In a period of rising fuel costs, operating challenges and United Airlines' schedule disruptions, American's 2000 third quarter results were among the best in corporate history. In mid-October, AMR reported third-quarter net earnings of $322 million, which compares to net earnings of $213 million in the same period of 1999.

"We're very pleased with our third quarter performance — the second-best third quarter in our company's history and our third best quarter ever, " said Chairman and CEO Don Carty. "The underlying fundamentals of our business — both traffic and pricing — remain solid and combined to generate double-digit revenue growth, which more than offset the effect of the sharp increases in fuel prices." Carty also said AA benefited, perhaps disproportionately, from United's difficulties this summer.

AA's 10 busiest days, in terms of revenue passenger miles, occurred in the third quarter. "Just a few years ago, a 70 percent load factor would have signaled an extraordinary month," said Carty. "Our load factors this summer were literally unprecedented."

July's load factor was 80.3 percent, while August's was 78.4 — up almost six points from last year. September, which traditionally shows a drop in traffic, had a load factor of almost 70 percent.

"More Room" Contributes to Success
Also contributing to the success was the More Room Throughout Coach initiative, which Carty called "a big hit with customers." Dave Parker, president of a Kansas-based industrial drying systems company, is one such customer; he noted, "We in business realize taking out two rows of seats in coach could impact American's revenue, but it brings a news sense of loyalty from business travelers such as myself."

Carty said that the entire domestic fleet had been reconfigured and work on the international fleet was underway.

"While we expect all of our initiatives to produce results," said Carty, "more importantly, we continue to pay close attention to the basics." For precisely that reason, Carty applauded the hard work of AA's employees, who during the quarter handled record numbers of passengers in the face of ongoing air traffic control problems and weather delays. "Our people worked under difficult conditions - and we're proud of the many caring and creative ways they served our customers," Carty said.

The success of the quarter was due in large part to continued efforts to expand American's presence on three fronts: internationally, domestically, and online.

Internationally, said Morgan Stanley Airline Analyst Kevin Murphy, "The airlines are merely a proxy for what's going on in the world. Market forces are increasingly becoming global and airlines are forced to be global as well."

American has fared well, with international traffic up about five percent during the quarter, thanks in large part to the oneworld partnerships and other network alliances. The newly-announced San Jose routes to Taipei and Paris (see related story on this page) will further enhance American's international route network.

Coastal Additions, RJs Play Key Role
On the domestic front, American expanded its network by adding service to key business travel cities including Boston, New York, the Los Angeles basin, San Jose and Austin, and announced realignments of its major hubs in Dallas-Fort Worth and Chicago aimed at improving dependability and customer service.

AA's regional partner American Eagle also has been aggressively deploying regional jets throughout its network to strengthen American's hubs. According to Ray Neidl, an airline analyst for ING Barings, "The use of regional jets is revolutionizing the industry." Carty agreed, and said, "These new aircraft have been especially effective tools for us in attracting new customers and increasing load factors."

"We clearly have strengthened both our domestic and international networks more than any other U.S. carrier this year, improving our competitive position and offering our customers broader and better choices," Carty said.

And online, AA continued to outperform expectations, generating more than five percent of total revenue. But according to Michael Linenberg, director of airline equity research for Merrill Lynch, "The key with technology is that it reinforces the brand, and American has taken it one step further by linking up with AOL." (See story on page 8.)

On the cost side, Carty said American has continued to be aggressive in its fuel hedging program, which provided a cushion against sharp price increases during the third quarter. The continued high price of fuel, along with heightened speculation about industry consolidation, could affect results into 2001, and the potentially volatile market led Neidl to conclude, "I really dread being an analyst looking at this industry over the next couple of years."

Regardless, said Carty, "Barring anything dramatic and unforeseen, we are clearly on our way to a very good result for 2000 as a whole, and a much-improved result compared to 1999."