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US Airways Profit Grows

Earnings are better than expected.
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Updated from 9:36 a.m. EDT

US Airways

(LCC)

reported improved first-quarter earnings, but said it will move to reduce capacity in the face of flattening demand, tougher competition and rising fuel prices.

The Tempe, Ariz.-based carrier will cut aircraft utilization this summer, so that 2007 capacity will be unchanged, and it will give up seven Boeing 737-300s when their leases expire next year.

First-quarter earnings, before items, totaled $34 million, or 37 cents a share. Revenue was $2.73 billion, up 3.8%.

Analysts polled by Thomson Financial had forecast earnings of 12 cents a share on revenue of $2.74 billion. In the same quarter a year earlier, profits before items were $5 million, or 5 cents a share.

US Airways said it expects to be profitable for the current quarter and the full year, even though rising fuel costs will add $300 million to this year's projected expenses.

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"This cost increase pretty much falls to the bottom line," said CEO Doug Parker, on a conference call Thursday. Airlines could pass on fuel costs to customers in 2005 and 2006, but they can't now because of rising capacity, he said.

The carrier also said it will delay a move to a single operating certificate, once planned for June, until it completes a migration to a single reservations system. The migration caused operational disruptions in early March, and it continues to delay airport processing. "It's a regulatory requirement

and there's no reason to rush it," President Scott Kirby said.

A single certificate would replace the separate operating certificates for US Airways and America West, which merged in 2005. Kirby said the move would occur sometime this year.

For the current quarter, revenue per available seat mile growth will be flat, reflecting the industry slowdown.

"Where we see the weakness is places where a low-cost carrier adds service," Kirby said. Legacy carriers are readily matching low-cost carrier pricing, which "is causing industry revenues to have a worse correlation than normal to GDP and capacity," he said.

US Airways said its results improved in the most recent quarter despite two Northeast storms, which reduced revenue by $30 million to $35 million, and the reservations-system changeover. Seeking to provide better service, the carrier said it will hire 1,000 airport workers, add 600 airport kiosks and relax restrictions for loyal customers.

Mainline passenger revenue per available seat mile rose 3.4% in the first quarter, while consolidated RASM rose 3.3%. Mainline cost per available seat mile, excluding fuel and special items, rose 2% to 7.88 cents. The company attributed the increase to its first-quarter operating difficulties.