From: Reuters
Published April 24, 2008 02:26 PM

US Air, Alaska Air cite fuel costs for losses

By Kyle Peterson

CHICAGO (Reuters) - US Airways Group Inc <LCC.N> and Alaska Air Group Inc <ALK.N> posted quarterly losses on Thursday, citing surging fuel costs that have inflicted pain on the entire industry.

U.S. carriers have been uniformly punished by the rising price of oil, which counters their best efforts to hold down expenses and tap into new revenue streams.

Persistently high fuel costs have forced airlines to take more drastic action to ensure stability. Delta Air Lines Inc <DAL.N> and Northwest Airlines Corp <NWA.N> last week announced a merger that would create the world's largest carrier, and other airlines are said to be in play as well. US Airways has been reported to be in talks with UAL Corp <UAUA.O>, parent of United Airlines, but neither company has confirmed the reports.

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"The large losses posted by U.S. airlines this quarter, the forecast for further losses and the recent liquidations and bankruptcies of a number of carriers indicate quite clearly that the U.S. airline industry is in financial turmoil," US Airways Chief Executive Doug Parker said in a statement.

Parker, a long-time proponent of industry consolidation, merged his former airline America West with then-bankrupt US Airways to form the new US Airways.

Airline shares rocketed higher with most major carriers posting double-digit percentage gains as the price of crude oil -- directly linked to the price of jet fuel -- tumbled more than $3 from a record high of $119.90 a barrel on Tuesday.

The Amex airline index rose 6.7 percent after notching a lifetime low on Wednesday. Despite the quarterly loss, US Airways led gains in the airline sector, climbing 97 cents or 15.5 percent to $7.22 on the New York Stock Exchange.

"I think it's more because oil is down over a buck," said Calyon Securities analyst Ray Neidl. US Airways' results, broadly in line with expectations, were having no impact on share prices, Neidl said.

"They seemed to come in right about where expected," he said. "It was nothing that was extraordinary."

MOUNTING LOSSES

US Airways said its first-quarter loss amounted to $236 million, or $2.56 per share, compared with a year-earlier profit of $66 million, or 70 cents per share.

Excluding one-time items such as merger-related expenses, US Airways lost $239 million, or $2.60 per share, in line with the average Wall Street forecast as reported by Reuters Estimates.

The carrier said operating revenue totaled $2.84 billion, up 3.9 percent from the first quarter of 2007. The company said it paid $823 million for fuel and related taxes in the quarter, a 49.5 percent increase.

US Airways, like its major rivals, has cut capacity -- the number of seats for sale -- to bolster revenue and cost savings. The carrier said it now plans to return six Boeing 737-300 aircraft to lessors when their leases expire.

The company said these measures will reduce its mainline capacity by 2 percent to 4 percent in the second half of 2008.

US Airways ended the quarter with $2.8 billion in cash and investments, of which $2.4 billion was unrestricted.

Alaska Air reported a first-quarter net loss of $35.9 million, or 97 cents per share, on a 45 percent increase in fuel costs. The loss compared with a year-earlier loss of $10.3 million, or 26 cents per share.

Excluding adjustments, the company would have logged a loss of $36.3 million, or 98 cents per share. On that basis, Wall Street analysts had expected a loss of 95 cents per share. Alaska Air shares were up $1.11 or 6.1 percent at $19.30 on

NYSE.

The company announced cost cuts and revenue initiatives aimed to boost annual pretax income by about $150 million.

"Given the magnitude of this increase (in fuel costs) and the softening economy, we're taking aggressive actions now to improve our business and profitability," said Chief Executive Bill Ayer.

(Additional reporting by John Crawley, editing by Gerald E. McCormick)

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