This continues to be a challenging time for the airline industry, but American Airlines is moving forward as it plans for better days to come.

First, the bad news. During the 3rd quarter FY 2008, American lost $360 million. But, a one-time $432 million gain from the sale of American Beacon Advisors and a $27 million one-time charge for employee severance and aircraft expenses, helped American’s parent company, AMR Corporation, to post a profit of $45 million. How impressive is that? Southwest Airlines, which had turned a profit during every quarter since 1991, lost $120 million during the same period. United Airlines lost $252 million, Delta lost $50 million, and US Airways lost $865 million.

During the quarter, American paid $3.57 for a gallon of fuel, up 64 percent from the $2.17 it paid a year ago. As fuel costs continue to drop (now at $67 a barrel, down from $145 a barrel during the summer), the outlook for the airlines should brighten.

American’s management apparently sees a brighter future; American announced that it will purchase 42 of Boeing’s new 787-9 Dreamliners. Delivery will start in 2012 and run through 2018, with American holding an option to purchase 50 additional 787s. With this announcement, American made a crucial decision for the future of the airline.

The two largest manufacturers of commercial aircraft are Boeing and Airbus. The two companies have taken a decidedly different approach to the future of air travel. Airbus is going with its mammoth A-380, the world’s largest commercial aircraft. The double-deck A-380 can seat up to 525 passengers. However, it is so large (its wingspan is 48 feet wider than the Boeing 747) that some airports cannot handle it: it is too wide and too heavy. However, most major international airports, (JFK, London Heathrow, Frankfurt, Sydney, Tokyo, etc) will be able to handle this behemoth. As of September 2008, Airbus has already delivered the first aircraft to Singapore Airlines, Emirates, and Qantas. Airbus has taken orders for 192 A-380s, and has delivered 8.

Boeing decided that the future of aircraft is in the smaller 787 Dreamliner that will seat 210-250 passengers, and have a range of 14,000-15,000 km (8,700-9,300 miles). The 787 is made of composite materials, is highly fuel efficient compared to any aircraft currently flying, and will be able to fly into almost any airport without the need for airport modifications. The 787 is already one of the most successful aircraft in history: Boeing has taken orders for more than 920 of the aircraft, orders totaling more than $110 billion!

There is only one problem: none of them have ever flown! Boeing sold all of these aircraft before the first one even rolled out of the factory! As of this date, they have not yet had the first test flight of the 787 and are substantially behind schedule on manufacturing the plane. A strike by Boeing machinists has not helped, closing all Boeing factories for eight weeks. The strike was settled this weekend and the production lines should be up and running by the middle of this week. Hopefully, the first 787 test flight will take place in 2009.

So, the two manufacturers have a different view of the future of flight, and American has decided that the smaller 787 Dreamliner is their future. Hopefully, the deliveries actually will start in 2012.

American also announced that it will accept delivery of 76 Boeing 737-800 aircraft in 2009 and 2010. These aircarft will replace the aging MD-80s. The 737s get 20-30% better fuel mileage than the MD-80, and as a newer aircraft, will be easier to maintain. (Some of the MD-80s have been flying since 1982!) The purchase is a good start, American currently flies over 300 MD-80s, so there is still a long way to go.

American has the second oldest fleet of aircraft among the top 10 US carriers. These purchases show that AA is serious about modernizing.

In other news
American has always given its AAdvantage members a minimum of 500 miles for each flight, regardless of how short it is. So, even though my Austin-DFW flight is only 183 miles, I have received 500 for the flight. American has announced that effective January 1, 2009, only AAdvantage members with elite status (Gold, Platinum, Executive Platinum) will receive that bonus. All other passengers will earn only the actual mileage.

A few years ago, passengers, regardless of status, could earn 1,000 miles for making a reservation online at AA.com. With that bonus, a passenger taking a round-trip flight between Austin and DFW would earn 2,000 miles (500 for each flight, and the online bonus). Now the online bonus is gone, and so is the 500 mile minimum award. A non-elite passenger making the trip now will earn 366 miles (183 per flight), a drop of 82%. And to make it worse, they won’t even get the small bag of free peanuts. Oh well, at least they can look forward to flying on new 737s in the future!