UPDATE 1-AMR raises fuel surcharge to $40 per roundtrip

(Adds background, analyst comment)

CHICAGO, Jan 17 (Reuters) - AMR Corp (AMR.N: Quote, Profile, Research, Stock Buzz), parent of world's largest air carrier American Airlines, said on Thursday it has increased its domestic fuel surcharge to $40 per roundtrip.

An AMR spokesman said the increase, which doubles the surcharge on roundtrip tickets, does not apply to routes where the carrier faces low-fare competition.

A fuel surcharge initiated last week by UAL Corp's (UAUA.O: Quote, Profile, Research, Stock Buzz) United Airlines failed this week. Rival carriers matched the $50 surcharge but later withdrew their increases.

The airline industry hopes to combat soaring fuel costs with fare hikes and surcharges, but a weakening U.S. economy threatens to erode travel demand. Consequently, carriers have had difficulty initiating lasting fare hikes.

"Just like the previous increase attempt last week, the fundamentals to sustain this increase are still in place and there is no reason why we won't see the five other legacy airlines match this increase shortly," said Rick Seaney, chief executive of fare tracker FareCompare. (Reporting by Kyle Peterson, editing by Richard Chang)