* Adjusted profit $1.38/share vs Street view $1.34
* Revenue rose, costs fell
* Merger partners open to settlement of U.S. suit, CEO says
Oct 17 (Reuters) - American Airlines parent AMR Corp reported higher-than-expected earnings on Thursday as it cut costs and revenue reached a record for any quarter.
The U.S. carrier, which is looking to emerge from bankruptcy by merging with US Airways Group Inc, has renegotiated plane leases, cut management and frozen pension plans to lower costs since filing for bankruptcy in November 2011. New labor contracts with unions have also made it more cost-competitive.
Henry Harteveldt, a travel industry analyst with consulting firm Hudson Crossing LLC, said the results, which represented American's second consecutive quarterly profit, showed that initiatives the carrier began since its Chapter 11 filing paid off in the seasonally strong third quarter, which includes summer vacation travel.
"Many of the moves American is taking in terms of refining its network, adding flights for international travel were smart business decisions," Harteveldt said.
Shares of AMR were up 8 percent to $5.56 in over-the-counter trading on Thursday. Other U.S. airline stocks also gained.
BETTER RESULTS AHEAD
AMR Chief Executive Tom Horton said more revenue and profit improvement was to come as the carrier upgrades its fleet with new planes and expands service to higher-growth markets. For example, a new flight from Dallas/Fort Worth to Hong Kong was announced this week.
"There are more cost savings to be had," Horton said in an interview. "A number of new contracts with suppliers and vendors don't actually take effect until the day we exit restructuring."
Net income came to $289 million, or 76 cents a share, in the third quarter, compared with a loss of $238 million, or 71 cents a share, a year earlier.
Excluding restructuring costs and special items, profit was $530 million, the most profitable quarter in company history, Horton said.
Adjusted for restructuring costs and other items, profit came to $1.38 a share. Analysts' average estimate was $1.34, according to Thomson Reuters I/B/E/S.
Revenue rose 6 percent to $6.8 billion, the highest quarterly total for that measure. Yield, a gauge of the average fare paid per mile flown, rose 4 percent from the year earlier to 16.36 cents a mile, also a record. Passenger revenue per available seat mile, or unit revenue, rose 3.4 percent.
The revenue gain "indicates American is getting and keeping business travelers and that it is also able to raise and manage fares at the rate of inflation," Harteveldt said.
Operating costs fell about 4 percent, as expenses tied to salaries fell 13 percent.
U.S. airlines have scaled back flying, pared money-losing routes and gained new revenue sources with bag and seat fees to restore profitability. Most U.S. carriers will report earnings next week.
American was once the largest U.S. airline but now ranks third behind United Continental Holdings and Delta Air Lines, both of which used Chapter 11 to cut costs. For years, American's higher cost structure put it at a disadvantage.
The U.S. Justice Department and several states sued to block the proposed merger with US Airways in August, arguing the $11 billion deal would harm consumers by boosting airfares . A federal trial in the case is set to begin Nov. 25.
American and US Airways contend the combination, which would form the world's biggest carrier, is needed to compete with United and Delta, which have already been allowed to merge.
Horton, who would be nonexecutive chairman of the merged American, said the companies were open to "a reasonable and common-sense settlement" of the U.S. lawsuit. He added that the recent agreement reached with Texas under which that state withdrew its merger opposition showed that "cooperation can produce results."