America West Airlines Inc, et al. · 10-K · For 12/31/04
Filed On 3/14/05 9:54pm ET · SEC Files 0-12337, 1-12649 · Accession Number 950153-5-517
America West Airlines Inc, et al. · 10-K · For 12/31/04...2004, however, extremely high jet fuel prices ...had previously operated profitably, including AWA...we anticipate significant losses for full year 2005.
During 2004, however, extremely high jet fuel prices and excessive capacity throughout the domestic air system began to negatively impact all airlines including the low cost segment of the airline industry as well and several low cost carriers that had previously operated profitably, including AWA, experienced declining earnings.
This, along with increased fuel burn due to increased flying during 2004, resulted in a 48.1% increase in fuel expenses in 2004 over 2003.
In spite of our diligent work to contain our costs, we believe revenues will continue to reflect the excess capacity that exists across the domestic system and fuel prices will remain at, or exceed, record highs. Given these conditions, we anticipate significant losses for full year 2005.
The revenue environment during 2004 remained challenging
In spite of these initiatives, during 2004, we experienced increased low cost carrier (LCC) competition and increased legacy carrier competition, and the results of these two factors can be seen in our unit revenue performance relative to the industry during 2004.
We continue to face considerable challenges in 2005, including competing with legacy carriers that, through a variety of restructuring mechanisms, have reduced labor wages, extended debt maturities and lowered their overall cost per available seat mile. These actions could cause AWA’s cost advantage to diminish. In addition, recent fare initiatives by the major carriers may also cause a reduction in revenue per available seat mile.
Our credit ratings are relatively low, with Moody’s assessment of AWAs senior implied rating and senior unsecured debt rating at B3 and Caa2, respectively, Standard & Poors assessment of AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC and Fitch Ratings assessment of AWAs long-term and unsecured debt rating at CCC. In addition, Standard & Poors recently placed AWAs aircraft debt on CreditWatch with negative implications as part of a broader review of aircraft-backed debt. Low credit ratings could cause our borrowing costs to increase, which would increase our interest expense and could affect our net income and our credit ratings could adversely affect our ability to obtain additional financing.
If our financial performance or industry conditions do not improve, we may face future downgrades, which could further negatively impact our borrowing costs and the prices of our equity or debt securities. In addition, any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness. See Risk Factors Relating to the Company and Industry Related Risks. Because of our relatively low credit ratings, our borrowing costs may be high and our ability to incur additional debt may be impaired.
PlaneDeal061005_Without the merger, America West.....with fuel prices high and industry capacity in excess, we (like most of our industry) could also face bankruptcy if those fundamentals don’t change.
Q: Why not let US Airways just tank and go belly up? That way there is no bothering with seniority integration or bickering about the way that their employees are being paid more to do the same jobs than we are.
A: The proposed merger is about making our company stronger and bringing in the kinds of assets - gates, slots, and aircraft that allow us to grow our network instantly. Yes, a merger comes with tremendous challenges, including the task of integrating seniority lists. But, we believe that this merger is in the best interests of employees, shareholders and travelers. Without the merger, America West will continue as it has; however, we have to consider the long-term viability of our company and, with fuel prices high and industry capacity in excess, we (like most of our industry) could also face bankruptcy if those fundamentals don’t change.