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Airline News


Monday, October 27, 2008

US Airways reports $865 million 3Q loss

US Airways Group Inc. said Thursday it lost $865 million in the third quarter as the carrier struggled with an up-and-down swing in fuel prices. Its shares dropped nearly 16 percent as oil prices rose.

The loss was the worst among the major carriers during the July-through-September quarter, topping United parent UAL's $779 million loss reported earlier this week.

Oil prices dominated the Tempe, Ariz.-based carrier's balance sheet and swung it to a loss for the fourth straight quarter. Fuel was not only the carrier's biggest expense, but US Airways took a second hit in fuel hedging as oil prices dropped from their July peak of $147 per barrel.

Chairman and CEO Doug Parker bemoaned the "crippling fuel price environment that US Airways and other airlines faced this summer," and told analysts that the carrier still does not know how the recent financial crisis will affect the travel habits of its customers.

The silver lining for airlines is the effect a souring economy has in forcing down the price of oil. Every dollar drop in oil prices equates to about a $40 million decrease in annual fuel expenses, Parker said.

So far, US Airways has noticed during the past month a slowdown in bookings to leisure destinations and other bookings made 60 days or more in advance. But its aircraft are not close to being left empty. US Airways has cut so much seating capacity this year that its planes are expected to be even more loaded this month than the same period last year, President Scott Kirby said.

Meanwhile, US Airways has been busy boosting revenue with extra fees for drinks, checked luggage and for popular seats in part of its coach sections. The company expects its "a la carte" travel fees will bring in an extra half billion dollars in 2009.

The new charges have been met with grumbles from passengers around the country. But Parker said they could make traveling on US Airways "a more comfortable and civil environment."

For example, since US Airways started charging $25 to check a second bag earlier this year, it's noticed a 40 percent drop in passengers doing so. With fewer bags in the system, the carrier no longer has so much trouble mishandling bags.

Another example: Parker said flight attendants are noticing a huge drop off in people ordering sodas, now that the carrier has started charging $2 per drink.

The benefit?

"We're seeing carts not staying in the aisle for the bulk of the flight," Parker said "leaving much more time for people to get up and go about the cabin at their leisure.

"And giving our flight attendants much more time to move up and down the aisle and take care of the customer needs as they arise," he said.

US Airways shares fell $1.35, or 15.9 percent, to close at $7.14 Thursday.

Ray Neidl, an airline analyst with Calyon Securities, agreed that US Airways finds itself in a strong financial position. Soaring oil prices forced it to trim the fat out of its network well before the financial meltdown on Wall Street, he said.

"Usually, airlines get blind-sided when a recession comes," Neidl said. "These guys had their recession earlier this year with oil costs, and they were well prepared for this."

For the quarter, US Airways said it lost $8.45 per share, compared with a profit of $177 million, or $1.87 per share, in the same period last year. Revenue was up 7.4 percent to $3.26 billion for the three-month period that ended Sept. 30.

Without special charges of $623 million, including a $488 million loss in fuel hedging, its third-quarter loss would be $242 million or $2.35 per share. Analysts surveyed by Thomson Reuters, who usually exclude one-time items, expected a loss of $2.54 per share on revenue of $3.26 billion.

Fuel was again the biggest expense for US Airways. It paid $1.1 billion in aircraft fuel and related expenses for the quarter, up 60.4 percent from the previous year.

In a separate announcement Wednesday, the carrier said it raised $950 million of financing and near-term liquidity commitments.

It will use $400 million of that to prepay its $1.6 billion bank debt facility and lower its minimum required unrestricted cash balance to $850 million from $1.25 billion. The move will give the carrier greater financial flexibility, which has been a major issue for analysts and credit rating agencies.

Chief Financial Officer Derek Kerr said US Airways has raised or secured about $1.2 billion in cash and payment deferrals since its second quarter earnings were announced.


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