American, Continental Results Disappoint

Shares of both AMR (AMR) and Continental Airlines (CAL) slumped as the companies' quarterly results renewed worries about the only two major carriers that have avoided bankruptcy in recent years.

American Airlines parent company AMR Corp. on Wednesday reported its quarterly loss narrowed as cost cuts helped to counter spiking fuel prices, but the results lagged forecasts and its shares fell.

AMR, the No. 1 U.S. airline, reported a third-quarter net loss of $153 million, or 93 cents a share, compared with a loss of $214 million, or $1.33 a share, in the year-ago period.

Looking forward, AMR said it expected to post a "significant" fourth-quarter loss if fuel prices stay where they are.

AMR chief executive Gerard Arpey (search) called the third-quarter loss "disappointing" given that the airline had eked out a profit in the second quarter.

"The fact that we were unable to sustain profitability despite robust consumer volumes says a lot about our inability to pass on fuel-price increases to customers," he said. "This underscores our need to accelerate our cost-cutting initiatives across the board under our turnaround plan."

Stripping out one-off items, the airline's loss was 58 cents a share, worse than the 0.51 cents Wall Street analysts had been forecasting, according to Reuters Estimates.

Its shares slumped and were down 60 cents, or 5.0 percent, at $11.40 in late morning trading, leading a broader slump in airline stocks.

"I think that the numbers weren't as good as Continental's and they were below the consensus estimate," said Helane Becker, analyst at Benchmark Cos.

Continental Airlines Inc. on Tuesday reported a profit of $61 million for the third quarter, though it too warned of a loss for the fourth quarter and full year.

"Clearly, as was the case with Continental, the fuel cost pressures are offsetting the yield performance entirely," said William Warlick, senior director at Fitch Ratings.

AMR shares are down about 5 percent since the beginning of the third quarter, compared with a 6.7 percent drop in the sectoral Amex Airlines index (search).

Higher fuel prices added $204 million to American's cost in the period relative to the April-June quarter. Despite some fare increases that helped push revenue up 15 percent to $5.49 billion, ticket prices failed to keep up.

That could raise pressure on American and its unions, which have been trying to avoid a new round of wage and benefit cuts through a strategy that calls for employees to work with management to find cost reductions.

American's unit labor costs in the second quarter were the airline industry's second highest after Northwest Airlines Corp (search)., which has said it wants to use bankruptcy protection to void its contracts if its unions won't cooperate with broad cuts.