Apr 28, 2004 By Matthew Barakat Ap Business Writer 3 min read

ARLINGTON, Va. (AP) – US Airways lost $177 million in the first three months of 2004 despite an 11 percent increase in revenue over the year-ago quarter, and the airline’s new president again warned of the need to cut costs to survive. The $3.28-per-share loss compares with a profit of $1.64 billion, or $24.02 per share, in the first quarter of 2003. But the year ago profit was merely a paper tiger associated with the company’s emergence from Chapter 11 bankruptcy protection in March of that year.

The company’s operating loss of $143 million in the first three months of this year is a 31 percent improvement over the $207 million operating loss in the year-ago quarter.

The losses were also better than the estimated loss of $3.65 a share predicted by a Wall Street analyst surveyed by Thomson First Call.

US Airways shares increased more than 20 percent, from $2.39 to $2.87, in afternoon trading Tuesday on the Nasdaq Stock Market.

Operating revenue increased 11 percent, from $1.53 million to $1.70 million, while operating costs increased 6 percent, from $1.74 billion to $1.84 billion. The airline improved its performance on several key measures in the industry, including cost per available seat mile, which dropped 3 percent quarter to quarter for mainline jets, to 11.68 cents per seat mile, including fuel. The improvement was even better excluding fuel because fuel costs increased by nearly 10 percent.

But the airline has warned its unions that even more dramatic cost cuts are necessary to compete with increased competition from low-fare carriers like Southwest Airlines, which boast costs in the range of just 6 cents per available seat mile.

Mainline revenue per available seat mile also increased 2 percent, from $10.41 to $10.62.

The company projected similar improvements in cost and revenue per available seat mile in the second quarter.

US Airways president and chief executive Bruce R. Lakefield said the first-quarter results “underscore the need for further changes.”

“While we are seeing year-over-year improvement, we clearly have more to do to ensure long-term success, and we must implement a new cost structure and a revenue plan that allows us to return to profitability.”

Lakefield, who has no previous airline experience, earlier this month replaced chief executive David Siegel, whose relationship with union leaders had deteriorated amid Siegel’s stark calls for an additional round of cost cuts from employees. Labor costs were reduced by about $1 billion a year during the company’s bankruptcy proceedings, and management is seeking another round of cost cuts on a similar scale.

Lakefield is a close associate of board Chairman David Bronner, who has enjoyed a better relationship with union leaders.

During a conference call with analysts, Lakefield said the airline needs cooperation from all stakeholders – including management, unions, vendors, lenders and bondholders – to successfully restructure and return to profitability in 2005. If the company has not achieved profitability by then, it could default on a $726 million federally guaranteed loan.

“This is a hard road we have to go down,” Lakefield said. “Collectively we have to work together to survive.”

AP-ES-04-27-04 1529EDT