US Airways' Earnings More Than Double
Employee Concessions Still Needed, CEO Warns
By Keith L. Alexander
Washington Post Staff Writer
Wednesday, July 28, 2004; Page E01
US Airways Group Inc., which is trying to avoid a second bankruptcy filing, reported yesterday that its second-quarter earnings more than doubled to $34 million as travelers flocked to the skies and the airline kept a lid on costs.
The airline's earnings of $13 million (25 cents a share) in the second quarter of last year resulted from a $214 million government grant tied to the war in Iraq. Discounting those earnings, the Arlington-based carrier had its first profitable quarter in four years in the most recent period.
The latest quarterly earnings of 59 cents a share surprised Wall Street analysts who predicted a loss of about $70 million ($1.34), according to a survey by Thomson First Call. US Airways shares jumped 22 cents, or 9.2 percent, to close yesterday at $2.60.
The second quarter is traditionally one of the strongest periods for the airline industry because of a surge in vacation travel. US Airways' revenue increased 10 percent, to $1.96 billion, from $1.78 billion a year ago. Passenger levels rose nearly 4 percent, allowing the airline to fill about 77.4 percent of its seats, its highest percentage during a quarter.
The airline's cost-cutting measures -- such as a reduction in flights and greater use of its Web site for ticket sales -- helped offset a 26 percent increase in fuel expenses during the period. The airline held the increase in its operating costs to 10 percent.
US Airways executives warned that further losses were possible during the year and that the carrier may have to file for bankruptcy again if it does not secure $800 million in concessions from employees by the end of September. The airline is aiming to reduce costs by $1.5 billion.
In a recorded message to employees yesterday, Bruce R. Lakefield, US Airways president and chief executive, said further steep losses could place the airline in jeopardy of defaulting on its $800 million federal loan guarantee with the Air Transportation Stabilization Board. Continued losses also could imperil the airline's agreement with its regional jet aircraft leaseholders. Without concessions from workers, the airline "faces a series of consequences," Lakefield said.
"Rather than risk those consequences, which could have a destabilizing financial effect on US Airways and negatively impact employees, the company may need to take actions such as including, but not limited to, filing for Chapter 11 protection," Lakefield said.
Standard & Poor's analyst Philip Baggaley said the positive quarter would make it difficult for US Airways to persuade employees to agree to cuts.
All of the carrier's labor groups -- except the large and influential machinists union -- have agreed to explore concession talks. Joe Tiberi, a spokesman for the machinists union, said the group remained opposed to pay and benefit cuts but was willing to find other ways to help the airline reduce costs.
Lakefield advised workers that employees would fare better by agreeing to cuts outside of bankruptcy rather than after a second filing. "Stop dragging your feet or hoping Chapter 11 will help you. It most certainly will not," he said.
US Airways cut nearly $2 billion during its seven months in bankruptcy, including $1.2 billion in worker pay and benefits. Since then, it has drastically cut flights and plans to reduce service out of its Pittsburgh hub airport by 36 percent this fall. The airline has trimmed fares out of Philadelphia and Washington to remain competitive with low-fare carriers such as Southwest, JetBlue and Dulles-based Independence Air.
The airline also has deferred planned delivery this year of 19 aircraft until 2005 and 2006.
US Airways ended the quarter with about $975 million in unrestricted cash, about $3 million less than it had in the first quarter.
© 2004 The Washington Post Company