1:10PM New York – Two of the three largest U.S. airlines reported sharply higher losses as fuel price jump more than 80% from a year ago and companies take charge on eliminating staff and grounding airplanes.

The current woes of the airlines industry was at a stark display in the latest quarterly earnings from Delta Air Lines and AMR, the parent of American Airlines. Rapid and steep rise in fuel cost with a growing reluctance of consumers to pay higher fares are driving losses at two airlines to record highs.

The key question is what happens to air traffic after summer holidays are over and how will airlines cope if fuel prices remain at current elevated level. The airlines are increasing their ‘other revenue’ and ‘passenger fees’ by charging for checked baggage for in-flight food and drinks but are quickly running out of options to find additional revenue sources.

AMR Corporation, the parent company of American Airlines revenue for second quarter rose 5.1% to $6.18 billion compared to $5.88 billion a year ago. Net loss was $1.4 billion or $5.77 per diluted share compare to a net profit of $317 million or $1.08 per diluted share for the second quarter of 2007.

Excluding one-time charges to ground planes and eliminate staff, the quarterly loss would have been $284 million. American's mainline load factor or the percentage of total seats filled was 82.5% during the second quarter, compared to 83.6% in the second quarter of 2007. AMR plans to retire its entire fleet of 34 A300 aircrafts by the end of 2009.

High fuel prices affects the results of AMR, company paid $838 million more for fuel in the second quarter of 2008. The airline paid $2.42 billion for the fuel in the quarter or $3.19 a gallon of jet fuel compared to $1.64 a gallon in the quarter a year ago.

While the cost of jet fuel remains very volatile, AMR is planning for an average system price of $3.81 per gallon in the third quarter of 2008 and $3.42 a gallon for all of 2008, a substantial increase from a year ago.

AMR expects the previously announced sale of American Beacon Advisors, Inc. valued at $480 million in total consideration, to be completed in the third quarter of 2008.

AMR Corporation (AMR: chart) in the last one year traded as high as $29.32 in July 2007 and as low as $4.00 in July 2008. Based on the yesterday's closing price the company has a market cap of $ 1.21 billion.

Delta Air Lines, Inc., an air carrier today reported results for the quarter ended June 30, 2008 revenue increased 10% to $5.5 billion compared to $5 billion a year ago. Net loss for the June 2008 quarter was $1.04 billion or $2.64 per diluted share compared to a profit of $1.59 billion a year ago.

Excluding one-time charges Delta would have earned $137 million in the quarter. Delta says that it has access to $4.3 billion in ‘unrestricted liquidity’ from its lender and additional $1.3 billion through its revolving credit facility.

The airline took a goodwill charge of $1.1 billion and $102 million for employee buyout in the quarter. Delta will lower its capacity by 13% by the end of the year and ground 20 large planes and 100 regional planes after the summer season.

Delta plans to reduce its domestic capacity by 13% and increase its international capacity by 14% and cut its overall capacity by 4% in the second half of this year.

Delta hedged just under half of its fuel needs in the second quarter with average fuel cost of $3.13 a gallon compared to $2.09 a gallon. Delta realized $313 million in gains on fuel hedge contracts settled in the quarter.

Delta exited the bankruptcy court last year with goodwill asset of $12.3 billion and wrote down nearly half of the asset in the first quarter earnings.

Delta’s merger with Northwest Airlines is targeted to close during the fourth quarter of 2008 and expects to save $2 billion annual cost by 2012 but will spend $600 million in cash over the next three years to integrate two airlines.

Delta Air Lines, Inc. (DAL: chart) in the last one year traded as high as $21.80 in July 2007 and as low as $4.00 in July 2008. Based on the yesterday's closing price the company has a market cap of $ 1.56 billion.