002.

"The unrelenting - and in recent months accelerating - increase in fuel prices has erased all of what we had accomplished," Arpey said Wednesday during a presentation at the Merrill Lynch Global Transportation Conference in New York.

AMR expects its fuel costs to be about $7.5 billion higher in 2008 than they were in 2002. In response, the company is looking to generate additional revenue through higher fares and added fees.

"Fuel prices at today's level are a fundamental game-changer for us and the entire airline industry," Arpey said.

In addition to responding to the high fuel costs with fee increases, AMR will continue to reduce capacity in the second half of the year. In the fourth quarter of 2008, the company's domestic schedule will be between 11% and 12% smaller than in the same quarter of last year.

"We would much rather grow than shrink, but given the environment that we're in, we believe these steps are absolutely necessary if we're gong to close the gap between our revenues and our expenses," he said.

At the same time, Arpey said AMR has been positioning itself for an economic downturn by reducing its debt levels and building cash over the past few years.

AMR expects to end the second quarter with more than $5 billion in total cash and short-term investments, as well as an additional $5 billion of other unencumbered assets and sources of liquidity.

"I think we've taken a lot of steps over the years to put ourselves in the position to weather economic difficulty," he said.

AMR is a Fort Worth, Texas-based parent of American Airlines.

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