American Airlines' record profit a double-edged sword

American Airlines' record profit a double-edged sword
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POSTED: Friday, October 18, 2013 - 4:00am

UPDATED: Friday, October 18, 2013 - 4:04am

American Airlines reported the most profitable quarter in the company's history Thursday, but that might not be good news for the bankrupt carrier's efforts to merge with US Airways.

The U.S. Justice Department brought an antitrust case in August to block the merger. The U.S. says fliers would be hurt by reduced competition if the two carriers merge to form what could be the world's largest airline. And it has argued that American's financial turnaround in the nearly two years since it filed for bankruptcy means the merger is no longer necessary.

"A revitalized American is fully capable of emerging from bankruptcy proceedings on its own with a competitive cost structure, profitable existing business, and plans for growth," the Justice Department said in earlier statements. Neither Justice nor US Airways had any immediate comment on American's results.

The airline reported a profit of $530 million, excluding special items, which is nearly a five-fold increase from a year ago. The company will pay $59 million in profit sharing payments to employees due to the strong results.

American said it is pleased by the record profit. Unlike some past airline deals, American and US Air have not claimed that the merger is necessary to allow American to emerge from bankruptcy. Instead they have argued the combination will provide customers with better travel options because of the larger network.

Asked if the record profits pose a problem for the airline's legal case spokesman Matt Miller would only say "We're confident in our legal position and ability to prevail in the case."

A major factor in the improved results was a 13 percent reduction in the cost of wages and benefits due to new labor contracts and a 7 percent reduction in staff it achieved as part of the bankruptcy process.

Results were also helped by strong passenger traffic, which helped lift revenue by $399 million.

For the first nine months of the year the company posted a profit of $894 million, compared to a $46 million loss in the year-earlier period.

Shares of AMR and US Airways both rose Thursday on the earnings report. 

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