US Airways Wins on Lower Fuel, but AMR Merger Effort Delayed

CHARLOTTE, N.C. ( TheStreet) -- Fresh off a first-half 154% share price gain, US Airways ( LCC) is forecasting strong second-quarter results, but the airline acknowledges that its efforts to merge with American ( AAMRQ.PK) could drag on longer than expected.

Meanwhile, the carrier said Thursday that June passenger revenue per available seat mile rose about 6%, the same rate of increase as in May. The carrier had been forecasting that June PRASM growth would exceed May PRASM growth. Earlier, Delta ( DAL) said its June PRASM grew 8%.

US Airways shares were rising Thursday in mid-morning trading, up 15 cents to $13.36 after two analysts raised estimates based on lower fuel costs and June results. Dahlman Rose analyst Helane Becker raised her first-quarter earnings estimate to $1.80 a share. Analysts surveyed by Thomson Reuters had been estimating $1.40. For the full-year, Becker raised her forecast to $2.95 a share, in line with consensus.

Meanwhile, Deutsche Bank analyst Mike Linenberg raised his first-quarter estimate to $1.65 a share, his full-year estimate to $3.50 and his 12-month price target to $20.

"While revenue trends are a tad softer than what we were expecting (6% PRASM for month of June vs. our 7% forecast), the impact is more than fully offset by lower fuel prices," Linenberg wrote.

In particular, US Airways is expected to benefit from being unhedged during a period of declining fuel prices. Its competitors are hedged; Delta has said it will record a $155 million second-quarter loss on its fuel hedges and could face hundreds of millions in additional fuel hedge losses if fuel prices don't rise.

In a July 4 message to employees, CEO Doug Parker praised US Airways' strong first-half operating performance, which included an 87.3% on-time rate and a low rate of mishandled bags (2.10 mishandled per 1,000 enplanements) and said second-quarter results will reflect "a strong revenue environment, lower fuel prices and our outstanding reliability."

Parker also commented on the agreement between American and its creditors to extend the period of exclusivity for American to file its plan of reorganization to Dec. 27 from Sept. 29. The two parties also extended the exclusivity period for American to solicit backing for its plan to Feb. 28 from Nov. 29.

Delay does not appear to benefit US Airways. In general, it has seemed that US Airways would like to get a merger done quickly, and its quick deals with American labor unions provided momentum. But American does not want to merge, at least while it is in bankruptcy. Moreover, it appears that American is boosting its financial health while in bankruptcy.

Parker wrote that American is working to negotiate contracts with its labor unions.

"For US Airways, this means a review of alternative strategic plans for American by American and the creditors committee is also likely to be delayed," he said. "That delay is fine by us -- there is certainly no urgency for us to merge, so long as we are a given a fair chance to present our superior alternative in time to merge with AMR upon their emergence from bankruptcy.

"Fortunately, thanks to all of you, US Airways is doing a fantastic job on its own," he told employees. "We have a great future ahead of us no matter what happens."

-- Written by Ted Reed in Charlotte, N.C.

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