Hedging, Cost Control Limit US Airways Loss

Darren Shannon darren_shannon@aviationweek.com

Fuel hedge gains helped US Airways keep its first quarter net loss to $103 million, and despite the continued effects of a global recession on operations, managers are confident the airline will survive.

The $103 million net loss, which compares to a $237 million net loss in the same period last year, includes a $157 million one time gain from the carrier's fuel hedge agreements, and comes on a 17.5% dip in revenue to $1.6 billion. However, the airline noted that operating expenses fell 18.3% in the three months to March 31, and that with all one-time charges and gains excluded, it would have posted an operating profit of $8 million instead of the $25 million operating loss recorded on its profit and loss statement.

"Our first quarter loss reflects the weakness in the global economy that has negatively impacted revenues throughout our industry. The steps we have taken to adapt to this environment are having a significant positive impact, though, as evidenced by our significant improvement in earnings excluding special items and fuel hedges," said US Airways Group Chairman and CEO Doug Parker,

Improved ancillary revenues also added to Parker's confidence. "We've had great success with a la carte pricing and our relatively higher domestic enplanements versus our largest competitors means that we have a greater ability to capitalize on this opportunity both in the current economic environment and also when the economy turns around. We've pulled down an appropriate amount of capacity and will explore additional reductions if the economic environment warrants such action. And, we've raised new capital in a very tight capital market to help withstand a prolonged economic downturn," the executive said.

US Airways' ancillary program added $75 million to its "other revenue" line item, and produced the only revenue gain recorded by the carrier in its first quarter results. Such charges, such as an online option to pay for checked baggage fees just unveiled by US Airways, is expected to generate up to $500 million for the carrier this year.

In contrast, first quarter mainline revenue fell 17.5% to $1.6 billion, while the airline's Express regional operations generated $551 million in the first quarter, 16.1% less than the same period in 2008.

These dips are in part due to a capacity control initiative that has reduced first quarter mainline available seat miles 7.4% and Express ASMs 4%. "As we have decreased our mainline capacity, we have worked diligently to manage our costs. Those results are evidenced in the modest increase in our first quarter unit costs (mainline CASM excluding fuel, unrealized and realized gains/losses on fuel hedging instruments, and special items), despite a 7% decrease in mainline ASMs," said CFO Derek Kerr.

Mainline and regional demand dropped 8.1% and 4.5%, respectively, during the third quarter.

"Because of the global economic weakness and uncertainty, 2009 remains difficult to forecast. However, the steps we have taken and the outstanding work of our team has us well positioned to meet any challenges that may lie ahead," noted Parker.

Photo credit: US Airways

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