Shares of American Airlines parent AMR Corp soared as much as 25 percent Thursday after the company said it had raised $2.9 billion and would shift flying to more profitable routes.

The $2.9 billion, which includes cash and financing, will help AMR meet some of its debt commitments. The capacity shift to U.S. hubs may reflect the beginnings of demand stabilization after weakness this year amid economic recession.

AMR shares rose largely due to the increased cash position, said Basili Alukos, an airline analyst at Morningstar.

While they were one of the stronger airlines from a cash position, they do have looming debt commitments coming up, he said.

The shares were up $1.14, or 15.51 percent, at $8.49 in afternoon trading on the New York Stock Exchange after rising as high as $9.21 earlier in the session.

The gain in the shares outpaced the Amex airline index <.XAL>, which was up 3.8 percent amid signs that travel demand, especially demand for premium services, may be picking up. The airline index is up 26 percent so far in September, making it the best month since July 2008, when the index rose 31 percent.

CANNOT BORROW OUR WAY TO PROSPERITY

The $2.9 billion includes $1 billion from the advance sale of frequent flyer miles to Citigroup Inc and $280 million cash under a loan accord from GE Capital Aviation Services , secured by owned planes.

AMR also got $1.6 billion in sale-leaseback financing commitments from GE for Boeing Co planes it had previously ordered.

In a letter to employees, AMR Chief Executive Gerard Arpey said the company's ability to raise money in troubled capital markets is a vote of confidence from lenders. But he cautioned that we cannot borrow our way to prosperity.

On Wednesday, United Airlines parent UAL Corp , whose cash position has been closely scrutinized by concerned analysts, said it has liquidity initiatives planned for the fourth quarter. Alukos said he expects US Airways Group to pursue a similar course.

Also on Thursday, AMR said its American Eagle regional partner has signed a letter of intent with Bombardier Inc to exercise options to buy 22 additional aircraft for delivery beginning in mid-2010.

CAPACITY SHIFTS TO HUBS

AMR said it would reallocate service to its hubs in Dallas/Fort Worth, Chicago, Miami and New York. The bulk of the shift will impact Chicago, where AMR said it would add 57 daily flights at O'Hare International Airport to the summer 2010 schedule vs winter 2009/2010.

St. Louis will suffer the deepest service cuts in the shift, with 46 daily departures being eliminated.

The airline industry has been in downsizing mode since last year as it struggled to match supply with falling demand. AMR has trimmed its consolidated capacity -- which includes that of regional partners -- 11 percent for the 2009 schedule compared with 2007.

But as signs of stability in travel demand return, AMR sees a slight increase in its consolidated capacity next year.

With fairly significant capacity reductions over the last two years, we are now looking at a 2010 vs 2009 capacity increase of about 1 percent, said Virasb Vahidi, AMR's senior vice president of planning.

He said the bulk of that increase reflects a 2.5 percent jump in international capacity as AMR begins service from Chicago to Beijing.

(Reporting by Kyle Peterson and Karen Jacobs; Editing by John Wallace and Maureen Bavdek)

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