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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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Friday, July 11, 2008

Last Showing For US Airways' In-Flight Movies

In-flight movies are the latest casualty in a long list of discontinued passenger perks that airlines have leveraged as a way to offset soaring jet fuel prices.

Late Wednesday, US Airways Group said it would remove in-flight entertainment systems on domestic flights starting in November. The systems eat into aircraft fuel supply since they weigh a whopping 500 pounds each, saving the airline some $10.0 million, annually. Shares of the Tempe, Ariz.-based airline operator lost 13 cents, or 5.0%, at $2.48 during mid-morning trading on Thursday.

US Airways said that while systems will remain on international flights and Hawaii-bound planes, roughly 200 aircraft will lose their systems. Spokesman Phil Gee said the company will test lighter, seat-back entertainment sets later in the year.

The surging price of jet fuel has forced airlines to eke profits out of passengers by charging for previously complementary services like baggage checks and in-flight meals and drinks.

Passengers aren't the only ones bearing the brunt the industry's budget woes. Airlines are aggressively slashing costs by cutting jobs and diluting employee benefits.

Northwest Airlines blamed high fuel prices for its decision to cut 2,500 jobs, charge $15 to check luggage, and enact fees ranging from $25 to $100 for travelers redeeming frequent-flier award tickets. American Airlines was the first to announce checked bag fees, which have since been employed by US Airways and United Air Lines. Both American and Delta Air Lines charge for frequent flier award redemption. US Airways is the first to eliminate in-flight entertainment systems.


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Monday, June 02, 2008

US Airways is among vulnerable airlines

When their efforts to buy Delta Air Lines failed 14 months ago, US Airways executives returned their attention to a long list of challenges, from union negotiations to a new reservations system.

Those may turn out to be minor compared with the looming financial crisis the Tempe-based airline faces as it moves on after the collapse of merger talks with United Airlines last week.

An unprecedented spike in oil prices, combined with a weak economy, threatens to send several carriers to the brink of bankruptcy or liquidation by the end of this year or early next year, analysts say.

US Airways is seen as among the most vulnerable of the major airlines, given its relatively small size, route network and limited assets to sell to raise cash.

One analyst last week listed US Airways among three carriers with "very large" losses forecast for this year and next.

Last month, another rated US Airways as having the highest bankruptcy risk among the major airlines.

Chief Executive Officer Doug Parker saw a merger with United as both airlines' best chance of weathering the storm, given the flight cutbacks, cost cutting and new sales opportunities that come by combining two airlines.

US Airways and America West saw early financial success and a soaring stock price after their 2005 merger.

With the United deal out as an option and no other merger talks on the horizon, US Airways now must move quickly to prepare for the unforeseen reality of exorbitant fuel prices.

"They need to batten down the hatches and look to do some of the same things everyone else is doing," said Jim Corridore, airline-equity analyst for ratings agency Standard & Poor's.

American, for example, recently announced that it plans to cut seat capacity by 11 to 12 percent and ground planes after the busy summer travel season, a move likely to impact thousands of employees. It is also the first airline to start charging for the first checked bag, effective June 15.

Hardly a day goes by without an airline's announcing a cost-cutting or money-raising move to offset the staggering impact of fuel.

In addition to flight cutbacks, airlines are deferring aircraft orders, increasing fees on everything from pets in the cabin to unaccompanied minors and adding new fees such as American's first-checked-bag charge.

US Airways executives, who declined to be interviewed, have already trimmed the airline's flights in the second half of the year but nothing to the extent of American.

They have started selling prime window and aisle seats and today stopped serving pretzels and snack mixes on U.S. flights.

The airline has repeatedly told employees in recent months that the fuel crisis dictates a new way of doing business.

Parker reiterated that again in a memo to employees Friday confirming the end of merger talks.

"We are working a number of initiatives, and you'll hear more about them in the weeks and months ahead," he said.

On the revenue side, US Airways is said to be seriously considering charging for soft drinks ($3) and pillows and blankets ($5 apiece.)

United CEO Glenn Tilton sounded similar, although more ominous, themes in his message to employees Friday announcing that a merger was out for United.

He said the U.S. airline industry is facing a $20 billion increase in its fuel bill, with United's portion $3.5 billion.

"It's clear that the status quo is not sustainable," Tilton said. "The magnitude of the challenge the industry faces demands unprecedented change."

He said the airline had already taken significant steps, including grounding 30 aircraft, and reducing capacity by 9 percent in the fall.

"That said, we must do more, and that work is under way," he said.

Corridore said the industry needs to shrink the number of available seats by about 25 percent if oil prices stay where they are.

Ray Neidl, airline analyst with Calyon Securities, puts the figure at 20 percent of domestic seat capacity and notes that that's the equivalent of all the seats US Airways, Continental and Frontier have in the United States, combined.

Parker doesn't paint as bleak a financial picture for US Airways as analysts do. He has repeatedly said the airline is sitting relatively pretty, given its $2.4 billion in unrestricted cash at the end of the first quarter and refinancings that pushed its major debt repayments into the future.

"We have more cash relative to size than most of our peers and have fewer obligations coming due in the next few years," he told employees in the memo Friday.

Still, others are concerned.

Credit ratings agency Fitch Ratings last week downgraded the airline's debt ratings, among other airlines'. The firm said US Airways is more sensitive to swings in the price of jet fuel because its trips are shorter than many of its competitors, estimating that each 10 cent change in the per-gallon price represents another $120 million in annual operating costs.

Fitch said the airline has less flexibility in its pilot union contracts to cut capacity this year.

Others say US Airways has fewer options for raising money. According to JP Morgan airline analyst Jamie Baker, US Airways' biggest assets are Embraer regional jets (estimated at $65 million to $70 million) and airport landing and takeoff slots in the Washington, D.C., area (less than $75 million).



Sunday, June 01, 2008

United Airlines, US Airways drop merger talks

United Airlines and US Airways said Friday they have stopped discussing a possible merger and will go it alone, doing business in an onerous economy with crude oil in the $130-a-barrel range.

The nation's second and fifth largest airlines began talks in late April, after Continental Airlines had rejected United Airlines' merger overtures. The three airlines had been weighing consolidation as an option since mid April, when Delta Air Lines and Northwest Airlines proposed a deal that would create the world's largest carrier.

Glenn Tilton, the chief executive of United Airlines, and his counterpart at US Airways, Doug Parker, both wrote statements to their employees on Friday saying consolidation will not take place "at this time."

Tilton said the deal was dropped "due to issues that could significantly dilute benefits from a transaction."

"The U.S. (airline) industry is facing a $20 billion increase in fuel (prices), and United, at current prices, is looking at a $3.5 billion increase over last year," Tilton wrote. "It's clear that the status quo is not sustainable. The magnitude of the challenge the industry faces demands unprecedented change."

United is the dominant carrier at San Francisco International Airport with 48 percent of the flights, and employs 10,000 people in the Bay Area.

US Airways' Parker wrote, "It is simply unlikely that anything will happen in 2008 as our industry continues to struggle with how to function in a world" with crude oil costing $130 a barrel.

Both executives remain advocates of consolidation in the airline industry, and thus left a door open.

They gave no reason for breaking off talks, but analysts believe a merger would be too problematic. The announcement almost certainly means there will not be another attempt by major airlines to merge before year's end.

There is a perception that the Justice Department of the Republican administration of President Bush would be more accommodating to a merger than would the department in place during a Democratic administration. Even so, Bush was in office in July 2001, when the Justice Department said it would oppose the first United-US Airways merger attempt, saying it created a near-monopoly on approximately 30 routes.

Henry Harteveldt, the airline analyst at Forrester Research in San Francisco, said Friday that he thinks it is a good thing for United to be pursuing independence for now. "A merger with US Airways would not have solved United Airlines' problems. It would not bring much to the table that United cannot do on its own," said Harteveldt.

"The products and the cultures are so different that had the two airlines merged, it would have been extremely problematic and potentially cost the airline business as corporate clients and others avoided traveling on the airline until things got sorted out," he said.

Harteveldt said United now "has to work on ways to grow its revenue and develop ways of serving more customers who are willing to pay the prices United will have to charge to earn a profit."

U.S. passenger and cargo airlines spent $16.4 billion on fuel in 2000 and $41.2 billion in 2007, and will spend a projected $61.2 billion in 2008, according to the Air Transport Association in Washington, D.C., representing the major carriers.

Six carriers have gone out of business since December: MAXjet, Big Sky, Aloha, ATA, Skybus and Eos. A seventh, Champion, quit business Friday and an eighth, Air Midwest, is to fold June 30. A ninth, Frontier Airlines, filed for bankruptcy protection April 11 but continues operating.

A British all-business airline, Silverjet, that served Newark, N.J., ceased flying Friday as well.


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Monday, May 26, 2008

United, US Airways delay China launch

Two airlines that only months ago won federal approval to begin highly coveted routes to China are postponing the launch of the new services because of high fuel costs.

The requests come at a time of growing strain on the airline industry, which is anticipating multibillion dollar losses this year as it scrambles to cope with runaway oil prices and a slumping U.S. economy.

United Airlines (UAUA, Fortune 500) has sought and US Airways (LCC, Fortune 500) plans to ask for one-year delays in launching the new routes, representatives from the carriers said Thursday. United won final approval and US Airways received the tentative go-ahead to launch the routes from the U.S. Department of Transportation in September.

Since then, oil prices have shot up more than 60%. Benchmark prices surged past $135 a barrel Thursday before settling at $130.81, down $2.36 on the New York Mercantile Exchange.

The routes in question affect planned United service between San Francisco to Guangzhou, and US Airways flights between Philadelphia and Beijing.

Access to routes between the U.S. and China is highly competitive because air service between the two countries is restricted by bilateral agreements. A July agreement between the two countries was intended to double the number of daily flights allowed between the two nations over the next five years.

United's request for a delay was approved April 25, while the request from US Airways has not yet been received, Transportation Department spokesman Bill Mosley said.

United, a division of UAL Corp., was scheduled to start its new flights in early June, but now plans to postpone the launch until June 2009. Spokeswoman Robin Urbanski said the Chicago-based carrier is scaling back plans for one new international route, San Francisco to Guangzhou, where there aren't "strong enough economics" to offset higher fuel costs.

United received final approval for its route in September, the same time Delta Air Lines Inc. (DAL, Fortune 500) won the opportunity to launch its first flights to China with a daily route between Shanghai and Atlanta. Delta's flights began March 31.

US Airways has begun sending letters to members of Congress and its employees saying it would seek to delay the launch of the new Philadelphia-Beijing route, noting that the cost for fuel would be more than $90 million a year - $40 million more than the original estimate of about $50 million.

"We're optimistic that economic conditions will be on the upswing in 2010, giving us a better chance of success with our first route to China," Scott Kirby, the president of Phoenix based US Airways Group Inc., said in a letter to workers.

Sen. Bob Casey, D-Pa., said in a statement that the China route is a priority for the Philadelphia region, and that the delay was another example of how high fuel prices are hurting the economy.

"I hope this delay is only temporary because this route has the potential to be an economic boon to Philadelphia and good business for US Airways," Casey said.

Before it began the process of delaying the launch, US Airways had planned to start its new route in 2009.

US Airways received final approval for the route in December. At the same time, AMR Corp.'s (AMR, Fortune 500) American Airlines, Continental Airlines Inc. (CAL, Fortune 500) and Northwest Airlines Corp. (NWA, Fortune 500) each won awards to add a new daily flight to their existing service beginning next year.

Representatives for American, Continental and Northwest said they are not making any changes to their plans for new China passenger routes next year.

However, Northwest has applied for a waiver to suspend seven weekly roundtrip cargo flights a week between Tokyo and Guangzhou, China, spokeswoman Tammy Lee said.


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Sunday, April 27, 2008

American Airlines in talks with Continental, US Air

American Airlines has had early stage merger talks with US Airways and is in advanced talks for an alliance with Continental Airlines, sources briefed on the situation said on Friday.

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Friday, October 05, 2007

US Airways confirms order for 92 Airbus planes

US Airways has confirmed an agreement signed at the Paris Air Show in June to buy 92 aircraft from Airbus, the European planemaker said Friday. (page not found)

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Thursday, September 27, 2007

US Airways gets Philly-China route

US Airways has been awarded a coveted route between Philadelphia and Beijing by the U.S. Department of Transportation and plans to start daily service in 2009, the airline said Tuesday.


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Wednesday, January 31, 2007

US Airways withdraws Delta Bid

US Airways has withdrawn its $9.8 billion takeover bid for Delta Air Lines after creditors endorsed Delta's plan to remain independent.

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Thursday, January 11, 2007

US Airways raises bid for reluctant Delta by 20%

US Airways has raised its hostile takeover for rival carrier Delta by 20%, moving closer to a deal that would create the world's largest airline.

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Tuesday, December 19, 2006

Delta Air Lines Rejects US Airways' Hostile Takeover

Delta Air Lines has rejected a hostile merger bid from US Airways, announcing plans to exit bankruptcy on its own.

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