Inside the Issue: The Future of US Airways

A year ago, as US Airways slid into its second bankruptcy, pundits predicted death. Against long odds, Charlotte's dominant carrier found a way.

Still, with four of the country's top-seven carriers operating in bankruptcy court, it is becoming clear that airlines' financial woes are in large part an industrywide phenomenon, regardless of management skill. In other words, going forward, US Airways needs luck.The two major wildcards: oil prices and the competitive landscape.

If fuel prices recede, US Airways and other airlines can make money. If not, they almost certainly won't.

"It floats all boats or sinks all boats," said Mann, the analyst.

US Airways' financial projections, devised over the summer, are based on an average price per barrel at $57.60 in 2006 and $56.67 in 2007. Oil futures closed Friday at $63 a barrel.

Vaughn Cordle, chief executive of AirlineForecasts, estimates that US Airways will spend $460 million more on fuel next year than it estimated this summer.

At the same time, US Airways' fortunes also depend on its competitors' fate.

Parker and others are banking on the industry trimming planes -- something that seems certain after last week's bankruptcy filings by Delta and Northwest. A JPMorgan analyst wrote last week that he expects Delta to shrink by 15 percent, and Northwest's CEO said his airline intends to reduce its fleet.

The way US Airways sees it, fewer planes means less competition, and less competition means higher fares -- and healthier revenue. Last week, Parker said the airline's revenue projections already are beating earlier forecasts.

Some analysts, though, say revenue increases might be hard to sustain. Low-fare rivals, such as Southwest and JetBlue, plan to add 445 planes in the coming years, increasing their fleets by one-third. More planes would suppress fares.

"The real problem for these guys is that the traditional network carriers have been shrinking a little bit, but the low-fare guys are still growing," said Alan Sbarra, a former United financial analyst who became a consultant.

The first indication of the new US Airways' performance will come in late January. Then, analysts can compare its performance in the last three months of 2005 with financial projections devised over the summer.

The goal? Lose $204 million, or less. -- STAFF WRITER STAN CHOE CONTRIBUTED.

Tony Mecia: (704) 358-5069;

US Airways' Future in Charlotte

Charlotte, home to 5,300 US Airways workers, will remain the airline's largest hub.

In a recent interview with the Observer, incoming CEO Doug Parker said he expects the airline to expand both in Charlotte and around the country, although it has no immediate plans to add flights.

"You'll see in five years a very strong US Airways here as the primary hub-and-spoke carrier, certainly as big as we are today, hopefully larger," he said. "If things go as well as we plan, there will be opportunities for growth." -- TONY MECIA As airline readies for takeoff into post-Chapter 11 world, the question is whether cash and a clear strategy can conquer soaring fuel costs and tenacious competition

Charlotte Observer

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