BUSINESS

Higher income taxes send US Airways net income lower; results beat Wall Street forecasts

10/23/2013 08:27 EDT | Updated 12/23/2013 05:12 EST
DALLAS - Higher taxes reduced US Airways' third-quarter profit, but the airline still beat Wall Street expectations on a combination of more traffic and higher average fares.

US Airways, the nation's fifth-biggest airline, pushed revenue higher by filling a larger percentage of seats. Including US Airways Express regional flights, passengers travelled nearly 5 per cent more miles and they paid 4.4 per cent more for every mile that they flew.

Company officials said Wednesday that before taxes and special items, it was a record quarter. Just last week, American Airlines parent AMR Corp. posted its best-ever quarterly profit when excluding costs of its bankruptcy restructuring.

The twin results could bolster the federal government's argument that the two airlines don't need to merge — and create the world's biggest carrier — because they're doing fine on their own. The Justice Department is suing to block the proposed merger, saying it will lead to higher consumer prices. A trial is set for next month.

US Airways officials say the big profits shouldn't derail the deal. They say a merged US Airways-American can better compete with United and Delta, both of which grew through recent mergers.

"Strong companies merge all the time," Scott Kirby, the president of US Airways, said on a conference call with analysts and reporters. "The point of this merger is we'll be stronger, we'll be able to attract more customers, we'll be able to offer more benefits to customers."

CEO Doug Parker jumped in to note that even with a credit upgrade last month, Standard & Poor's still gives his company a "B'' rating, five notches below investment-grade.

"What we're really talking about here is merging a single-B credit with a bankrupt credit," Parker said.

US Airways officials otherwise declined to talk about the merger or the potential for negotiating a settlement with the Justice Department before a planned Nov. 25 trial in Washington.

For the third quarter, US Airways Group Inc. said net income was $216 million, or $1.04 per share. That's down 12 per cent from $245 million, or $1.24 per share, a year earlier.

The difference: In this year's quarter, US Airways owed about $120 million in income taxes compared with just $1 million last year. The company used up its ability to reduce taxes by carrying over losses from previous years.

Excluding costs of the proposed merger, US Airways said it would have earned $1.16 per share, four cents better than analysts expected.

Revenue rose 9 per cent to $3.86 billion, a bit higher than analysts' forecast of $3.84 billion, according to a survey by FactSet.

Costs rose 5 per cent as the company expanded its passenger-carrying capacity — it plans to add between 3 per cent and 4 per cent more capacity next year with new, larger planes. Fuel was the biggest expense, but it rose just 2 per cent while labour costs jumped nearly 12 per cent.

Standard & Poor's analyst Betsy Snyder said results from US Airways and Delta showed how strong the summer was for the airlines, which are now poised to get a break on fuel — oil prices have fallen 5 per cent in the past week.

"As long as fuel remains at these levels and demand is there, business travel is there, I absolutely think this is sustainable," Snyder said in an interview. But a fuel spike or setback to the economy could change the airlines' profit picture, she added.

In afternoon trading, US Airways shares fell 55 cents, or 2.5 per cent, to $21.40. They ended Tuesday up 63 per cent for the year, pushed higher by merger expectations.

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