US Airways Sees Progress

The per-share loss narrows in the latest quarter.
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Updated from 7:37 a.m. EST

Five months after being formed by the merger of a legacy airline and a regional low-cost carrier,

US Airways

(LCC)

said it has reduced losses at both predecessors and now expects to report a profit in 2006.

"The rate of improvement is much better than any other airline has experienced," CEO Doug Parker said on a conference call. "We're exceptionally pleased with our momentum." He said the airline expects a profit this year even at current fuel prices.

The Tempe, Ariz., carrier lost $261 million, or $3.26 a share, in the quarter ended Dec. 31, compared with a year-ago loss of $69 million, or $4.66 a share. Revenue rose to $2.58 billion from $697 million a year ago. Year-ago data tracks the operations of America West only.

Results for the most recent fourth-quarter include a $69 million unrealized loss related to fuel hedges, $36 million of charges, primarily merger expenses, and $18 million in charges partly related to the remarketing and warrant repurchase associated with America West's prior Airline Transportation Stabilization Board loan. Excluding those items, the latest-quarter loss was $1.72 a share, narrower than the $3.89 a year earlier and 12 cents better than the Thomson First Call analyst consensus estimate.

On a standalone basis for predecessor US Airways, the airline's loss for its fourth quarter was $120 million. Excluding special items, which were primarily merger-related, US Airways lost $105 million. The carrier lost $218 million for the same period in the prior year.

By itself, America West lost $139 million in the fourth quarter. Before items, America West lost $31 million. The year-ago loss was $57 million, excluding items.

Parker said the combined loss, excluding special items, was about $138 million, while the combined fuel cost was $197 million higher than it was in the same quarter a year earlier.

CFO Scott Kirby said this year's early results are positive, with January revenue per available seat mile up 20% from the same month a year earlier and similar trends being observed in February. "Industry capacity cuts are leading to an improved revenue environment," he said, while "the consumer hasn't yet balked at increasing fares for us or the industry."

Executives said they are sticking to last September's predictions that the merger would produce $600 million in savings and revenue enhancements. Parker said US Airways has saved about $175 million through fleet reductions, while another $175 million in revenue should result from combining the two route systems.

Additionally, the airline had expected to save $175 million this year, but now believes it will save $200 million as it reaches negotiated agreements to combine worker groups now separated by different labor contracts. Parker complimented employees, noting that US Airways achieved the No. 1 ranking among major airlines in on-time performance for the fourth quarter.

Total revenue per available seat mile for America West by itself increased 17.5% during the fourth quarter compared with the same period last year. US Airways revenue per available seat mile rose 15.7% year over year. Each airline also saw improvement in mainline yields when compared with the same period last year.

On a standalone basis, America West's mainline operating costs per available seat mile jumped 25.2% to 10.48 cents for the fourth quarter, driven by a 32.5% advance in the net price of fuel to $1.87 from $1.41. Excluding fuel and special items, America West's CASM was 6.44 cents, up 5.1% from last year.

US Airways' standalone mainline CASM during the fourth quarter increased 11.4% to 11.83 cents, mainly because fuel prices surged 60.3% to $2.10 from $1.31. Taking out fuel costs and certain other items, US Airways CASM actually fell 0.8% to 8.38 cents from last year.

The combined airline reported CASM of 7.51 cents and said it expects to reduce the number to 7.25 cents by year's end. Although

AMR

(AMR)

subsidiary American Airlines and

UAL's

(UAUA)

United Airlines both reported lower CASM, Parker said US Airways' costs aren't adjusted for its shorter stage length.

Effective Oct. 1, 2005, America West retroactively changed its maintenance-cost accounting policy. The result was a charge of $202 million and a $46 million increase in maintenance expenses for all of 2005 for the new US Airways.