US Airways swings into profit

US Airways said it swung to a profit in the second quarter and expects a profitable third quarter and full year.

The company posted net income of $305 million, or $3.25 per share, for the April-June period versus a loss of $3 million, or 20 cents per share, a year ago.

The full press release:

The new US Airways Group, Inc. (NYSE: LCC) today reported a second quarter 2006 profit of $305 million or $3.25 per diluted share. This compares to a net loss of $3 million or $0.20 per diluted share for the same period last year. Results for the new US Airways Group’s second quarter 2006 are being compared to America West’s standalone results for second quarter 2005 due to the former US Airways Group and America West Holdings Corporation merger on Sept. 27, 2005. Although the merger was structured so that America West became a wholly owned subsidiary of the new US Airways Group, America West was treated as the acquiring company for accounting purposes under Statement of Financial Accounting Standards No. 141 “Business Combinations.”

US Airways Group’s second quarter 2006 results include $35 million of merger-related transition expenses, which were offset in part by a $7 million gain from interest income earned on certain prior year federal income tax refunds and an $18 million unrealized gain related to the airline’s fuel hedges. Excluding these special items, the Company reported a second quarter 2006 profit of $315 million or $3.35 per diluted share versus a $4 million profit or $0.21 per diluted share in the second quarter 2005 for standalone America West Holdings. See the accompanying notes in the Financial Tables section of this press release for a reconciliation of Generally Accepted Accounting Principles (GAAP) financial information to non-GAAP financial information.

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On a standalone basis, America West reported a net profit of $68 million for the second quarter 2006 as compared to a net loss of $2 million for the same period last year. US Airways reported a net profit of $246 million on a standalone basis for the second quarter 2006 as compared to a net loss of $44 million for the same period last year.

US Airways Group Chairman, President and CEO Doug Parker stated, “We are extremely pleased to report a second quarter profit of this magnitude. This quarterly profit excluding special items is a record for US Airways Group, Inc. and is amongst the highest of its predecessor companies. While other airlines are reporting second quarter profits, no other airline has experienced an improvement as dramatic as US Airways as evidenced by our second quarter 2006 profit margin, which is the highest among the major hub-and-spoke airlines and a remarkable reversal from recent years. The primary driver of this turnaround is the merger of US Airways and America West, which has improved the earnings power and viability of both companies versus their standalone capabilities.

“We are particularly pleased that the quarterly results include a significant accrual of $36 million for employee profit sharing. The 35,000 employees of US Airways are doing an excellent job of taking care of our customers and are the compelling force behind our success.

“Looking forward, we are encouraged by a continuing strong revenue environment and an industry that is keeping capacity in check. We anticipate a profitable third quarter and full year 2006.”

Revenue and Cost Comparisons

The revenue environment continued to gain momentum during the second quarter 2006 and showed considerable improvement over the same period in 2005. For the America West standalone network, total (mainline and express) revenue per available seat mile (RASM) increased 18.6 percent during the second quarter 2006 to 11.16 cents, driven primarily by a 16.4 percent improvement in mainline yields. For the US Airways standalone network, total RASM increased 28.8 percent to 15.23 cents driven by a 16.9 percent improvement in mainline yields and a 4.6 point improvement in mainline load factor as compared to the same period last year.

On a standalone basis, America West’s mainline operating costs per available seat mile (CASM) increased 12.3 percent from 8.95 cents for the second quarter of 2005 to 10.05 cents for the second quarter 2006, largely due to a 25.3 percent increase in the price of fuel in the same period from $1.74 to $2.18 per gallon. US Airways’ standalone mainline CASM for the second quarter 2006 increased 14.3 percent from 10.25 cents for the second quarter 2005 to 11.72 cents also largely due to higher fuel prices, which increased 28.2 percent versus the same period last year. In total, US Airways Group paid $183 million more for fuel in the second quarter 2006 than it would have paid had fuel prices remained at second quarter 2005 levels.

Excluding fuel and special items, America West’s mainline CASM increased 7.4 percent from 6.45 cents for the second quarter 2005 to 6.92 cents for the second quarter 2006 on a 2.3 percent decrease in available seat miles (ASMs). On the US Airways’ standalone network, mainline CASM excluding fuel and special items increased 7.9 percent in the same period to 8.08 cents for the second quarter 2006 on a 12.8 percent decrease in ASMs. The increase in unit costs excluding fuel and special items was due largely to an accrual for the Company’s employee profit sharing plan, which allocates 10 percent of the Company’s pre tax profits excluding special items to its employees at the end of 2006, as well as a $31 million credit associated with US Airways’ post retirement benefits in 2005.

Liquidity

As of June 30, 2006, the Company had $3.2 billion in total cash and investments, of which $2.2 billion was unrestricted.

Summary of Integration Progress

The Company’s integration efforts remain on track. The following list includes a summary of integration progress the Company has achieved during its second quarter 2006.

  Operations
    *  Continued to achieve near the top rankings in arrivals as measured by
      the Department of Transportation (DOT); the new US Airways ranks
      second among its peer airlines for year-to-date arrivals with
      78.9 percent of flights arriving within 14 minutes of their scheduled
      arrival time.
    *  Improved baggage handling by 50 percent on a year over year basis.
    *  Consolidated operations at all but four airports where both airlines
      operated prior to the merger.
    *  Remained on track to merge its two operating certificates onto one
      operating certificate during the second quarter 2007.

  Finance
    *  Completed a $1.25 billion refinancing, which was used to replace
      approximately $1.1 billion of outstanding debt at lower interest
      rates and with an extended amortization period.
    *  Completed the conversion of approximately $112 million in principal
      amount of America West Holdings Corporation’s 7.5 percent convertible
      senior notes due in 2009, which lowered the airline’s annual interest
      expenses by $8.4 million.

  Marketing
    *  Launched the combined airline’s new Web site, usairways.com.  The new
      site integrates the former americawest.com and increases overall
      functionality.
    *  Merged the former America West frequent flyer program, FlightFund,
      into US Airways’ frequent flyer program, Dividend Miles, to create
      one consolidated program that allows customers to more easily earn
      and redeem miles across the airline’s network and the Star Alliance.

  Labor Relations
    *  Reached a final agreement with the Airline Customer Service Employee
      Association, an alliance between the Communication Workers of America
      (CWA) and the International Brotherhood of Teamsters (IBT), the two
      unions that represent the airline’s 7,700 passenger service employees
      and reservation agents.
    *  Received notification from the International Brotherhood of Teamsters
      (IBT) and Transport Workers Union (TWU) that both unions had reached
      an agreement resulting in IBT representation of the combined
      carrier’s fleet service workers.

  Culture
    *  Conducted and reported results from the first employee survey for the
      new US Airways, which included building follow up plans for improving
      communication and leadership.
    *  Unveiled the third and fourth heritage planes (Piedmont and
      Allegheny) that will feature throwback liveries of the four major
      airlines that comprise the new US Airways (Allegheny, America West,
      Piedmont and PSA).

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