US Airways joins peers in 1Q loss. Consolidation "a long time from now" - CEO


Despite a more moderate increase than its peers in fuel costs for the first quarter, US Airways posted a US114 million net loss or USD110 million ex special items on total operating revenues of USD2.96 billion. The results represented a USD21 million increase in the net loss, ex items, from 1Q2010 and, on a GAAP basis, a USD59 million increase from the year-ago quarter.

  • US Airways reported a net loss of USD114 million for the first quarter, primarily due to increased fuel costs.
  • The airline industry collectively lost USD1 billion in the first quarter, with only Southwest, JetBlue, and Alaska Air Group posting profits.
  • US Airways CEO, Doug Parker, believes consolidation in the industry will happen gradually and not driven by crises.
  • Fuel expenses accounted for one-third of US Airways' total operating expenses, with a 33% year-on-year increase in fuel prices.
  • The airline reported strong demand and an 8% increase in unit revenues, while also reducing capacity in the third and fourth quarters.
  • US Airways ended the quarter with approximately USD2.5 billion in total cash and investments, with a projected fuel cost of USD3.29 to USD3.34 per gallon for the second quarter.

With only one legacy left to report, the industry has collectively lost USD1 billion in the first quarter. Meanwhile, Southwest and JetBlue posted profits as did legacy Alaska Air Group, which has restructured itself to better compete with the low-fare carriers.

Consolidation will be a matter of stars aligning rather than driven by crises, according to Mr Parker. "The reality is, there is not that much more to do although I think there is more to come and it will probably happen a long time from now. We are running a good stand-alone company and are capable of doing that for the long term. If the stars do align we want to be in a position to participate but fuel prices are not near where it would drive more consolidation. We are not in a crisis state. The current environment does nothing to compel or detract from consolidation issues."

When prompted by analysts suggesting that maybe the industry could benefit from more crises, he shot back that would be counterproductive. "We are not in favour of creating crises," he said. "I don't believe the only way to get the industry fixed is having to go to a crisis. The way to do it is to manage to success regardless of fuel prices. Consolidation would help that and we are a lot closer now than we were. We'll get there over time."

Of course the airline, which does not hedge, cited fuel for its first quarter performance, adding if fuel expenses had remained flat year-on-year, fuel would have been USD240 million lower. CEO Doug Parker said fuel was now the largest item in operating costs as fuel rose 33% year on year on a price-per-gallon basis. It now represents one third of the company's USD3 billion in total operating expenses.

Mr Parker, echoed his CEO peers in reporting strong demand continuing even as unit revenues jumped 8%. He also noted a year-on-year decline in mainline non-fuel unit costs.

Total revenues resulting from fare increases were up 11.7% or about to USD2.9 billion, said the Phoenix-based carrier, on a 3.4% increase in total available seat miles to 20.5 billion. TRASM reached 14.42 cents, up 8.1% compared to the year-ago period thanks to a 7.6% in passenger yields which totaled 16.14 cents per ASM for the quarter.

Total capacity for the quarter was up 3.4% to 20.5 billion, according to President Derek Kerr who said total system capacity will be up 1% for the year. Mainline ASMs will be 19.2 in the second quarter and 19.1 billion and 17.3 billion in the third and fourth quarters for full-year system capacity of 72.7 billion.

Analysts questioned the executives on whether they should do more capacity cuts and Mr Parker took a page from AMR when he looked back to 2005 and said that since its merger with America West it has dropped capacity by 13%, even more than American. Mr Parker also indicated that other carriers haven't taken the tough decisions US Airways has in closing Pittsburgh, Las Vegas and Boston including a crew base at Boston.

"We are flying 99% where we have real competitive advantages at Philadelphia and Charlotte," he said. "That will go up more once the Delta slot swap transaction is done. Others haven't made those decisions and are still flying to places where they don't have a competitive advantage and are trying to steal share. If, at USD120 per barrel oil, it hasn't gotten done then it will never get done and shame on the industry."

Total PRASM was up 8.7% to 12.59 cents per ASM, he said, while mainline rose 8.9% to 11.15 cents per ASM and Express was up 6.9% to 19.60 cents per ASM.

Consolidated yields rose 7.6% to 15.14 cents per ASM while load factor rose 0.8 points to 78%.

TRASM was up 8.1% year on year on strong revenue performance to 14.42 cents per ASM.

The company announced that it would reduce capacity in the third and fourth quarters by approximately 1% from previous guidance. With these changes, 2011 total system capacity is now expected to be up approximately 1% from 2010. Mainline is forecast to be up approximately 1.5%, with domestic capacity expected to be up slightly and international up approximately 4%.

Mainline CASM, ex fuel and special items will be up -1 to 1% in the second quarter, 2-4% in the third and 2-4% in the fourth for a full year projection of flat to 2%.

The company also reported first quarter expenses rose 12.8% to USD3 billion on a USD272 increase in fuel. Mainline CASM was up 7.9% to 13.09 cents while ex fuel mainline CASM dropped 1.3% to 8.76 cents.

US Airways Express revenues rose 13.8% to USD685 million, continuing its profitability streak, as CASM, ex fuel and special items, rose 3.2% to 15.10 cents on a 6.5% increase in ASMs. Express yield rose 6% to 28.08 cents while PRASM increased 6.9% to 19.60 cents. Express CASM rose 11.4% to 22.06 cents.

The company also announced subsidiary Piedmont Airlines will assume ground handling for all Express operations at Phoenix and 14 other locations, and will ultimately include Express ground handling at all its hubs. Piedmont is replacing Mesa now that that company is out of the ground handling business post bankruptcy.

Express ASMs are expected to rise in the second quarter to 3.70 billion before moderating to 3.60 billion in 3Q and 3.29 billion in 4Q for a full year ASM total of 14.09 billion. CASM ex fuel and special items, 15.10 in the first quarter, will be up 6-8% in the second quarter followed by 9-11% and 7-9% increases in the third and fourth quarters, respectively. Full-year Express CASM ex fuel and special items will be up 6-8%.

US Airways ended the quarter with approximately USD2.5 billion in total cash and investments, of which USD345 million was restricted, up from USD2.0 billion, of which USD442 million was restricted on March 31, 2010.

For the second quarter 2011, the company anticipates paying between USD3.29 and USD3.34 per gallon of mainline jet fuel including taxes.

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