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American Airlines soars to 2nd-quarter profit

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TODD SUMLIN - tsumlin@charlotteobserver.com
An American Eagle jet is unloaded, foreground as US Airways and American Airlines jets taxi to the runway for takeoff at Charlotte Douglas International Airport Thursday, January 3, 2013. __TODD SUMLIN - tsumlin@charlotteobserver.com

American Airlines said Thursday that its second-quarter profit jumped 70 percent from a year ago, as executives at the company declared its recent merger with US Airways on track to be a success.

Revenue rose 10.2 percent from a year ago to $11.4 billion, driven by strong demand and rising prices. American flew 51 million passengers during the quarter, up 3 percent. Profits totaled $864 million.

The Fort Worth-based company also reinstated a quarterly dividend for the first time in more than three decades, starting at 10 cents a share, and announced plans to buy back $1 billion worth of its stock.

“The fact that we are able to implement this program while still funding our significant product improvements, fleet renewal program and integration costs is further evidence of the success of our merger,” said chief executive Doug Parker.

Charlotte is American’s second-busiest hub, with 650 daily flights and more than 10,000 employees based in the city. Since merging with US Airways in December, the airline’s dominance in Charlotte has grown: American operates more than 90 percent of daily flights to and from the city.

The airline has added direct service to a half-dozen new destinations in the Midwest from Charlotte, such as Evansville, Ind. And American plans to start a second daily flight from Charlotte to London’s Heathrow Airport in September.

American also started new seasonal, nonstop flights to four European cities this summer – Brussels, Lisbon, Madrid and Barcelona – but cut back those flight schedules because of weak demand.

Scott Kirby, the airline’s president, said those routes have been pressured because airlines added 10 percent to their trans-Atlantic capacity this year. That means there’s more competition and more seats available.

“It’s pressuring all routes,” Kirby said of the capacity growth. “New routes being the most marginal, they’ve been under the most pressure.”

“They’ve underperformed what we hoped they’d do,” Kirby said of the new routes. Still, he cautioned that it’s not guaranteed the routes will be cut next summer. “That doesn’t mean they won’t come back.”

American also plans to cut its daily flight from Charlotte to Rio de Janeiro at the end of the year.

Analysts were expecting strong earnings from most airlines this quarter, as travel demand rises and fuel prices remain stable. And airlines obliged, posting big jumps in their quarterly profits.

On Wednesday, Delta Air Lines said its second-quarter profits rose 17 percent, to $801 million. Thursday, United Continental Holdings reported its profits shot up 68 percent, to $789 million, and Southwest Airlines said it more than doubled its profits, which totaled $465 million.

American said it would have done even better during the quarter without the added expenses from its merger. Excluding one-time losses, such as $337 million for the sale of its fuel-hedging contracts and $163 million worth of merger integration costs, American would have made a $1.5 billion profit.

During the second quarter, American benefited from steady fuel prices, typically an airline’s biggest expense. The carrier paid an average of $3.03 a gallon, up just 1.5 percent from the same quarter last year.

Executives at American have said they expect to see Charlotte continue as a major domestic hub for American. About 94 percent of the airport’s travelers are domestic passengers. And about 80 percent of passengers at Charlotte Douglas are connecting from one flight to another, not starting or ending their trip in Charlotte.

Portillo: 704-358-5041; Twitter: @ESPortillo
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