Company Has $98 Million Net Loss for the Quarter; $696 Million Improvement Over 2002
System Passenger Unit Revenue Up 7.4 Percent
ARLINGTON, Va., Feb 6, 2004 -- US Airways Group, Inc. (NASDAQ: UAIR) today reported a fourth quarter 2003 net loss of $98 million compared to a net loss of $794 million for the fourth quarter 2002, which is a $696 million improvement.
The fourth quarter pretax loss of $99 million compares to a pretax loss of $848 million for the fourth quarter of 2002, an improvement of $749 million. Results for both periods include unusual items, described in Note 5 below, including the sale of the company’s equity investment in Hotwire in the fourth quarter of 2003, and a number of items related to the company’s bankruptcy in the fourth quarter of 2002. Excluding these unusual items, pretax loss for the fourth quarter of 2003 of $129 million improved by $223 million from a $352 million pretax loss in the fourth quarter of 2002.
"Throughout the year, we made progress in reducing our losses, but regrettably, we are behind in our plan for achieving sustained profitability," said US Airways President and Chief Executive Officer David N. Siegel. "We continue to face the cost and revenue challenges confronting the other legacy carriers. Absent special items, none of these carriers reported a full-year profit, which highlights the fundamental change low-cost carriers are having on the industry overall."
Siegel said that US Airways’ strong share of industry bookings and improved load factor are good indicators that its customers continue to support the airline, but the company’s profitability and successful response to low-cost competition are critical to maintaining its loyal customer base. Going forward, the company needs to achieve a cost structure that matches the carriers that have demonstrated consistent profitability. "As we seek to implement changes that the marketplace demands, we first must adapt our business model and reduce costs in a way that will enable us to become profitable in this new competitive environment."
The fourth quarter 2003 US Airways system passenger revenue per available seat mile (PRASM) was 10.83 cents, up 7.4 percent compared to the fourth quarter of 2002. Domestically, system PRASM grew 3.6 percent. System statistics encompass mainline, wholly owned airline subsidiaries of US Airways Group, Inc., as well as capacity purchases from third parties operating regional jets as US Airways Express. For US Airways mainline operations only, the PRASM of 9.77 cents was up 7.1 percent. Fourth quarter 2003 passenger transportation revenues included a $34.2 million favorable adjustment related to the air traffic liability account.
System available seat miles (ASMs) were up 2.3 percent, while mainline ASMs increased 0.6 percent during the fourth quarter. Revenue passenger miles (RPMs) increased 8.2 percent for the full US Airways system, while mainline RPMs increased 7.0 percent. The mainline passenger load factor of 72.7 percent was 4.4 percentage points higher than the same period last year and system load factor was up 3.9 percentage points to 71.2 percent. For the quarter, US Airways Inc.’s mainline operations carried 10.4 million passengers, an increase of 0.3 percent compared to the same period of 2002, while system passengers of 13.5 million were up 2.2 percent. The fourth quarter 2003 yield for mainline operations of 13.43 cents was up 0.6 percent from the same period in 2002, while system yield was up 1.7 percent to 15.22 cents.
US Airways Senior Vice President of Marketing and Planning B. Ben Baldanza said that customer expectations are changing more rapidly than previously anticipated, and the demand for lower fares is limiting revenue opportunities. "Meeting and exceeding customer expectations is the key to long-term success in all industries and we are continuing to transform our business in a way that addresses this challenge. Our actions have resulted in improved revenue performance relative to other legacy airlines," said Baldanza. "As fares continue to drop, it also becomes essential for us to lower our costs related to selling tickets."
The mainline cost per available seat mile (CASM), excluding fuel and unusual items, of 10.22 cents for the quarter, declined 7.2 percent versus the same period in 2002 (for a reconciliation, see Note 3 to the Selected Airline Operating and Financial Statistics). The fourth quarter of 2003 included $9 million of non-cash, stock-based compensation related to stock grants given to employees of US Airways’ organized labor groups during the restructuring process. Also during that process, the company substantially restructured its aircraft obligations. As a result of these two items, taking aircraft ownership into account and excluding the stock-based compensation expense, CASM improved 9.2 percent for the quarter.
The cost of aviation fuel per gallon, including taxes, for the fourth quarter, was 87.74 cents (82.54 cents excluding taxes), up 4.9 percent from the same period in 2002. US Airways’ fuel position is 20 percent hedged for the first quarter of 2004, 30 percent hedged for all of 2004, and 5 percent hedged for 2005.
US Airways Group ended the quarter with total restricted and unrestricted cash of approximately $1.84 billion, including $1.29 billion in unrestricted cash, cash equivalents and short-term investments.
"We have maintained modestly positive cash flow and strong liquidity since emerging from Chapter 11 last year; however, we still face great challenges from a cost perspective," said Neal S. Cohen, US Airways executive vice president of finance and chief financial officer. "The carriers that have consistently reported profits have established a new benchmark with cost levels at least 25 percent lower than ours."
Cohen said that the company continues to work to reduce its costs and that all elements in the company’s cost structure are being examined. "Everything is on the table, from distribution costs, to labor costs, to how we schedule our airline," said Cohen. "In the fourth quarter, for example, our labor expense for mainline operations accounted for 42 percent of total revenue, compared to an average of 33 percent for the low-cost carriers."
Cohen added that the company has strict loan covenants with the Air Transportation Stabilization Board (ATSB) that will need to be met. "We are taking the necessary actions to remain in compliance with the terms of the loan and currently are in discussions with the ATSB."
Given the significant changes in the industry, as has been previously reported, US Airways has engaged investment banking advisors in an exploratory process to identify and value its assets, and that includes identifying potential buyers, but no decision has been made to sell any of those assets.
Fourth Quarter Highlights:
Launched long-term strategic alliance and codeshare agreements with Lufthansa Airlines and Spanair, including reciprocal frequent flyer benefits. US Airways will begin formally participating in the Star Alliance in the second quarter of 2004. Through the Star Alliance network, US Airways’ customers will enjoy benefits of 14 of the world’s finest airlines, and will have access to 700 airports in 128 countries, including each Star carrier’s airport lounges; coordinated timetables to make connections smoother; priority reservations, standby, boarding and baggage handling for Star Alliance Gold members and First and Business Class travelers; and the ability to earn and redeem frequent flyer miles or points on any member airline.
Increased the breadth of the United Airlines marketing partnership to a combined 4,227 segments serving 114 US Airways destinations and 113 United destinations.
Improved the ease of making flight connections at the Philadelphia hub by adding new international gates, while increasing regional jet departures at Philadelphia by approximately 56 percent in the fourth quarter 2003 versus the fourth quarter 2002.
Reported the best on-time performance for a fourth quarter since 1991, besting other carriers with similar networks.
Expanded international departures in the last 12 months by 20 percent versus 2002, by further growing the Caribbean and Latin America network with three new destinations. US Airways began Mexico City service in late October; San Jose, Costa Rica, in November; and La Romana, Dominican Republic, in December. Additionally, US Airways began seasonal weekend roundtrip service to Vail, Colo., on Dec. 20, 2003, which will operate through April 4, 2004. US Airways also will begin nonstop service between Philadelphia and Glasgow, Scotland, in May 2004.
Enhanced the functionality of usairways.com to improve customer usability and lower distribution costs. The company issued a record level of boarding passes through usairways.com in the fourth quarter.
Listed US Airways Group’s Class A common stock on the NASDAQ National Market under the symbol UAIR.
Siegel said that the company and its employees have accomplished much in an extremely difficult environment, but that more work still must be done. "As part of our regular course of business, we are meeting with the company’s labor leadership today to go over these results and discuss next steps. It is important that we work together to implement the necessary changes. Consumers are driving tremendous changes in the industry and as difficult as it is, we must adapt and do it quickly," said Siegel.
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Looks like it's looking somewhat good for US Airways!