US Airways (NYSE:LCC) will announce its third quarter earnings this Wednesday, October 24.  The airline posted impressive growth in revenue and net income in the first half of 2012 on higher passenger traffic and yield and lower jet fuel costs in Q2. Revenue was $7 billion, up 8.6% y-o-y, and net income was $355 million, the highest among the six largest U.S. airlines, in the six months ended June 30, 2012. 
In its most recent traffic release, US Airways reported a 2.7% y-o-y increase in passenger traffic on 3% y-o-y increase in capacity in the third quarter.  Unit revenue, an indicator of passenger yield, has also increased marginally. This growth in passenger traffic and yield will drive growth in the airline’s Q3 earnings. Also, fuel costs for the airline are likely to remain stable in Q3 on a y-o-y basis as crude oil prices in the third quarter are comparable to the fuel prices in the same period last year. 
We currently have a stock price estimate of $11.88 for the airline, marginally above its current market price.
Growth in passenger traffic and yield to drive earnings growth in the third quarter
US Airways posted growth in passenger traffic for its Latin and Atlantic international routes as well as domestic U.S. routes in the third quarter. The highest y-o-y growth was witnessed on Latin international routes at 4.6%, followed by 3.0% on domestic U.S. and 0.8% on Atlantic. This growth was aided by the airline’s capacity expansion across its routes. Available Seat Miles (ASMs), an indicator of capacity, increased by 5.5% y-o-y on Latin routes, 2.6% y-o-y on domestic U.S., and 3.5% y-o-y on Atlantic international in the third quarter.  It is interesting to note that at a time when several U.S. carriers including Delta (NYSE:DAL) and United Continental (NYSE:UAL) have cut their capacity on Atlantic international routes due to the euro crisis, US Airways has increased its capacity and also posted a rise in passenger traffic on these routes in the third quarter.
In addition, passenger yield indicated by Passenger Revenue per Available Seat Mile (PRASM) increased approximately 1% each in July and August and remained flat in September on a y-o-y basis.  This growth in passenger traffic and yield will drive the airline’s top-line growth in Q3.
In the absence of a fuel price hedging program, fuel costs for US Airways are determined solely by the spot price of jet fuel in the market. And since the crude oil prices in the third quarter are comparable on a y-o-y basis, fuel costs for the airline in Q3 are not expected to vary much to impact margins.Notes:
- US Airways Third Quarter 2012 Financial Conference Call To Be Webcast, October 16 2012, www.usairways.com [↩]
- 2012 Q2 10-Q, www.usairways.com [↩]
- US Airways Reports Record September Load Factor, October 3 2012, www.usairways.com [↩] [↩] [↩]
- Oil price performance in the last 2 years, www.moneyweek.com [↩]