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Airline lost $177M
Chief executive Bruce Lakefield, who took over when David Siegel resigned April 19, told analysts the cost cuts need to occur "sooner, rather than later." His "immediate priority" is to meet with labor chiefs and "quickly follow that up with negotiations and implementation," Lakefield told analysts.
Executives said US Airways must turn profitable in 2005, or it will default on $726 million in loans backed by the U.S. government.
Bill Pollock, chairman of the Air Line Pilots Association's US Airways unit, said yesterday that pilot contract talks will begin sometime next week.
Meantime, US Airways' restructuring also entails "becoming less dependent on connecting traffic," said B. Ben Baldanza, US Airways senior vice president of marketing and planning. "But we will still be a connecting airline," he said, without being specific.
More than half of the passenger traffic at Pittsburgh International Airport is connecting traffic. US Airways controls roughly 80 percent of total traffic there but has reduced daily flights from 500 three years ago to about 370 currently.
"This doesn't bode well for Pittsburgh," said Michael Boyd, head of the Boyd Group, an airline consultancy based in Evergreen, Colo. "But US Airways has made it clear they want to stay in Pittsburgh."
JoAnn Jenny, spokeswoman for the Allegheny County Airport Authority, noted that US Airways has "already demonstrated" it would cut connections. Its new express division, MidAtlantic Airways, however, began direct service to six cities from Pittsburgh on April 4, "and they intend to grow that here," she said.
"They can't turn themselves into a Southwest look-alike," flying only point to point, Boyd said. "They need strong connecting traffic."
The carrier also plans to increase flights -- mostly with 70-seat regional jets -- in Philadelphia, where discounter Southwest Airlines launches service May 9. US Airways will have to react with lower fares, which will hurt revenue, executives said.
"Any time Southwest comes in, (traffic) volume goes up, while revenue goes down," Baldanza said.
Last quarter, US Airways' revenue of $1.7 billion was almost 11 percent more than the year earlier. The net loss of $177 million was not quite as bad as the $197 million deficit projected by Goldman Sachs.
A year ago, US Airways posted a $1.63 billion profit. But results were skewed by $1.9 billion in onetime gains from government-sponsored loans and investments received when it emerged from bankruptcy on March 31, 2003.
The airline ended last quarter with $1.64 billion in cash -- $978 million of which was unrestricted by credit agreements.
"The fact they ended the quarter with nearly $1 billion in cash is reasonably good," said Phil Baggaley, an airline credit analyst for Standard & Poor's, New York. "It's adequate for the near term anyway."
Baggaley also expected healthier second-quarter revenue, in keeping with industry norms. "That should give them some time to work on their labor agreements," he said.
Operating expenses increased to $188 million from $130 million, mostly from adding regional jets to the express fleet. Costs per seat mile, an industry yardstick, declined from 10.37 cents a year ago to 10.02 cents. That compares with less than 7.5 cents for Southwest.
Staff writer Jim Ritchie contributed to this report.
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