US Airways (NYSE:LCC) will announce its third quarter results Wednesday, October 23. The carrier will likely post strong growth in its top line driven by capacity expansion. During the quarter, US Airways raised its flying capacity by 4.4% annually with maximum expansion on its Latin international routes followed by domestic and Atlantic international routes. This expansion in the carrier’s flying capacity drove up its passenger traffic by 5.1% annually in the third quarter.  At the same time, according to its monthly traffic releases, US Airways’ unit revenue – amount collected from passengers per seat for a mile of flight – increased year-over-year in each of the three months of the third quarter. Higher flying capacity and higher unit revenue effectively mean that US Airways will post higher passenger revenues in the third quarter, compared to the same period last year.
However, like in the first two quarters, the carrier’s third quarter profits will likely get impacted from merger-related expenses. US Airways is incurring significant one-time expenses in professional and legal fees related to the proposed merger with American Airlines. On the merger, around the end of last month, US Airways and American Airlines extended the termination date in their merger agreement to allow for the trial brought by the Department of Justice (DoJ). At the time, the carriers also reiterated their commitment to mount a vigorous defense to the DoJ lawsuit which is set to begin from November 25 later this year.
The DoJ Lawsuit Seeks To Block The US Airways-American Merger
In August earlier this year, the Justice Department blocked the ongoing merger of US Airways and American Airlines citing customer interests. The department contends that the proposed merger will give more than 80% of the domestic airline market to only four players – Delta (NYSE:DAL), United (NYSE:UAL), Southwest (NYSE:LUV) and the merged US Airways-American Airline. It also figures that capacity reductions following this merger like the ones that followed Delta-Northwest and United-Continental will reduce options for travelers and raise airfares.
US Airways and American Airlines on the other hand contend that their merger will provide customers with a much broader network and an alternative to Delta and United that bulked up in size following their mergers with Northwest and Continental in 2008 and 2010. The airlines thus believe that their merger will bring three large airlines to the market rather than two and thus increase competition on many routes.
The trial, which is expected to last around 10 days, will determine if US Airways will jump ahead of its competitors to merge with American and become part of the largest airline in the world or whether it will have to continue competing with low cost carriers on many domestic routes and larger carriers such as United, Delta and American on many international routes. For a more detailed analysis of the impact of US Airways-American merger on various stakeholders, read here.
However, in the earnings release due Wednesday, US Airways’ results will remain unaffected from the future outcome of the DoJ trial and benefit from its growth oriented capacity stance. The carrier’s top line as well as profits excluding special items will likely rise on higher passenger traffic driven by capacity expansion.Notes: