Airline optimistic despite huge loss

Despite posting the biggest loss yet among major carriers in the third quarter – a staggering $865 million – US Airways has a positive outlook for the rest of this year and beyond, thanks mostly to tumbling oil prices, airline executives said Thursday.

Charlotte's dominant carrier swung nearly $1 billion from a profit of $177 million a year earlier, rocked by fuel costs that soared this summer along with the price of oil, which topped $145 a barrel in July. Other airlines have reported similar losses in recent days, although none as large as Tempe, Ariz.-based US Airways.

The airline's loss on the year is almost $1.7 billion, but executives were optimistic Thursday during a conference call with analysts and media. Flight cuts and lower oil prices – down more than 50 percent from three months ago – will reduce expenses, they said, while new fees for passengers are bringing in money.

“The third-quarter results don't reflect current climate,” said Doug Parker, US Airways' chairman and chief executive. “It's really remarkable how much has changed in a short period.”

The airline also announced nearly $1 billion in new financing Thursday, with part of the money being used to prepay bank debt.

But oil clearly is the biggest factor in US Airways' outlook. For every dollar per barrel that the price of oil falls, executives said, the airline saves about $35 million a year. If the price per gallon had been the same as a year earlier, the airline would have spent about $538 million less on fuel, said Derek Kerr, chief financial officer.

As it was, US Airways spent more than $1.1 billion on fuel in the third quarter, and lost another $488 million from the change in value of outstanding hedge contracts – which lock in fuel at certain prices – once oil prices began falling.

The carrier expects to lose another $141 million from hedges over the next year but has scaled back on hedging because of lower oil prices, Kerr said.

The inverse relationship between oil prices and airlines was clear Thursday afternoon as oil prices rebounded slightly to almost $69 a barrel, up more than 3 percent, while shares in US Airways closed at $7.14, down almost 16 percent.

Still, airline executives are generally hopeful that lower oil prices combined with fewer seats in the air will offset less demand from customers in the months ahead. Scott Kirby, US Airways' president, said bookings for leisure travel have slowed over the past month and are down about 2 percent for November and December, but that flight cuts “more than offset any demand weakness.”

In addition, the carrier's aggressive adoption of “a la carte pricing” – charging separate fees for services once covered in ticket cost – is expected to generate up to $500 million in new revenue a year, executives said.

One downside: US Airways remains a leader among airlines in consumer complaints, despite being the best major carrier for on-time arrivals this year and reducing its mishandled baggage complaints.

Kirby and Parker both said new fees for checked bags and beverages on planes haven't led to a passenger uproar. “Consumer pushback on this has been minimal,” Kirby said.

Added Parker, “It's actually helping the operation.”

Fewer checked bags has meant more efficient baggage handling, he said, while charging for all drinks has cut down on the number of passengers asking for them during flight. As a result, he said, flight attendants spend less time pouring drinks and picking up trash and more time addressing individual customer needs.

“It's a more comfortable and civil environment than we had before,” Parker said.

Even with the revenue from fees and savings on fuel costs, Parker stopped short of predicting that US Airways would return to profitability next year, saying “the environment is so volatile right now.”

And if oil prices rise again or some other factor leads to soaring costs, US Airways doesn't have much flexibility for additional cuts. The carrier made smaller reductions than other airlines this fall because it was limited by contracts with pilots over how many planes it could ground, Kirby said. Those same limits would curb further flight cuts, he said.

While US Airways might be able to shift aircraft around the system to remove some seats, Kirby said, “that wouldn't be easy to do.”