American Airlines parent AMR Corp posted a smaller-than-expected quarterly loss on a 10.3 percent revenue increase as the company aimed to control fuel and labor costs.

AMR is the second major U.S. airline to post fourth-quarter results. Delta Air Lines on Tuesday posted a lower-than-expected quarterly profit.

The Delta disappointment raised new concerns on Wall Street about the strength of the airline industry's recovery in the face of rising jet fuel prices.

AMR shares rose as much as 2.5 percent on the New York Stock Exchange early on Wednesday but cooled off to trade flat at $8.29 by midmorning. The Arca airline index <.XAL> was up 0.8 percent.

Excluding the one-time charges, AMR did a commendable job reducing controllable expenses, said Morningstar equity analyst Basili Alukos. However, AMR still reported a loss, and I think the company has an arduous task returning to the black on a consistent basis.

The U.S. airline industry has been hammered in the last decade by volatile fuel costs and the 2008/2009 economic downturn that drained travel demand.

AMR said its fourth-quarter net loss was $97 million, or 29 cents per share, compared with a loss of $344 million, or $1.03 per share, a year ago.

The fourth-quarter 2010 results include the impact of a $28 million noncash impairment charge related to the lower value of Colombian routes because of a new law that makes them more accessible to other airlines.

Excluding this special item, the company said it lost $69 million, or 21 cents per share.

Wall Street analysts had expected AMR to lose 32 cents per share, according to Thomson Reuters I/B/E/S.

AMR said revenue was $5.6 billion, a gain of 10.3 percent.

The carrier said its labor costs slipped 1.2 percent to $1.7 billion. But experts generally agree that AMR's labor costs are too high relative to its peers, who slashed their labor costs in bankruptcy in recent years.

AMR said its fuel costs increased 12.9 percent to $1.7 billion. The carrier predicted fuel costs would be a significant headwind in 2011.

Nymex crude, which is directly related to the price of jet fuel, was up 11 cents at $91.49 per barrel on Wednesday morning.

The company said its cost per available seat mile for 2011, excluding fuel and the potential impact of any new labor agreements, is expected to be flat from the previous year.

AMR expects mainline capacity in the first quarter of 2011 to increase by 3.8 percent compared with the first quarter of 2010.

AMR ended the fourth quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $450 million.

The company said it is currently in talks with online travel agencies Expedia Inc and Orbitz Worldwide on a distribution deal.

AMR is trying to push third-party sellers of its tickets to use its direct connect technology, which it says will save money and allow customers to shop for flights based on factors other than just fares. AMR has removed its fares from Orbitz sites after Orbitz shunned AMR's technology. Expedia later pulled AMR fares, saying the strategy is anti-consumer and anti-choice.

Last year, industry analysts wondered if AMR was at a competitive disadvantage to rivals that have found merger partners. United Airlines and Continental Airlines merged to form United Continental Holdings.

But AMR has long insisted it does not need a merger partner to thrive and has said its network, which focuses on key cities, will pay off.

In 2011, American will continue to enhance its own network and expand its relationship with quality carriers in the markets that are important to our customers, said AMR Chief Executive Gerard Arpey in a statement.

American is well positioned to capitalize on the opportunities unfolding in the marketplace, Arpey said.

AMR also said it will support its network strategy by purchasing two Boeing 777-300ERs. The two aircraft are expected to be delivered in late 2012.

(Reporting by Kyle Peterson, editing by Dave Zimmerman and Matthew Lewis)