American Airlines parent AMR Corp posted a quarterly loss on Wednesday, capping a year of economic turmoil and weak travel demand that battered the industry.

But revenue declines were less severe than some analysts had expected, and the company's shares gained more than 3.7 percent to $8.38 in afternoon trade on the New York Stock Exchange.

The smaller declines in both revenue and (traffic) suggest that AMR has weathered the worst of the revenue decline, said Morningstar equity analyst Basili Alukos. However, high labor costs hampered profitability.

AMR is the first major U.S. airline to report results for the fourth quarter. Of the six largest carriers, only Southwest Airlines is expected to post a profit.

Experts blame low fares for expected losses. The recession clobbered the industry during the year as demand for travel fell, especially among high-end business customers.

Heavy discounting throughout the industry and a steep decline in business travel prevented us from charging fares sufficient to earn a profit, said Chief Executive Gerard Arpey in a letter to employees.

We along with the entire industry continue to face a host of uncertainties regarding the broader economy and fuel prices, but we are focused on moving our airline back to profitability, Arpey said later on a call with analysts and reporters.

AMR Chief Financial Officer Tom Horton said on the conference call that the airline saw an increase in corporate travel in November and December versus 2008.

We see a clear positive trend through the second half of 2009, Horton said. So we're encouraged by what we're seeing.

FOURTH-QUARTER LOSS

AMR said its fourth-quarter net loss narrowed slightly to $344 million, or $1.03 a share, from $347 million, or $1.24 a share, a year earlier.

Excluding one-time items, AMR lost $1.25 per share, 3 cents wider than what analysts had expected, according to Thomson Reuters I/B/E/S.

Operating revenue fell 7.4 percent to $5.06 billion, while analysts were expecting $5.03 billion. AMR ended the quarter with $4.9 billion of cash and short-term investments, including a $460 million restricted balance.

Mainline costs -- those for American Airlines -- were flat year over year, in part because of lower fuel prices. Excluding fuel, these costs rose 8.3 percent, driven by reduced capacity and higher pension expenses.

Mainline capacity, or available seat miles, decreased by 4.9 percent. American's mainline load factor -- or the percentage of total seats filled -- was 81.1 percent, compared with 78.3 percent a year earlier.

AMR said it expects its mainline capacity to increase by 0.9 percent in 2010, with a 0.5 percent decline domestically and a 3.2 percent rise internationally.

The company said its 2010 capacity increase will include the reinstatement of flights canceled in 2009 due to the H1N1 virus and to the launch of Chicago-Beijing service, which was deferred from 2009.

AMR expects mainline capacity in the first quarter to fall by 2.8 percent, with declines of 1.7 percent domestically and 4.5 percent internationally.

AMR, meanwhile, is bracing for the possibility that Japan Airlines <9205.T>, Asia's largest carrier by revenue, could leave the AMR's global oneworld partnership for Delta Air Line's Skyteam alliance. The JAL partnership is worth more than $100 million to AMR in annualized revenue, AMR's Horton said.

But that said, if JAL were to choose otherwise, we would, we would huddle with our oneworld partners and consider our alternatives there, Horton said.

(Editing by Lisa Von Ahn and Steve Orlofsky)

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