Us Beats Forecast

TheNewLowFare

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Aug 31, 2005
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US Airways beats forecasts
By Dawn Gilbertson, The Arizona Republic

TEMPE, Ariz. — Without an MBA, a CPA and hours of free time, it would have been tough to size up the complex first quarterly results of the new US Airways on Wednesday, but company executives made this much clear: The core business is strong and getting stronger despite still-high fuel prices.
"When you sort through these results, I think you'll find they are a good bit better than people were forecasting for these two separate airlines," Chief Executive Officer Doug Parker said during an hourlong conference call with Wall Street analysts and investors.

He said the Tempe-based airline, formed by the Sept. 27 merger of America West and bankrupt US Airways, is more confident than ever that it will be profitable next year, its first full year of operations, excluding one-time merger expenses.

"We're early into the process, but it's going extremely well so far and we are excited about our positioning and our prospects," Parker said.

Here's a big reason: Revenue was up sharply, largely because of higher average airfares, especially in the old America West operation. As US Airways and other carriers cut or reduce unprofitable routes in the face of a 40 percent-plus spike in their fuel bills, competition has become less cutthroat and fare wars are subsiding. America West's revenue per available seat mile rose 17% in the quarter; the old US Airways rose 5.5%.






Scott Kirby, executive vice president of sales and marketing, said the nation's fifth-largest airline expects the revenue momentum to continue, and even to accelerate on the East Coast, where the old US Airways is huge.

Analysts said the results were better than expected. The reported loss, excluding hefty merger-related expenses, was $23 million, or $1.33 per share, significantly better than the $1.85 per share loss analysts were expecting.

The airline's stock rose more than 6% on the news, closing at a new high of $30.31. It began trading around $19 when the merger closed. The investors who helped America West pull off the acquisition of US Airways got in at $15 a share and have now doubled their money on paper. (They can't sell any shares until late March.)

Merrill Lynch analyst Michael Linenberg, who has a buy rating on the stock, said the reported revenue of $926 million was better than he expected by $87 million.

He raised his 12-month target price on US Airways to $36 from $28. Merrill Lynch was a major merger adviser for the company.

JPMorgan Chase analyst Jamie Baker said in a report Wednesday that US Airways remains his top airline pick for investors seeking to capitalize on the changing competitive scene on the East Coast, which he notes is just beginning.

The third-quarter results reported Wednesday represent the first earnings report from the combined airline — sort of.

Because the merger was completed just four days before the quarter ended, the reported results for US Airways Group mainly reflect America West's results. Add in merger expenses, accounting rules and new stock, and even company executives admit that the results are hard to decipher. It'll be a year or so before the company's reported results are relatively normal and easy to compare with previous periods.

For the record, the company reported a net loss of $87 million, or $5.04 per share. That's up significantly from a loss of $29 million, or $1.92 per share, in the same period a year ago.

Excluding merger-related costs, the numbers look better. The company reported a net loss of $23 million, or $1.33 a share, down from a loss of $46 million, or $3.06 a share, in the third quarter of 2004.

Broken out by airline, America West reported a quarterly loss excluding special items of $7 million; the old US Airways, a loss of $80 million.

Despite the red ink, executives and analysts were pleased.

In addition to the trend in airfares, company officials said US Airways is on track to achieve the $600 million in merger "synergies" promised when the deal was announced. From the day the merger was announced, analysts and industry consultants were skeptical that the combined airline could hit that number. Company officials say they will do so through a combination of route restructurings, increased revenue and lower costs. They say they have found savings they didn't expect, such as $31 million a year by switching to the old America West's insurance carrier.

Those don't show up in the third-quarter results.

Looking ahead, they said the big merger challenges looming include negotiating new labor contracts and continuing to combine operations and move toward a single brand, US Airways.