US Airways, which is pushing to buy rival Delta Air Lines in a hostile takeover bid, has swung to a profit in the fourth quarter, as strength in both mainline and express operations helped offset high fuel costs. Full Statement
The new US Airways Group, Inc. (NYSE: LCC) today reported its fourth quarter and 2006 results. Net profit for the fourth quarter was $12 million, or $0.13 per share compared to a net loss of $261 million, or $3.27 per share for the same period last year. Excluding special items of $74 million, the Company reported a net profit of $86 million, or $0.91 per diluted share, compared to a net loss of $138 million, or $1.73 per share in the fourth quarter of 2005.
The fourth quarter 2006 is the first full quarter where the Company’s results for both periods reflect consolidated results for the new US Airways Group. Because the merger of US Airways and America West occurred on Sept. 27, 2005, the results for the full year 2006 are being compared to 2005 results, which consist of 269 days of America West results, and 96 days of consolidated US Airways Group’s results. 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.”
For the full year 2006, the Company reported a net profit before cumulative effect of change in accounting principle of $303 million, or $3.32 per diluted share, which compares to a net loss before cumulative effect of change in accounting principle of $335 million, or $10.65 per share for the full year 2005. Excluding special items of $204 million, the Company reported a net profit before cumulative effect of change in accounting principle of $507 million, or $5.47 per diluted share compared to a net loss before cumulative effect of change in accounting principle of $188 million, or $6.00 per share for the same period last year. 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.
Chairman and CEO Doug Parker stated, “We are extremely pleased to report our fourth quarter earnings, and couldn’t be more proud of our 35,000 employees who will share in these positive results through our profit sharing plan. 2006 marks the first full year of operating and financial results for the new US Airways, and our team has done a remarkable job of integrating our two airlines while taking care of the more than 41 million customers who flew US Airways last year. Few people would have believed, at the time of our merger, that the new US Airways would be the most profitable network airline in 2006. Fortunately, our team believed and we thank them for their great work.
“Looking forward, we anticipate reporting even better results in 2007 with even higher profit sharing payments. This will provide our employees with job stability and the opportunity to share in the financial success of the Company and our customers with the choice and value they deserve,” continued Parker.
Revenue and Cost Comparisons
The revenue environment during the fourth quarter 2006 remained robust for both mainline and Express operations. Mainline passenger revenue per available seat mile (PRASM) was 10.12 cents, up 8.6 percent over the same period last year. Express PRASM was 17.60 cents, up 14.8 percent over the fourth quarter 2005. On a consolidated basis, PRASM for US Airways Group was 11.33 cents, up 9.7 percent compared to the fourth quarter 2005.
“Although fuel prices have come down significantly from the historically high levels we saw throughout the year, fuel still remains our largest operating expense. If fuel prices had remained at 2005 levels, our total fuel expense would have been $467 million lower for the year,” said Chief Financial Officer Derek Kerr.
Total operating cost per available seat mile (CASM) for US Airways Group for the quarter was 11.97 cents, down 1.5 percent on reduced capacity of 0.1 percent. Consolidated mainline operating CASM was 10.98 cents, down 1.3 percent compared to the fourth quarter 2005. Excluding fuel, special items, and merger related transition expenses, mainline CASM was 7.64 cents, up 2.8 percent from the same period last year.
As of Dec. 31, 2006, the Company had $3.0 billion in total cash and investments, of which $2.4 billion was unrestricted.
Fourth Quarter Special Items
During its fourth quarter, the Company recognized $74 million of special items, which included a $26 million non-cash charge for unrealized net losses associated with the change in fair value of the Company’s outstanding fuel hedge contracts, $10 million of net merger-related transition expenses and a $12 million payment in connection with an inducement to the note holders to convert a portion of the Company’s seven percent senior convertible notes to common stock. In addition, during the fourth quarter, the Company used $26 million of net operating losses acquired from US Airways, which was recognized as a reduction in goodwill rather than a reduction in tax expense. As a result, the Company has a $26 million non-cash expense for income taxes for the quarter. 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.
Fourth quarter 2006 accomplishments include:
Paid a one-time special $50 bonus to employees, which totaled approximately $1.8 million, for the airline’s operational performance during the Thanksgiving holiday travel period.
Finished the month of November with a year-to-date on time performance of 77.4 percent, ranking US Airways second of the ten largest carriers as measured by the Department of Transportation.
The Company achieved significant operational improvements at its Philadelphia hub. Specifically, customer complaints are down over 30 percent from 2005 levels. In addition, mishandled baggage per 1,000 enplanements is down nearly 15 percent year-over-year, with over 95 percent of all local in-bound baggage now delivered to the baggage carousel in 19.1 minutes on average.
Continued reducing fares to more cities including Wilmington, N.C., Augusta Ga. and Huntington W.Va. In total the new US Airways has reduced fares in more than 1,100 markets.
Began testing the combined SHARES reservations system at both Tempe, Ariz. and Winston-Salem, N.C. reservations locations, which will help move the airline to a combined reservations system scheduled to occur in the first half of 2007.
Reached a final labor agreement, including transition items, with the Transport Workers Union (TWU), representing about 150 dispatchers.