US Airways (NYSE:LCC) will announce its second quarter earnings Wednesday, July 24. The carrier will likely post higher revenues driven by nearly 6% annual growth in passenger traffic.  US Airways’ profits will also benefit from lower jet fuel prices witnessed during the quarter. Unlike many other airlines that will likely offset some gains from lower fuel prices through hedging losses, US Airways will fully realize those benefits as it does not engage in jet fuel price hedging.
Additionally, the merger between US Airways and American Airlines is proceeding on track with an expected close in the third quarter of 2013. The company’s shareholders recently approved the merger with an overwhelming majority. We currently have a stock price estimate of $18.60 for US Airways, marginally above its current market price.
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Capacity Expansion Will Lift Top Line
In the second quarter, US Airways raised its flying capacity by nearly 4% annually to 18 billion seat miles.  This growth was driven primarily by more long-haul international flying and replacement of smaller gauge legacy 737 aircraft with larger gauge aircraft that have more on board seats. Additionally, the carrier increased its flying capacity across its network including domestic US, Latin America and trans-Atlantic operations to Europe.
This increase in the number of seats from the carrier during the quarter raised its passenger traffic significantly, which will likely drive growth in its overall revenues. However, gains from higher passenger traffic will be offset in part by a decline in US Airways’ unit revenues – the average amount collected from each passenger for a mile of flight.
Lower Jet Fuel Prices Will Aid Profit Growth
Further, US Airways’ second quarter profits will benefit from the significant decline in jet fuel prices during the quarter. According to the US Energy Information Administration, jet fuel spot prices declined from $3.22 per gallon in February to $2.77 per gallon in June, driven in part by the weak global economic growth outlook.  As fuel costs constitute nearly 35% of US Airways’ total operating expenses, the decline in jet fuel prices will improve the carrier’s operating profits significantly. Notes: