US Airways (NYSE:LCC) is slated to release its first quarter earnings this Wednesday, Apr 25. The airline has posted record passenger load factor for its mainline division for all three months indicating a decent revenue jump this quarter. After going through a silent phase of capacity addition in 2011, the company raised ASMs (Available Seat Miles) by a sturdy 3.8% this quarter. Further, US Airways’ took an edge over Delta Airlines (NYSE:DAL) and International Consolidated Airlines Group (LON:IAG), owner of British Airways, the other front runners interested in merger with American Airlines (NYSE:AAMRQ).
Here, we see more details on the events that are going to be in limelight during this quarter’s earnings release.
Record Air Traffic Statistics to Boost Revenues
Though US Airways estimated the capacity to rise by 1% this year, it has already posted a strong capacity addition of 3.8% this quarter, primarily led by its mainline division. The occupancy has seen a 1.1 point fall in the Atlantic region probably due to a 5.1% increase in capacity this quarter. However, the load factor still managed an overall increase by 1.1 points by leveraging on the domestic markets. Since capacity addition and load factor have shown a decent improvement, it will definitely have a positive impact on the revenue statistics.
Capacity Addition for International Markets
US Airways has shown an inclination towards capacity addition in international markets. The company plans a slight increase in the domestic capacity while international capacity is to be enhanced by three percent. The first quarter saw a 5.1% increase in ASMs for the Atlantic itself. Currently, US Airways international operations form only 1/8th of the Trefis price estimate. The company’s capacity addition strategy will enhance the share of international operations in the Trefis price estimate.
The volatility in fuel prices is hitting the operational margins badly. A part of these rising operating expenses is being mitigated through addition of fuel efficient aircraft. US Airways plans to add 12 modern and fuel efficient A321 aircraft in 2012, which also facilitate Gogo Inflight Internet and more First Class seats.
Possibility of Merger with American Airlines
In its continuous efforts to merge with American Airlines, US Airways recently reached another milestone by signing agreements with the three unions that represent nearly 55,000 American Airlines employees. These unions represent all of American Airlines’ mechanics and fleet service employees. This declaration has already led the stock jump by ~19% to $ 9.34 last week. The biggest challenge in this merger is expected to be the integration of work force. US Airways is still struggling to resolve the workforce integration issues arising from America West acquisition. During this quarter’s earnings release, it will be interesting to know the company’s plans pertinent to this acquisition in the near future.
We have a Trefis price estimate of $8.54 for US Airways, which implies ~5% below stock’s current market price. We will review our current price estimate post the Q1 results.