FORT WORTH, Texas _ American Airlines said Thursday its first quarter profits dropped 66 percent as the carrier paid significantly more for jet fuel.
The Fort Worth-based carrier said net income declined to $234 million as revenues grew 2 percent to $9.6 billion. The company paid $1.70 per gallon of jet fuel, up 40 percent from the first quarter of 2016.
"We are excited about the long-term prospects for American Airlines, and our first-quarter results only serve to reinforce our enthusiasm," said American chief executive Doug Parker.
During the quarter, American launched its new basic economy fare on 10 routes, which offered customers cheaper fares but no seat assignments or overhead bag space. The company said initial results are encouraging and that 50 percent of customers who are offered the basic economy fares end up choosing the more expensive main cabin fares.
Excluding one-time accounting items, American reported income of 61 cents a share, beating Wall Street analysts' earnings estimates of 57 cents a share, according to FactSet Research.
American also announced it was delaying the first delivery of the Airbus A350 from 2018 to 2020. It is also deferring the delivery of two Boeing 787-9 aircraft from 2018 to 2019. The moves reduced American's capital expenditure plans by $500 million in 2018 and $300 million in 2019 and in 2020.
On Wednesday, American said it would give pilots and flight attendants pay raises even though both groups are under contract. Parker said the news may have dismayed some investors as it will cost the company an additional $230 million in 2017.
"There is a history at American that is based on mistrust and we're hoping to change that culture," Parker said on a conference call with investors.
Wall Street analysts, however, were not impressed with American's pay raises to employees.
"We are troubled by (American's) wealth transfer of nearly $1 billion to its labor groups. In addition to raising fixed costs, American's agreement with its labor stakeholders establishes a worrying precedent, in our view, both for American and the industry," J.P. Morgan analyst Jamie Baker wrote in a research note to investors on Thursday.
Shares of American dropped almost 7 percent on Thursday morning, trading around $43.18.
