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American Airlines Q1 profits hit by higher fuel costs

[NEW YORK] American Airlines reported a drop in profits Thursday, citing higher fuel costs as a big drag even as first-quarter revenues hit a record on strong travel demand.

Net income fell 45.2 per cent to US$186 million, as revenues rose 5.9 per cent to US$10.4 billion.

The airline cited Latin America as an especially vibrant market but said all its regions saw gains in a closely-watched benchmark of revenue per available seat miles.

US carriers have described the global air market as robust amid the strongest global economy since the 2008 financial crisis.

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But American's results were hit by a nearly 10 per cent rise in operating expenses, driven by much higher fuel costs.

American Airlines executives said they were caught off guard by the rapid rise in jet fuel costs, which has accelerated just in the last few days. Based on pricing as of April 20, fuel will cost US$2.3 billion, or 30 per cent more in 2018 than last year, said chief financial officer Derek Kerr.

Chief executive Doug Parker said higher fuel costs could lead the company to reduce some flight capacity, but that such a move would not take place until after the summer travel season, a peak period for demand.

Mr Parker predicted higher customer fares if there was a "new normal" of higher energy costs, something that now looks more likely.

"As the cost of production goes up, the cost of the product generally follows," Mr Parker said. If fuel prices stay high, "I would expect you would see higher fares to consumers over time."

Domestic-focused US carrier Southwest Airlines reported a 36.6 per cent jump in first-quarter earnings to US$463 million, due in part to a lower tax rate following December's corporate tax cuts.

Southwest also won record first-quarter revenues, which came in at US$4.9 billion, up 1.9 per cent.

Fuel costs rose 6.5 per cent to US$1.0 billion. Southwest said second-quarter fuel costs are projected at US$2.20 per gallon, up 10.6 per cent from the year-ago period.

American Airlines shares tumbled 5.4 per cent to US$42.82 in late-morning trading, while Southwest Airlines fell 2.9 per cent to US$52.25.