According to the recent monthly results, bankruptcy has been good to AMR Corporation (OTCMKTS:AAMRQ). The company just reported a dramatic turnaround from last year for May and should signal that the combination with US Airways Group, Inc. (NYSE:LCC) will be a very profitable one.
The airlines expect to finalize the merger in the next few months, which will lead to numerous synergies estimated at around $1 billion. Apparently though, the bankruptcy filing by AMR will be the most significant event in the merger as AMR has been able to dramatically improve results due to lower costs.
With the dramatically improved results for May, AMR Corporation (OTCMKTS:AAMRQ) has been able to turn a huge monthly loss last year into a solid profit in 2013. The CEO predicted a profitable quarter, and the company should benefit from the typically strong June. Even while reporting large losses last April and May, AMR was able to show profits of $33 million in June so this year should be even better considering May generated $65 million in profits.
In that case, AMR will report the first profitable Q2 since prior to the financial crisis in 2007.
The profits in May were achieved from a $120 million cut in expenses alongside a $51 million reduction in revenue. The airlines are finally focusing on more passengers on fewer routes to boost profits. This concept, which all but eluded this sector for decades, has finally taken hold. The really impressive part is that these productivity improvements have all taken place prior to the US Airways merger thanks to the benefits of filling for bankruptcy.
Competitors not seeing same benefits
Of the other three big airlines, including US Airways Group, Inc. (NYSE:LCC), which is close to finalizing the merger with AMR Corporation (OTCMKTS:AAMRQ), only Delta Air Lines, Inc. (NYSE:DAL) expects improved results year-over-year in Q2. Both US Airways and United Continental Holdings Inc (NYSE:UAL) expect lower results this year. Considering the history of the airlines, being able to compare yearly profits is almost unheard of in this industry.
Analysts expect Delta to earn $0.94 during Q2 compared to only $0.69 last year. United earned $1.41 last year and expects to see a small drop off to $1.38. US Airways expects the largest drop going from $1.61 in Q2 last year to $1.46 this year.