AA was saved from bankruptcy by staff

American Airlines' parent company AMR has narrowed its losses for the second quarter of the year, beating Wall Street forecasts and giving its shares a welcome 6% boost.

AMR, the world's largest carrier, reported a loss of $357, before a special aid boost from the US government, in the April to June period, compared with $495m in the same quarter last year.

The group, on the brink of bankruptcy earlier this year, has launched a huge restructuring aimed at saving $4bn each year.

"We have come a long way from where we were a year ago," said chief executive Gerard Arpey.

However, he warned that the company was still cutting its services, which would mean the loss of up to 2,000 jobs.

'Arduous road ahead'

Mr Arpey said its number of daily flights through its hub in St Louis would be reduced from 417 to 207 from 1 November, adding that prices for flights remain weak.

Earlier on Wednesday the Virgin group announced it was launching another low-cost airline in the US to rival the existing two budget services Jetblue and Southwest.

We are planning to get in there and make sure there is a third, very powerful low-cost airline in America Sir Richard Branson, Virgin chairman Virgin's budget plans

Analysts said the airline industry, battered by the war in Iraq and the outbreak of the Sars virus earlier this year, still faced an uphill struggle.

"These results are encouraging but the road ahead for American (and the industry) remains arduous," said Gary Chase, an airline analyst at Lehman Brothers.

AMR is the first of the top US airlines to report its second quarter earnings, which analysts expect will reveal vast losses in what had, until now, been the industry's strongest period.

The industry has faced an uphill struggle since the Sept 11 attacks in 2001 on the World Trade Centre and subsequent unforeseen events.

Saving deals

AMR reported losses of $1.04bn in the first three months of 2003 which it described at the time as "dreadful".

The airline said its latest performance was a vast improvement thanks in part to recent pay deals with staff.

"Clearly, the tremendous strides we've been able to achieve have been the result of unprecedented labor and non-labor agreements we reached in May," said new chief executive Gerard Arpey.

Employees agreed in April to heavy pay cuts to save the airline from chapter 11 bankruptcy.

The airline also received $358m from the US government as part of a package to help airlines offset the cost of increasing security after the September 11 attacks.