To keep muscle and lose more fat, do morning cardio in a "post-absorptive" state. Here's how.
Sure, it seemed to make sense. You do your aerobic exercise first thing in the morning and since you haven't yet eaten, glycogen levels are low and the body has to resort to burning fatty acids for fuel. As a result, you can see the fat just melting off you, or so the story goes. There are two aspects we need to look at. The first is simply... does it work?
Most studies do indeed suggest that you burn more fatty acids in a fasted state, but the numbers are all over the place. One recent study suggests fasted cardio burned about 17% more fatty acids than non-fasted cardio. But let's look at it in terms of actual calories (a bit simplified of course.) If 30 minutes of steady-state, non-fasted cardio burns about 300 calories, and you do that three times a week, you'd burn 900 calories. Stick with that plan for 26 weeks and you'd burn 23,400 calories, which equals roughly 6.6 pounds of fat... over six months.
However, what if we overestimate and assume that doing fasted cardio burns a spectacular 30% more calories, while readily admitting that there isn't a single study that's shown it to be that effective. Burning 30% more calories would help you burn a measly additional 0.07 pounds per week, which adds up to another 2 pounds of fat lost over that same six month period. Not too impressive, is it? And that's being overly generous with the numbers. So we need to look at whether there's any reason we shouldn't do fasted cardio.
We need to look at it from a "muscle health" standpoint. We know that cortisol levels are highest in the morning, and if you don't eat, it stays elevated. If you do fasted cardio in that state, cortisol levels rise even higher, and that's one of the best ways to lose muscle.
Do Cardio in the Post-Absorptive State Instead
This is the state where you're not fasted, but neither are you actively digesting food. You can accomplish this by drinking a mixture of di- and tripeptides (such as Mag-10®) that are absorbed right into the bloodstream with very little active digestion. That way, you can keep cortisol down and force your body to burn up glycogen and fatty acids.
So yes, technically fasted cardio will burn more fat than non-fasted cardio, but the total number of extra calories burned is pretty anemic. However, fasted cardio will also elevate cortisol levels and burn up precious muscle, so it's counter-productive, at best.