American Airlines cut capacity in the fourth quarter but traffic fell even faster compared with a year earlier, according to figures the company released Friday.

Parent AMR Corp. also said it expected to end the year with about $3.1 billion in unrestricted cash and short-term investments, down from about $4.6 billion three months ago. That's partly because falling oil prices have forced AMR to post more collateral on fuel-hedging contracts.

Many airlines hedge against rising fuel prices with options and other contracts, but the contracts lost value as oil prices fell this fall. AMR said Friday it will have to set aside about $550 million in collateral on the contracts, contributing to the cash erosion.

Airline officials said they still benefit from cheaper fuel even if the hedging contracts lose value. They estimated American will spend $3.5 billion to $4 billion less on fuel in 2009 than it did this year if fuel stays at current prices.

Airlines have been helped since summer by falling jet fuel prices, but the recession has dampened demand for air travel, and that showed up in American's newest figures.

American estimated that traffic in the fourth quarter will total 30.22 billion miles flown by paying passengers, a 10.9 percent reduction from 33.92 billion passenger miles in the fourth quarter of 2007.

Capacity, measured in available seats times miles flown, fell 8.25 percent, to 38.81 billion, American estimated. American and other airlines cut capacity earlier this year when jet fuel was at record-high prices.

A company official estimated that the average American jetliner was 77.9 percent full in the fourth quarter, compared to record occupancy of 80.2 percent in the last quarter of 2007.

AMR's regional carrier, American Eagle, also reported lower traffic and capacity compared with a year earlier.

American and Eagle got a break from this fall's plunge in fuel prices, still AMR estimated the airlines would pay an average of $2.61 per gallon in the fourth quarter, up from American's $2.40 per gallon a year earlier.

Fort Worth-based AMR is the nation's second-largest airline operator after Delta Air Lines Inc.

Shares of AMR rose 2 cents to close at $10.60 Friday.

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