Higher Capacity And More International Routes Lift US Airways’ Outlook

by Trefis Team
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US Airways
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US Airways (NYSE:LCC) announced profit of $37 million or $0.22 per diluted share in the fourth quarter, up from $18 million in the year-ago period. [1] The airline raised its flying capacity on domestic U.S. and Latin international routes to drive growth in passenger traffic. However, profit was impacted by a $35 million loss from Superstorm Sandy, which had struck northeast United States in the last week of October. [1]

For full year 2012, earnings rose significantly to $3.28 per diluted share from $0.44 per diluted share in 2011. [1] Looking forward to 2013, the carrier anticipates to continue to raise its capacity through more long-haul international flying and awaits a decision on its merger with American Airlines.

See our complete analysis of US Airways here

Higher passenger traffic

In the fourth quarter, US Airways continued to raise its flying capacity on domestic U.S. routes and U.S.-Latin America international routes to address the rising demand for flights on these routes. As a result, the carrier’s passenger traffic increased substantially in both these markets.

On the U.S.-Europe routes, which are witnessing falling demand due to the economic slowdown in Europe, the carrier responded by lowering its capacity. As a result, passenger traffic for the carrier declined in this market. Overall, passenger traffic increased 4% y-o-y on net capacity addition of 1% y-o-y in the fourth quarter.

Unit revenue (passenger revenue generated per unit of flying capacity) also increased 2% due to higher passenger fares on certain routes. In effect, passenger revenue increased 4% y-o-y to $2.9 billion in the fourth quarter. ((2012 Q4 earning results – Form 8-K, January 23 2013, www.usairways.com)) This was, however, marginally offset by lower cargo revenues.

Superstorm Sandy

Growth in revenue was negatively impacted by Sandy which disrupted an estimated 15,000 flights in the last week of October and first week of November. US Airways, which gets a significant portion of its passenger traffic from northeast U.S. where the storm had struck, was impacted along side other US airlines including Delta (NYSE:DAL), United (NYSE:UAL) and JetBlue (NASDAQ:JBLU).

Higher capacity in 2013

Going into 2013, US Airways anticipates its flying capacity to continue to rise primarily on larger aircraft (which seat more passengers) replacing the smaller legacy Boeing 737 aircraft and more international flying. The carrier will take delivery of 21 Airbus aircraft (16 A321 and 5 A330-200 aircraft) in 2013. ((Outlook for 2013 - Form 8-K, January 23 2013, www.usairways.com)) These will replace older Boeing 737 and Airbus A320 aircraft in the carrier’s fleet, and thus save on maintenance and fuel costs.

Decision on the merger with American Airlines

Additionally in 2013, US Airways and American Airlines will arrive at a decision with regard to their potential merger. US Airways anticipates a merger with the larger American Airlines which would position it as one of the largest airlines in the U.S. alongside United and Delta. American Airlines, on the other hand, is said to be considering whether to come out of bankruptcy alone or through a merger. On January 4, 2013, the two airlines came out with a joint statement announcing that they had completed discussions with their pilot unions on the terms of employment and process of integration in the event of a merger. Nevertheless, several more challenges need to be overcome for a successful merger.

All in all, US Airways ended 2012 on a high and looks forward to an eventful and important 2013.

We currently have a stock price estimate of $12.73 for US Airways, approximately 10% below its current market price. We are in the process of incorporating Q4 results and shall update our analysis shortly.

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Notes:
  1. 2012 Q4 earning results – Form 8-K, January 23 2013, www.usairways.com [] [] []
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