USAir expects loss to worsen

1st-quarter earnings to fall below forecast of analysts, it says

March 02, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

US Airways Group Inc. said yesterday that it will post a bigger first-quarter loss than analysts expected because of intense competition, a slowing economy and fewer business class travelers.

Analysts polled by First Call/Thomson Financial had originally estimated a first-quarter loss of $1.12 per share for the parent of US Airways, which United Airlines parent UAL Corp. wants to buy for $11.6 billion.

Company officials declined to release figures, but said earnings would be "well below" consensus estimates.

The No. 6 U.S. carrier's continuing financial problems mirror the airline industry as a whole, which is being hit hard by rising energy costs, an increasing gap in business and leisure fares, and February traffic that "will likely be modestly disappointing," according to an industry report written by analyst Brian D. Harris of Salomon Smith Barney.

"The rumblings are mounting that March bookings appear soft," wrote Harris, who lowered first-quarter earnings estimates for eight of the 10 largest U.S. airlines with the exception of Southwest Airlines Co., which remained unchanged, and Trans World Airlines Inc., which filed for bankruptcy.

Shares of US Airways fell $1.05, or 2.5 percent, to close at $40.25 yesterday. Shares of UAL fell $3.04, or nearly 8 percent, to close at $35.01. Both stocks are traded on the New York Stock Exchange.

Last month, US Airways reported a net loss of $89 million for the fourth quarter and $166 million for all of 2000, excluding the effects of a previously reported change in accounting principles.

Company officials declined to comment yesterday, but released a statement that said, "As corporations react to softening economic conditions and declining consumer confidence, the company is increasingly experiencing weakness in business travel, as seen in the decline of close-in business bookings.

"US Airways' revenues also continue to be affected by the ever-increasing and significant impact of intense competition, both from lower cost and large network carriers, in the Eastern United States, where the bulk of its operations are located."

UAL proposed buying US Airways for $60 a share in May, although the transaction is still under review by the Justice Department.

"It's pretty common sense that with an economic slowdown and high energy costs, that's going to put a squeeze on US Airways," said Tom Burnett, president of Merger Insight, a research service for institutional investors.

"But a lot of it could be posturing. They might be painting a bleaker picture so that the unions they're negotiating with don't think there's a ton of money there or so that regulators will have a softer heart, because if US Airways won't be around in a year, maybe they should be allowed to merge with United."

Burnett also said that a grim forecast for the company could also help US Airways, which is looking into modifying contracts with its employees for the possible merger with United.

"We do not believe this transaction needs to be done to save US Airways," Burnett said. "The company is going to survive whether it merges with United or not."

But Ray Neidl, an analyst with ING Barings, disagreed: "Their cost structure is too high. The revenue that's being generated isn't sufficient to support their costs. I don't support the merger, but it's no surprise that they're warning analysts and investors about their earnings. US Airways' system is continually invaded by smaller carriers."

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