US Air posts profit, revenue outlook hits shares

CHICAGO (Reuters) - US Airways Group (LCC.N) posted a slightly higher quarterly net profit on Thursday, despite severe winter weather and a customer service debacle, as the airline flew fuller planes and collected higher fares.

The No. 7 U.S. airline's profit topped expectations and sent shares initially higher, but they fell more than 6 percent after airline executives predicted weaker revenue for the airline industry.

"We're seeing a flattening, not a downturn, in industry revenue performance," Chief Executive Doug Parker said on a conference call with reporters and analysts, echoing similar remarks by Alaska Air Group Inc.'s (ALK.N) chief executive.

Given the weaker revenue outlook and the likelihood that fuel prices will climb, US Airways intends to return seven aircraft to lessors later this year, Chief Financial Officer Derek Kerr said on the conference call.

Analysts agreed US Airways' results were strong. But the revenue warning eroded positive sentiment for the shares.

"I think that the weak revenue trends that they're experiencing, combined with the capacity reductions that they announced today are negative news," said Jim Corridore, equity analyst at Standard & Poor's.

Also on Thursday Alaska Airlines' parent reported a narrower quarterly loss of $10.3 million, versus $79.1 million, but was still hammered by higher fuel costs and stiff competition.

Alaska Air's CEO said he expected flatter demand in the near term, on a conference call with reporters and analysts. Shares of the airline were flat at $35.80 on the New York Stock Exchange.

FUEL COSTS LIKELY TO RISE

US Airways, formed in 2005 from the merger of America West and US Airways, said first-quarter profit totaled $66 million, or 70 cents per share, compared with a profit of $65 million million, or 76 cents per share, a year earlier.

Its earnings per share fell because the company used almost 10,000 more shares in its computation in 2007 than it did in 2006.

The carrier's profit aligns it with several rivals, such as AMR Corp's (AMR.N) American Airlines, Continental Airlines (CAL.N) and Southwest Airlines (LUV.N), that also have posted quarterly profits.

Excluding special items amounting to $32 million, the airline reported a profit of $34 million, or 37 cents per share. On that basis, Wall Street analysts had expected US Airways to earn 13 cents per share.

US Air paid $550 million for fuel in the first quarter, down from $555 million a year earlier, but Parker warned of a recent spike in fuel prices.

"Our current estimate for 2007 fuel price results in an additional $300 million of expense versus our 2007 operating budget," Parker said in a statement. "Despite this significant cost increase, we continue to project a profitable second quarter and full-year 2007."

Snow storms on the East Coast have weighed on airline earnings, but the profits reinforce a view that the industry remains in recovery mode after a years-long slump.

Phoenix-based US airways is largely insulated from the effects of winter weather and a seasonal first-quarter dip in air travel.

US Airways said revenue increased 3.8 percent to $2.73 billion. The airline said its load factor rose to 77.7 percent. Yields, which represent average fares, rose 1.9 percent.

US Airways ended the quarter with $3.3 billion in total cash and investments, of which $2.5 billion was unrestricted.

The airline was battered along with its rivals in the first quarter by severe weather that caused thousands of cancellations. It also suffered a glitch in its self-service reservation system in March that forced customers to wait in line for up to three hours.

US Airways said it plans to put 1,000 workers in airports this summer to help passengers get on flights and will install 600 new self-service check-in machines.

In a television interview, Parker declined to comment on the status of the airline's order for Airbus' new wide-body A350 plane, in the face of industry talk that it may switch to Boeing Co.'s (BA.N) 787 Dreamliner. He said the airline is talking to both Boeing and Airbus about replacements.

US Airways' shares were down $2.66, or 6.2 percent, at $39.96 in afternoon trading on the NYSE.

(Additional reporting by John Crawley in Washington and Bill Rigby in New York)