US Airways swings to huge 2Q loss on fuel spike

US Airways Group Inc. said Tuesday it swung to a huge second quarter loss as it struggled to deal with spiking fuel costs.

Results beat Wall Street estimates, however, and US Airways shares jumped $1.29, or 48 percent, to $3.98 in afternoon trading as oil dropped more than $3 a barrel.

Chairman and CEO Doug Parker said his airline will further reduce seating capacity this year in hopes of boosting sales, and he expects to raise up to a half billion dollars annually in new travel fees for soda, seats and bags.

The rest of the industry is doing much of the same, Parker noted, and he said that might be enough to make the airline industry profitable again in 2009.

"We'll manage through this," Parker told analysts on a conference call. "Nobody's going to come in and fix our problems."

Fuel costs have smothered profits throughout the airline industry. Jet fuel rose above $4 per gallon for the first time in the second quarter, almost double its cost during the same period last year.

As a result, airline executives have had to transform the way they do business. They've cut routes and created a menu of new travel fees for checked bags, online ticketing and, in US Airways' case, for soda and choice seats in coach.

Fuel prices also may force airlines to end the unprofitable practice of matching discount fares from competitors, Minneapolis airline expert Terry Trippler said.

"This is going to shake that out of them," Trippler said. "They don't have that luxury anymore. It's got to be profitable."

For the three months ended June 30, US Airways lost $567 million, or $6.16 per share, compared with profit of $263 million, or $2.77 per share, for the same period last year. Revenue rose 3 percent to $3.26 billion.

Excluding special charges that included a $640 million noncash impairment charge related to the write down of goodwill and spare parts, US Airways said it would have lost $101 million or $1.11 per share.

Analysts, who typically exclude charges from their forecasts, expected a loss of $1.30 per share during the second quarter on revenue of $3.27 billion.

During the second quarter, US Airways spent $1.1 billion on fuel and related costs, an increase of 65 percent. Parker recently estimated that his airline will pay on average $299 per passenger in fuel for a roundtrip domestic flight.

To cope with fuel costs, US Airways will reduce capacity 6 to 8 percent on domestic flights in the fourth quarter, and then cut another 8 to 10 percent in 2009.

The Tempe, Ariz.-based carrier also said it would trim about 2,000 jobs, including about 600 from management. Executives also have high hopes for "a la carte" charges for various items such as drinks, choice seats, and checked bags.

US Airways officials on Tuesday boosted their expectation for the new charges by $100 million, saying they should raise $400 million to $500 million annually from them.

At the same time, Parker said his airline has refurbished its service to customers. US Airways has been among the top three carriers in on-time performance for six straight months, he said. Last year, US Airways ranked among the worst in the industry in on-time performance and customer satisfaction surveys.

___

On the Net:

http://www.usairways.com