AMR, Pilot Union Continue Work on Labor Agreement

Executives of AMR Corp., the parent company of American Airlines, told analysts and reporters in an earnings conference call that they are making progress on a new labor agreement with the pilots' union.

The Fort Worth, Texas-based company has been in contentious negotiations with the Allied Pilots Association over labor contracts, which the company and the union wanted done by last week. AMR President Thomas Horton declined to give an estimate on when a deal could be reached. He said that the two parties have made progress on the scope, scheduling and benefits but didn't offer specifics.

We understand that in order to have a successful company we have to close our cost gap, Horton said.

There has been speculation amongst analysts on whether the company would file for Chapter 11 bankruptcy in order to restructure labor costs. While company executives said there were no plans to do so, they did emphasize that other major airlines have pursued that option in the past.

Furthermore, Horton left the door open to furloughs for employees; however he said the company would pursue voluntary means of reducing labor costs.

The need to reduce labor costs comes as AMR posted a $162 million net loss for the third-quarter despite revenue increases, as the company battled significantly higher fuel costs.

The company reported revenue of $6.4 billion, up 9.1 percent from a year ago. Passenger revenue per available seat mile for the company grew 8.7 percent compared to the previous year.

Passenger yield, which represents the average fare price paid by consumers, rose at American Airlines by seven percent. The company cited improving economic conditions as the reason for increased revenue.

In total, American Airlines posted an 8.1 percent increase in total revenue, while regional affiliates posted an 18.9 percent increase. Cargo revenue was up 4.8 percent.

However, the company was hit hard by a 41 percent surge in fuel prices compared to 2010, leading the company to pay an additional $653 million.

While the third quarter was challenging for American Airlines, we are taking aggressive actions to improve the company's performance and strengthen its foundation for long-term success, AMR Chairman and CEO Gerard Arpey said in a statement.

Actions taken will include reducing mainline capacity during the fourth quarter by three percent from the prior year, which will be accomplished by adjusting the fall and winter schedule for American Airlines. American also plans to retire 11 Boeing 757s in 2012, which the company said will result in maintenance and fuel cost reductions.

Shares of AMR closed at $2.64, down 6.4 percent from the opening price.

Write to Samuel Weigley at s.weigley@IBTimes.com.