(Updates with shares turning higher)
By Ankit Ajmera and Tracy Rucinski
July 26 (Reuters) - American Airlines expects a return to revenue growth next year after taking steps to mitigate the impact of higher fuel costs that hit second-quarter profitability, Chief Executive Doug Parker said on Thursday.
The Fort Worth, Texas-based carrier cut its 2018 earnings forecast for the second time after it reported a 34.5 percent drop in quarterly profit, hurt by higher fuel costs.
Shares rose 2.6 percent to $39.18 after initially opening lower.
On a conference call, Parker said the quarter was "probably the most challenging" the airline has faced since its merger with US Airways in 2013.
American said it now expects 2018 earnings per share in a range of $4.50 and $5.00, down from $5 to $6 previously, and forecast third-quarter unit revenue - a closely watched performance metric that compares sales to flight capacity - to rise 1 to 3 percent.
To boost profitability in what Parker called a "new reality" of higher fuel at around $75 per barrel, the No. 1 U.S. carrier by passenger traffic said it will cut costs and defer deliveries of 22 A321neo aircraft from Airbus that were previously scheduled for delivery in 2019, 2020 and 2021.
The deferrals will reduce capital expenditures by $1.2 billion over the next three years, it said.
Among large U.S. rivals, Delta Air Lines Inc also warned that fuel would squeeze its profit for the full year, while United Airlines raised its 2018 profit forecast thanks to a rise in average fares and traffic.
American Airlines' net income fell to $566 million, or $1.22 per share in the second quarter ended June 30, from $864 million, or $1.75 per share, a year earlier.
On an adjusted basis, American earned $1.63 per share.
Operating revenue rose 3.7 percent to $11.64 billion.
Analysts on average expected quarterly profit of $1.59 per share on revenue of $11.70 billion, according to Thomson Reuters I/B/E/S.
Aside from fuel costs, Parker also attributed some of the airline's underperformance to its domestic operations and said will allow Basic Economy customers the same carry-on allowance as Main Cabin customers as of Sept. 5 in a move to better compete with lower-fare products.
Reporting by Ankit Ajmera in Bengaluru and Tracy Rucinski in Chicago Editing by Supriya Kurane and Nick Zieminski