US Airways Group, Inc. today reported a pretax loss of $282 million, excluding unusual gains and fresh-start accounting adjustments associated with the completion of the company’s Chapter 11 reorganization on March 31, 2003. This compares to a pretax loss of $435 million for the first quarter 2002.
Net income for the first quarter 2003 was $1.63 billion, driven by the unusual gain recognized in connection with the company’s emergence from bankruptcy. Net loss for the first quarter of 2002 was $269 million. Operating revenue for the first quarter was $1.53 billion compared to $1.71 billion in the first quarter 2002.
“The war with Iraq and the concomitant effect on fuel costs, weak economic conditions and travel demand, clearly overshadowed the successful completion of our restructuring efforts, as demonstrated by these results,” said David N. Siegel, US Airways president and chief executive officer. “While major combat operations in Iraq are now effectively over, we continue to see its lingering impact on the industry, and we anticipate a lengthy recovery of demand. Our summer schedule has been set, and our pilot bids have been extended through July, so we will not disrupt the summer travel season and our chances for recovery. However, if we do not see improvements in traffic and yield, we may be forced to make some modest fleet reductions in September to further protect the airline’s financial position.”
Siegel said that US Airways has made unprecedented reductions to its cost structure and significantly improved its balance sheet. The company’s cash position was also enhanced by the $1 billion loan that was part of the Air Transportation Stabilization Board (ATSB) guarantee process and the $240 million investment by the Retirement Systems of Alabama, resulting in a total restricted and unrestricted cash position of $1.84 billion at the close of the quarter. “It was an extraordinary effort that led to our emergence from Chapter 11 less than eight months after our filing, amidst the worst financial crisis in commercial aviation history. Our employees deserve special recognition for their many contributions during our reorganization that put us in a much more favorable position,” Siegel said.
Siegel added, however, that the restructuring efforts are ongoing, even after the completion of the Chapter 11 process. “We have new work rules, new vendor contracts, new aircraft leases and other cost reductions that are taking effect. But more importantly, we must continue to implement efficiencies and ways to improve how we do business, as well as to look for ways to increase revenue.”
Siegel said that this month, US Airways expects to announce orders for regional jets, which will replace the airline’s turboprop fleet and increase feed to the mainline, as well as expanded code share and marketing alliance relationships - all of which should continue to enhance revenue prospects.
* US Airways outpaced the industry in improving cost per available seat mile (CASM) for its mainline operations, ranking between Continental Airlines and America West Airlines on a stage length adjusted basis. Excluding fuel, US Airways’ mainline CASM for the first quarter 2003 was 10.37 cents, an 11.4 percent improvement over the prior year. * Systemwide, US Airways outpaced the industry by 2.0 percentage points in year-over-year first quarter 2003 mainline Passenger Revenue Per Available Seat Mile (PRASM). Compared to the first quarter of 2002, US Airways’ PRASM was down 1.8 percent while the rest of the industry dropped 3.9 percent. In domestic markets, US Airways bested the industry by 4.7 percentage points. US Airways’ PRASM was up 0.9 percent while the rest of the industry dropped 3.8 percent. * US Airways reduced operating expenses in the first quarter 2003 by 16.3 percent on a 13.0 percent reduction in capacity despite a 38.6 percent increase in the cost of fuel compared to the first quarter 2002. First quarter results also do not include lower expenses from certain aircraft and vendor restructuring agreements, which will be reflected starting in the second quarter.
Financial and Operating Performance:
For the quarter, US Airways, Inc.‘s mainline operations carried 9.4 million passengers, a decline of 20.3 percent compared to the same period of 2002. Revenue passenger miles for the quarter declined 14.1 percent while available seat miles declined 13.0 percent, resulting in a passenger load factor of 67.7 percent, a year-over-year decrease of 0.8 percentage points. The first quarter 2003 yield of 13.56 cents was down 0.6 percent from the same period in 2002, and mainline revenue per available seat mile of 10.41 cents was also down slightly. Mainline CASM of 11.99 cents for the quarter decreased 7.1 percent versus the same period of 2002. The cost of aviation fuel per gallon for the period was 94.66 cents, up 38.6 percent from the same period in 2002. Mainline CASM, excluding fuel, declined by 11.4 percent. CASM excluding fuel provides management and investors the ability to measure and monitor US Airways’ performance absent the significant price volatility of fuel. Financial statistics for USÊAirways’ mainline results exclude the revenues and expenses generated under capacity purchase arrangements US Airways has with certain US Airways Express air carriers (see attached “Selected Airline Operating and Financial Statistics”).
Unusually severe winter weather affected US Airways` operations during the quarter, more than any other carrier, in particular over the President`s Day weekend. Significant amounts of snowfall in many areas reached record levels, reaching from North Carolina through the Mid-Atlantic and up into the Northeast. The storm shut down airports from the Washington, D.C., area through Boston, closed our Philadelphia hub from Sunday morning until Tuesday evening and caused over 1,700 flight cancellations. Overall, for the quarter these winter storms increased our de-icing costs alone by over $7.5 million, while decreasing net revenue in the quarter by approximately $20 million.
US Airways Group ended the quarter with total restricted and unrestricted cash of $1.84 billion, including $1.27 billion in unrestricted cash, cash equivalents and short-term investments. This cash balance includes the $1 billion loan obtained under the ATSB guarantee process and the $240 million in new equity financing provided by RSA. At emergence, the company repaid its Debtor-In-Possession facility with RSA of $369 million.
Other highlights from the first quarter include:
* Implemented an enhanced marketing relationship with United Airlines as well as new elements of a code share agreement. With United’s strong Midwest, West Coast and Pacific presence, once fully implemented, US Airways estimates new annual revenue of approximately $200 million through the relationship. * Continued to expand its Caribbean route network. US Airways now serves more Caribbean destinations from the mainland U.S. than any other domestic carrier. Since 1999, US Airways has expanded its Caribbean network from nine to 21 destinations. US Airways and US Airways Express along with the GoCaribbean Network partners now provide access to over 30 destinations in the region.
* Reached an agreement with Airbus to restructure existing orders for A330 and A320 family aircraft, providing US Airways with the flexibility to complement its existing fleet of A330-300 aircraft with A330-200 aircraft, and better match its future fleet of A320 family aircraft for domestic single-aisle operations.
* Led the industry by being first to implement a flexible travel policy to ease customer concerns about making reservations as a result of the war with Iraq.
Other recent accomplishment * Ranked first for 2002 in the annual Airline Quality Rating by the University of Nebraska and Wichita State University, moving up from its second place ranking in 2001, showing improvement in three of the four criteria tracked last year. On-time arrivals rose to 83.4 percent, compared to 78.2 percent in 2001. The airline’s mishandled baggage rate decreased to 2.95 per 1,000 passengers, down from 3.86 in 2001. Customer complaints were also down for 2002, with 1.13 per 100,000 passengers, compared to 1.87 in 2001. In the fourth major category, denied boardings, US Airways’ performance was virtually unchanged. On May 2, 2003, US Airways began operating its transatlantic and Caribbean flights in Philadelphia from the new four-level international Terminal A-West. US Airways also expanded its international route network from Philadelphia this month by adding Dublin and Shannon nonstop service. In connection with the company’s emergence from Chapter 11, US Airways Group, Inc.‘s common stock was cancelled on March 31, 2003. As the company is working to meet the requirements for listing its new common stock on a national exchange, it will not hold a conference call to discuss this quarter’s results.