US Airways makes progress in quarter
But troubled airline still faces hurdles in cost-cutting effort
CHARLOTTE (Observer) - Troubled US Airways picked up its performance in the last three months of the year, but still lost $98 million -- or more than $1 million a day.
The fourth-quarter results, reported Friday, showed the airline is making progress in its cost-cutting effort, but it still cannot compete successfully in a marketplace increasingly defined by low-fare airlines.
Analysts said the results included signs that US Airways, which emerged from bankruptcy reorganization in March, has breathing room as it struggles to adjust. For instance, the carrier reported a Dec. 30 cash balance of $1.29 billion and said it has scheduled 2004 debt repayments of just $132.4 million.
During a conference call with analysts, Chief Executive Officer David Siegel allowed 12 to 18 months for "getting our cost structure into line."
The net loss of $98 million compares with a $794 million net loss in the fourth quarter of 2002, during the airline's stay in bankruptcy protection. The pretax loss, which excludes one-time items, fell to $129 million from $352 million in the year-earlier quarter. US Airways, the nation's seventh-largest carrier, has its biggest hub in Charlotte.
The only airlines to make money in the quarter were low-cost carriers and an established carrier with one-time gains, Siegel noted.
"Our employees are victims of a reality in the industry that is difficult to adjust to," he said. "Employees at the only profitable airlines are willing to work for lower pay, fewer benefits and with more efficient work rules."
US Airways wants concessions, primarily work rule changes, from employees. Officials met Friday with union leaders "to review the fourth-quarter earnings in detail as well as discuss a framework of options going forward," according to a taped message for members of the pilots' union. "There was a general agreement to move forward to address the issues," said airline spokesman David Castelveter.
Workers have already given up $1 billion annually in concessions. But labor still takes 42 percent of US Airways revenue, compared with 33 percent at low-cost carriers, Chief Financial Officer Neal Cohen said.
The most pressing issue is the need to meet covenants associated with a $900 million government loan from the Air Transportation Stabilization Board, which Congress set up to help airlines after the Sept. 11 attacks.
Philip Baggaley, analyst for credit rating agency Standard & Poor's, said US Airways will likely breach covenants it must meet on June 30th.
Among them, cash flow must equal fixed charges, indicating break-even operations, and the ratio of debt to cash flow must not exceed 7.5 -- far above the level that would support a loan from a commercial bank.
Baggaley said the airline may have to pay down debt to satisfy the board, and it may have to sell assets to do that, although airline officials say they have no immediate plans to sell assets.
"If they can get covenant relief, the cash balance and fairly modest debt maturities buy them some time to work on major cost reductions," Baggaley said.
Another pressing problem is the May 9 arrival of low-fare king Southwest Airlines in US Airways' Philadelphia hub. Ben Baldanza, senior vice president of marketing, reiterated that US Airways will be "aggressive" in responding.
But Baldanza said that on all of the routes Southwest plans to fly initially, including Philadelphia to Florida, Chicago Midway and Las Vegas, low-fare carriers already fly. "In their initial deployment, fares aren't going to come down that much," Baldanza said. "They are already at low levels."
Josh Marks, a partner at aviation consulting firm Velocity Group, said the quarterly results are "not good enough."
Marks said the airline's bet on increasing service to the Caribbean, primarily from its Charlotte hub, is paying off. Trans-Atlantic flying, mainly from Philadelphia, is also profitable, as is the shuttle between Boston, New York and Washington.
But US Airways loses money on short-haul flying in the East and on transcontinental flying because of competition from low-fare carriers, Marks said.
"They've gone as far on the revenue side as they can get," he said. "The battles will be on the cost side."
Replacing big jets with regional jets on select routes would cut costs, he said. US Airways has 103 regional jets in its US Airways Express fleet and wants to eventually fly about 400 of them.
Pilot contracts have historically limited the use of regional jets at major airlines, a protection against taking work from bigger jets where pay rates are higher. In recent years, such limitations have been falling away because of the severe financial pressures on the airline industry.
Late Thursday, US Airways reached agreement with its pilots on a deal giving it more flexibility to fly new regional jets with 70 to 80 seats.
Pilots agreed to drop a grievance on pay rates and established a rate of $50,000 to $60,000 annually. They also dropped a second grievance over what entity would operate the jets, said Jack Stephan, spokesman for the US Airways chapter of the Air Line Pilots Association.
"The pilots' interest is to make sure US Airways pilots fly as many as possible of the planes," Stephan said. "We are willing to join in any partnership that ensures the viability of this airline.
"A million bucks a day goes out the door here," he added. "You can't do that long term."
For the full year, US Airways lost $1.8 billion. Revenues were $6.8 billion, including $1.76 billion in the fourth quarter, up from $1.61 billion in the same quarter a year earlier. US Airways shares closed Friday at $4.65, up 45 cents.
2002 FOURTH QUARTER This net loss came during the airline's stay in bankruptcy protection. 2003 FOURTH QUARTER This net loss was equivalent to more than $1 million a day. $794
MILLION $98 MILLION
But troubled airline still faces hurdles in cost-cutting effort
CHARLOTTE (Observer) - Troubled US Airways picked up its performance in the last three months of the year, but still lost $98 million -- or more than $1 million a day.
The fourth-quarter results, reported Friday, showed the airline is making progress in its cost-cutting effort, but it still cannot compete successfully in a marketplace increasingly defined by low-fare airlines.
Analysts said the results included signs that US Airways, which emerged from bankruptcy reorganization in March, has breathing room as it struggles to adjust. For instance, the carrier reported a Dec. 30 cash balance of $1.29 billion and said it has scheduled 2004 debt repayments of just $132.4 million.
During a conference call with analysts, Chief Executive Officer David Siegel allowed 12 to 18 months for "getting our cost structure into line."
The net loss of $98 million compares with a $794 million net loss in the fourth quarter of 2002, during the airline's stay in bankruptcy protection. The pretax loss, which excludes one-time items, fell to $129 million from $352 million in the year-earlier quarter. US Airways, the nation's seventh-largest carrier, has its biggest hub in Charlotte.
The only airlines to make money in the quarter were low-cost carriers and an established carrier with one-time gains, Siegel noted.
"Our employees are victims of a reality in the industry that is difficult to adjust to," he said. "Employees at the only profitable airlines are willing to work for lower pay, fewer benefits and with more efficient work rules."
US Airways wants concessions, primarily work rule changes, from employees. Officials met Friday with union leaders "to review the fourth-quarter earnings in detail as well as discuss a framework of options going forward," according to a taped message for members of the pilots' union. "There was a general agreement to move forward to address the issues," said airline spokesman David Castelveter.
Workers have already given up $1 billion annually in concessions. But labor still takes 42 percent of US Airways revenue, compared with 33 percent at low-cost carriers, Chief Financial Officer Neal Cohen said.
The most pressing issue is the need to meet covenants associated with a $900 million government loan from the Air Transportation Stabilization Board, which Congress set up to help airlines after the Sept. 11 attacks.
Philip Baggaley, analyst for credit rating agency Standard & Poor's, said US Airways will likely breach covenants it must meet on June 30th.
Among them, cash flow must equal fixed charges, indicating break-even operations, and the ratio of debt to cash flow must not exceed 7.5 -- far above the level that would support a loan from a commercial bank.
Baggaley said the airline may have to pay down debt to satisfy the board, and it may have to sell assets to do that, although airline officials say they have no immediate plans to sell assets.
"If they can get covenant relief, the cash balance and fairly modest debt maturities buy them some time to work on major cost reductions," Baggaley said.
Another pressing problem is the May 9 arrival of low-fare king Southwest Airlines in US Airways' Philadelphia hub. Ben Baldanza, senior vice president of marketing, reiterated that US Airways will be "aggressive" in responding.
But Baldanza said that on all of the routes Southwest plans to fly initially, including Philadelphia to Florida, Chicago Midway and Las Vegas, low-fare carriers already fly. "In their initial deployment, fares aren't going to come down that much," Baldanza said. "They are already at low levels."
Josh Marks, a partner at aviation consulting firm Velocity Group, said the quarterly results are "not good enough."
Marks said the airline's bet on increasing service to the Caribbean, primarily from its Charlotte hub, is paying off. Trans-Atlantic flying, mainly from Philadelphia, is also profitable, as is the shuttle between Boston, New York and Washington.
But US Airways loses money on short-haul flying in the East and on transcontinental flying because of competition from low-fare carriers, Marks said.
"They've gone as far on the revenue side as they can get," he said. "The battles will be on the cost side."
Replacing big jets with regional jets on select routes would cut costs, he said. US Airways has 103 regional jets in its US Airways Express fleet and wants to eventually fly about 400 of them.
Pilot contracts have historically limited the use of regional jets at major airlines, a protection against taking work from bigger jets where pay rates are higher. In recent years, such limitations have been falling away because of the severe financial pressures on the airline industry.
Late Thursday, US Airways reached agreement with its pilots on a deal giving it more flexibility to fly new regional jets with 70 to 80 seats.
Pilots agreed to drop a grievance on pay rates and established a rate of $50,000 to $60,000 annually. They also dropped a second grievance over what entity would operate the jets, said Jack Stephan, spokesman for the US Airways chapter of the Air Line Pilots Association.
"The pilots' interest is to make sure US Airways pilots fly as many as possible of the planes," Stephan said. "We are willing to join in any partnership that ensures the viability of this airline.
"A million bucks a day goes out the door here," he added. "You can't do that long term."
For the full year, US Airways lost $1.8 billion. Revenues were $6.8 billion, including $1.76 billion in the fourth quarter, up from $1.61 billion in the same quarter a year earlier. US Airways shares closed Friday at $4.65, up 45 cents.
2002 FOURTH QUARTER This net loss came during the airline's stay in bankruptcy protection. 2003 FOURTH QUARTER This net loss was equivalent to more than $1 million a day. $794
MILLION $98 MILLION
