Us Airways Analyst Conference Call Key Comments –

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May 18, 2003
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US Airways Analyst Conference Call Key Comments – July 28

Recently I reviewed the July 28 US Airways Analyst Conference Call and I thought it would be of interest to list some of the company’s comments. Listed below are some of the key points for the quarter ending on June 30:

 The company’s financial results included a $92 million charge that reduced profits to account for US Airway's issuing stock to employees as part of post-bankruptcy agreements, however, the stock has yet to be distributed. Without this charge last quarter, the airline would have posted a second quarter net profit of $105 million. The company will take additional non-cash stock charges, for employee distributions, of $28 million in Q3 2003, $12 million in Q4 2003, $46 million in 2004, and $20 million in 2005.

 US Airways recorded total revenue of $1.78 billion in the second quarter that included a 2.8 percent increase in revenue from domestic travel, versus less than 1 percent increase for the rest of the industry.

 US Airways PRASM is 100.4 percent and leads the industry. Unit revenue was up 2.8 percent versus a 0.9 percent unit revenue rise for other ATA carriers.

 That marked US Airways' best showing against competitors since late 1999. The Pittsburgh Tribune review wrote, "That's very encouraging," said William Lauer, chairman of Allegheny Capital Management Inc. in Tarentum, who follows the company. "But the question is, will the normal summertime surge in traffic lead to a more robust fall, or more of a fall in the fall?"

 Year-over-year labor expense dropped 29 percent and aircraft rental expense dropped 18 percent.

 During its in-court restructuring, US Airways reduced its debt by $2.6 billion. The company went from 421 mainline aircraft pre-September 11 to 279 aircraft upon bankruptcy emergence, which created an additional cost reduction of $1.9 billion for a total debt reduction of $4.5 billion.

 Total restricted and unrestricted cash was about $2.0 billion, with $1.42 million in restricted cash. The company’s unrestricted cash grew by $157 million during the quarter.

 US Airways chief executive officer Dave Siegel told Wall Street analysts the company is showing significant improvements since exiting bankruptcy, even though last quarter's results were "less than stellar." The carrier has “one of the best S&P and Moddy’s credit ratings,†he said.

 Ben Baldanza, senior vice president of marketing and planning said US Airways will end direct service from Pittsburgh to London Gatwick on October 28, however, the company is considering “bringing back the non-stop flights next summer. The airline put no timeline on any decision to reinstate Pittsburgh-Gatwick service.

 Siegel believes the MAA EMB-170 “will change the game and will be a revolution.†The aircraft is expected to immediately be profitable and will have a “break even load factor of about 50 percentâ€, he said. 150 of the 170 PSA and MAA RJs have been financed at attractive rates. Siegel noted when fully deployed the RJ expansion is expected to generate $300 million per year in additional revenue and they are cost effective because they are deployed a “trip versus unit cost†basis.

 Siegel said the company is going to consolidate the number of regional partners in a year or two. US Airways expects to significantly reduce the number of turboprops in the fleet during the next few years and will phase out PSA’s Dornier 328s in the next 18 months, because the aircraft has become increasingly difficult to maintain. During bankruptcy the company obtained flexible turboprop lease cancellation agreements where these aircraft will come out of service “at very little cost,†Siegel said.

 “Mesa Airlines is the preferred partner that will expand,†Siegel said.

 Looking ahead, management said they expect competitive pressures, particularly from United, will keep ticket prices down for the remainder of the year. The company said it believes it will be until 2005 until revenue recovers.

 Blaylock & Partners airline analyst Ray Neidl commented “it’s amazing to finance 90 percent of the RJ order in this environment.â€

 In regard to alliances, Siegel told the analysts the Star Alliance has shifted from a revenue to a cost synergy alliance. Star is working on creating a “seamless experience†with automation, where “other alliances have not accomplished this,†Siegel said. The Lufthansa bilateral alliance will begin in the fall where each airline is expecting about an additional $50 million per year in revenue. The Lufthansa MOU will “bring more money – more quickly,†Siegel noted. US Airways must complete its Star Alliance initiatives by December 31 and the company expects to join Star in the first quarter of 2004. The United alliance has grown to provide US Airways with about 84,000 additional bookings per week, which represents about 10 percent of the company’s traffic. (Note – US Airways recently announced the alliance has provided the company with about 100,000 additional weekly bookings, during the busy summer travel period).

 Over time, management expects to grow transatlantic operations, principally from Philadelphia, and the Lufthansa agreement should have “greater opportunities due to Philadelphia.†As RJs arrive the company expects to re-deploy mainline aircraft into long-haul markets. Mainline capacity will remain flat in 2003 and 2004, but there will be some route reallocations with seasonal growth opportunities into the Caribbean, Central America, and Europe. There will be significant RJ ASM growth.

 Year-over-year stage length grew 8 to 10 percent due to the asset reallocation that has lowered CASM. Going forward the company is targeting a 9 percent CASM reduction year-over-year.

 The Inflight Café buy on board product is available on 324 flights, which represents 25.4 percent of all daily mainline departures.

 US Airways had its highest internet booking penetration of 22.6 percent.

 Siegel was asked about the August 28 announcement that Atlantic Coast Airlines (ACA) would either keep it current agreement in place or break ties with United. Siegel said he was skeptical of the plan and there is nothing low-cost about the RJ operator. "I'm onfident that ACA will turn itself into a low-fare airline, but there's never been anything low-cost about them," he said.

 US Airways is in the “early stages of its restructuring†and there will be a major 2004 “cost take out programâ€, Siegel said.

Following the call the news media reported Standard & Poor's airline analyst Philip Baggaley noted US Airways' progress in cost cutting. Baggaley said the carrier had the second-best pretax cost margins of the major hub-and-spoke airlines this quarter. Last year, US Airways ranked among the worst, he said. Neidl said he wasn't surprised with the results, considering that the airline recently emerged from bankruptcy and faced "a tough revenue and economic environment." But, noting that without the $214 million grant from the Transportation Security Administration the company would have lost money, he added: "I guess I hoped that they would have done a little better.''

Regards,

Chip
 
Thanks for the post Chip. If i read correctly, life is not so bad for us- despit what our own management tells us. In fact, it seems like this year will be about flat-- not loosing so much. Next year the same or a bit better and 2005 katie look out!

I just get so tired of our own people telling us how bad it is. can't these guys find something positive to say to us?? I doubt it, how else can they continue to pound us if we get positive news..

Sorry that last one was negative wasn't it. Guess who causes that?????
 
Chip

If possible, can you elaborate, or, SPECULATE what the major 2004 cost take out program will be.....

Thanks and
best wishes,
the big blue whale!