US Airways Earnings: An Early Look

With dozens of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Let's turn to US Airways (NYSE: LCC). The airline has had to deal with many of its competitors consolidating and combining in recent years, but now, it's US Airways' turn to look to grow through a potential merger. Let's take an early look at what's been happening with US Airways over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on US Airways

Source: Yahoo! Finance.

Will US Airways fly higher?
Analysts have been extremely optimistic about US Airways' prospects this quarter, raising their earnings-per-share estimates steadily throughout the past three months. The shares have also reflected that optimism, with the stock soaring between 20% and 25% since mid-October.

The airline industry has been always been a challenging sector to invest in, as the huge capital requirements and razor-thin margins give airlines almost no wiggle room to deal with shocks like high fuel costs and economic slowdowns. That's why so many airlines have declared bankruptcy over the years.

But the big question for US Airways is whether American parent AMR will agree to a merger. The company said earlier this month that it expects to make a decision soon on whether to emerge from bankruptcy as an independent company or to merge. With AMR's unions supporting a merger, things look promising for US Airways, especially since a merger would give US Airways access to American's international routes. The international side of the business has gotten incredibly important, with Delta Air Lines (DAL -0.28%) looking into a combination with Virgin Atlantic in order to get more space at London's Heathrow Airport.

Still, the domestic part of the airline business has also been looking brighter. Mergers by United Continental (UAL 0.17%) and Southwest Airlines (LUV 0.29%) have helped rein in overcapacity, and huge ancillary fees for baggage, onboard food, and other amenities have pushed profits higher.

In its report, look for signs that US Airways has made progress in its discussions with American. If it goes much longer without snagging a new partner, US Airways could easily fall behind in the consolidation race.

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