XNYS:LCC Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

or

 

¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

 

 

 

US Airways Group, Inc.

(Exact name of registrant as specified in its charter)

(Commission File No. 1-8444)

54-1194634 (IRS Employer Identification No.)

111 West Rio Salado Parkway, Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

US Airways, Inc.

(Exact name of registrant as specified in its charter)

(Commission File No. 1-8442)

53-0218143 (IRS Employer Identification No.)

111 West Rio Salado Parkway, Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

(480) 693-0800

(Registrants’ telephone number, including area code)

Delaware

(State of Incorporation of all Registrants)

 

 

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No   ¨

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

US Airways Group, Inc.

  Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨

US Airways, Inc.

  Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x   Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

US Airways Group, Inc.

   Yes    ¨    No    x   

US Airways, Inc.

   Yes    ¨    No    x   

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 

US Airways Group, Inc.

   Yes    x    No    ¨   

US Airways, Inc.

   Yes    x    No    ¨   

As of July 20, 2012, there were approximately 162,397,506 shares of US Airways Group, Inc. common stock outstanding.

As of July 20, 2012, US Airways, Inc. had 1,000 shares of common stock outstanding, all of which were held by US Airways Group, Inc.

 

 

 


Table of Contents

US Airways Group, Inc.

US Airways, Inc.

Form 10-Q

Quarterly Period Ended June 30, 2012

Table of Contents

 

     Page  

Part I. Financial Information

  

Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.

  

Condensed Consolidated Statements of Operations

     5   

Condensed Consolidated Statements of Comprehensive Income (Loss)

     6   

Condensed Consolidated Balance Sheets

     7   

Condensed Consolidated Statements of Cash Flows

     8   

Notes to the Condensed Consolidated Financial Statements

     9   

Item 1B. Condensed Consolidated Financial Statements of US Airways, Inc.

  

Condensed Consolidated Statements of Operations

     15   

Condensed Consolidated Statements of Comprehensive Income

     16   

Condensed Consolidated Balance Sheets

     17   

Condensed Consolidated Statements of Cash Flows

     18   

Notes to the Condensed Consolidated Financial Statements

     19   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     24   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     49   

Item 4. Controls and Procedures

     49   

Part II. Other Information

  

Item 1. Legal Proceedings

     50   

Item 1A. Risk Factors

     50   

Item 6. Exhibits

     63   

Signatures

     64   

 

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Table of Contents

This combined Quarterly Report on Form 10-Q is filed by US Airways Group, Inc. (“US Airways Group”) and its wholly owned subsidiary US Airways, Inc. (“US Airways”). References in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and the “Company” refer to US Airways Group and its consolidated subsidiaries.

Note Concerning Forward-Looking Statements

Certain statements in this report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue” and similar terms used in connection with statements regarding, among others, our outlook, expected fuel costs, the revenue and pricing environment, and our expected financial performance and liquidity position. These statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. These statements are based upon the current beliefs and expectations of management and are subject to significant risks and uncertainties that could cause our actual results and financial position to differ materially from these statements. These risks and uncertainties include, but are not limited to, those described below under Part II, Item 1A, “Risk Factors,” and the following:

 

   

the impact of significant operating losses in the future;

 

   

downturns in economic conditions and their impact on passenger demand, booking practices and related revenues;

 

   

the impact of the price and availability of fuel and significant disruptions in the supply of aircraft fuel;

 

   

competitive practices in the industry, including the impact of industry consolidation;

 

   

increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates;

 

   

our high level of fixed obligations and our ability to fund general corporate requirements, obtain additional financing and respond to competitive developments;

 

   

any failure to comply with the liquidity covenants contained in our financing arrangements;

 

   

provisions in our credit card processing and other commercial agreements that may affect our liquidity;

 

   

the impact of union disputes, employee strikes and other labor-related disruptions;

 

   

our inability to maintain labor costs at competitive levels;

 

   

interruptions or disruptions in service at one or more of our hub airports or our focus city;

 

   

regulatory changes affecting the allocation of slots;

 

   

our reliance on third-party regional operators or third-party service providers;

 

   

our reliance on and costs, rights and functionality of third-party distribution channels, including those provided by global distribution systems, conventional travel agents and online travel agents;

 

   

changes in government regulation;

 

   

the impact of changes to our business model;

 

   

the loss of key personnel or our ability to attract and retain qualified personnel;

 

   

the impact of conflicts overseas or terrorist attacks, and the impact of ongoing security concerns;

 

   

our ability to operate and grow our route network;

 

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the impact of environmental regulation;

 

   

our reliance on technology and automated systems and the impact of any failure or disruption of, or delay in, these technologies or systems;

 

   

costs of ongoing data security compliance requirements and the impact of any significant data security breach;

 

   

the impact of any accident involving our aircraft or the aircraft of our regional operators;

 

   

delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity;

 

   

our dependence on a limited number of suppliers for aircraft, aircraft engines and parts;

 

   

our ability to operate profitably out of Philadelphia International Airport;

 

   

the impact of weather conditions and seasonality of airline travel;

 

   

the impact of possible future increases in insurance costs or reductions in available insurance coverage;

 

   

the impact of global events that affect travel behavior, such as an outbreak of a contagious disease;

 

   

the impact of foreign currency exchange rate fluctuations;

 

   

our ability to use NOLs and certain other tax attributes; and

 

   

other risks and uncertainties listed from time to time in our reports to and filings with the Securities and Exchange Commission.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these estimates other than as required by law. Any forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or as of the dates indicated in the statements.

Part I. Financial Information

This combined Quarterly Report on Form 10-Q is filed by US Airways Group and US Airways and includes the condensed consolidated financial statements of each company in Item 1A and Item 1B, respectively.

 

 

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Table of Contents

Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.

US Airways Group, Inc.

Condensed Consolidated Statements of Operations

(In millions, except share and per share amounts)

(Unaudited)

 

                                                                                                   
       Three Months
Ended June 30,
     Six Months
Ended June 30,
 
       2012      2011      2012      2011  

Operating revenues:

             

Mainline passenger

     $ 2,446       $ 2,280       $ 4,562       $ 4,180   

Express passenger

       916         835         1,680         1,520   

Cargo

       39         43         79         86   

Other

       353         345         700         678   
    

 

 

    

 

 

    

 

 

    

 

 

 

Total operating revenues

       3,754         3,503         7,021         6,464   

Operating expenses:

             

Aircraft fuel and related taxes

       906         948         1,766         1,682   

Salaries and related costs

       674         577         1,279         1,149   

Express expenses

       803         811         1,605         1,583   

Aircraft rent

       161         163         323         327   

Aircraft maintenance

       172         181         336         344   

Other rent and landing fees

       132         145         272         274   

Selling expenses

       126         120         237         220   

Special items, net

       9         6         11         9   

Depreciation and amortization

       61         59         122         119   

Other

       306         316         607         619   
    

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

       3,350         3,326         6,558         6,326   
    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

       404         177         463         138   

Nonoperating income (expense):

             

Interest income

       —           1         1         2   

Interest expense, net

       (85      (79      (167      (156

Other, net

       (13      (7      58         (7
    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonoperating expense, net

       (98      (85      (108      (161
    

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

       306         92         355         (23

Income tax provision

       —           —           —           —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     $ 306       $ 92       $ 355       $ (23
    

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (loss) per common share:

             

Basic earnings (loss) per common share

     $ 1.89       $ 0.57       $ 2.19       $ (0.14

Diluted earnings (loss) per common share

     $ 1.54       $ 0.49       $ 1.82       $ (0.14

Shares used for computation (in thousands):

             

Basic

       162,310         162,016         162,220         161,953   

Diluted

       203,981         202,106         202,997         161,953   

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)

 

                                                                                                   
       Three Months
Ended June 30,
     Six Months
Ended June 30,
 
       2012        2011      2012        2011  

Net income (loss)

     $ 306         $ 92       $ 355         $ (23

Other comprehensive loss:

                 

Reversal of net unrealized gains on available-for-sale securities

       —             (2      —             (3

Pension and other postretirement benefits

       —             —           —             (1
    

 

 

      

 

 

    

 

 

      

 

 

 

Total other comprehensive loss

       —             (2      —             (4
    

 

 

      

 

 

    

 

 

      

 

 

 

Total comprehensive income (loss)

     $ 306         $ 90       $ 355         $ (27
    

 

 

      

 

 

    

 

 

      

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)

 

                                                 
       June 30,
2012
     December 31,
2011
 

ASSETS

       

Current assets

       

Cash and cash equivalents

     $ 2,515       $ 1,947   

Accounts receivable, net

       428         327   

Materials and supplies, net

       258         235   

Prepaid expenses and other

       663         540   
    

 

 

    

 

 

 

Total current assets

       3,864         3,049   

Property and equipment

       

Flight equipment

       4,623         4,591   

Ground property and equipment

       962         907   

Less accumulated depreciation and amortization

       (1,617      (1,501
    

 

 

    

 

 

 
       3,968         3,997   

Equipment purchase deposits

       245         153   
    

 

 

    

 

 

 

Total property and equipment

       4,213         4,150   

Other assets

       

Other intangibles, net of accumulated amortization of $146 million and $134 million, respectively

       533         543   

Restricted cash

       393         365   

Other assets

       232         228   
    

 

 

    

 

 

 

Total other assets

       1,158         1,136   
    

 

 

    

 

 

 

Total assets

     $ 9,235       $ 8,335   
    

 

 

    

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

       

Current liabilities

       

Current maturities of debt and capital leases

     $ 449       $ 436   

Accounts payable

       375         386   

Air traffic liability

       1,403         910   

Accrued compensation and vacation

       237         176   

Accrued taxes

       225         163   

Other accrued expenses

       1,067         1,089   
    

 

 

    

 

 

 

Total current liabilities

       3,756         3,160   

Noncurrent liabilities and deferred credits

       

Long-term debt and capital leases, net of current maturities

       4,034         4,130   

Deferred gains and credits, net

       310         307   

Postretirement benefits other than pensions

       162         160   

Employee benefit liabilities and other

       462         428   
    

 

 

    

 

 

 

Total noncurrent liabilities and deferred credits

       4,968         5,025   

Commitments and contingencies

       

Stockholders’ equity

       

Common stock, $0.01 par value; 400,000,000 shares authorized, 162,393,147 shares issued and outstanding at June 30, 2012; 162,116,902 shares issued and outstanding at December 31, 2011

       2         2   

Additional paid-in capital

       2,128         2,122   

Accumulated other comprehensive income

       2         2   

Accumulated deficit

       (1,621      (1,976
    

 

 

    

 

 

 

Total stockholders’ equity

       511         150   
    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

     $ 9,235       $ 8,335   
    

 

 

    

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

                                                 
       Six Months
Ended June 30,
 
       2012      2011  

Net cash provided by operating activities

     $ 853       $ 569   

Cash flows from investing activities:

       

Purchases of property and equipment

       (191      (106

Purchases of marketable securities

       —           (30

Sales of marketable securities

       —           33   

Increase in long-term restricted cash

       (28      (24

Proceeds from dispositions of property and equipment

       —           1   
    

 

 

    

 

 

 

Net cash used in investing activities

       (219      (126

Cash flows from financing activities:

       

Repayments of debt and capital lease obligations

       (263      (417

Proceeds from issuance of debt

       178         324   

Deferred financing costs

       (13      (11

Other

       32         —     
    

 

 

    

 

 

 

Net cash used in financing activities

       (66      (104
    

 

 

    

 

 

 

Net increase in cash and cash equivalents

       568         339   

Cash and cash equivalents at beginning of period

       1,947         1,859   
    

 

 

    

 

 

 

Cash and cash equivalents at end of period

     $ 2,515       $ 2,198   
    

 

 

    

 

 

 

Non-cash investing and financing activities:

       

Interest payable converted to debt

     $ 11       $ 17   

Supplemental information:

       

Interest paid, net of amounts capitalized

     $ 114       $ 105   

Income taxes paid

       —           —     

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of US Airways Group, Inc. (“US Airways Group” or the “Company”) should be read in conjunction with the consolidated financial statements contained in US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2011. The accompanying unaudited condensed consolidated financial statements include the accounts of US Airways Group and its wholly owned subsidiaries. Wholly owned subsidiaries include US Airways, Inc. (“US Airways”), Piedmont Airlines, Inc. (“Piedmont”), PSA Airlines, Inc. (“PSA”), Material Services Company, Inc. (“MSC”) and Airways Assurance Limited (“AAL”). All significant intercompany accounts and transactions have been eliminated.

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent traveler program and the deferred tax asset valuation allowance. The Company’s accumulated other comprehensive income balances at June 30, 2012 and December 31, 2011 related to pension and other postretirement benefits.

2. Special Items, Net

Special items, net as shown on the condensed consolidated statements of operations included the following charges for the three and six months ended June 30, 2012 and 2011 (in millions):

 

                                                                                                   
       Three Months
Ended June  30,
       Six Months
Ended June 30,
 
       2012        2011        2012        2011  

Special items, net (a)

     $ 9         $ 6         $ 11         $ 9   
    

 

 

      

 

 

      

 

 

      

 

 

 

 

(a)

The 2012 and 2011 second quarter and six month periods consisted primarily of corporate transaction and auction rate securities arbitration costs. The 2012 second quarter and six month periods also included a gain on a vendor settlement.

 

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3. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share (“EPS”) is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of potentially dilutive shares of common stock outstanding during the period using the treasury stock method. Potentially dilutive shares include outstanding employee stock options, employee stock appreciation rights (“SARs”), employee restricted stock units (“RSUs”) and convertible debt. The following table presents the computation of basic and diluted EPS (in millions, except share and per share amounts):

 

                                                                                                   
       Three Months
Ended June 30,
       Six Months
Ended June 30,
 
       2012        2011        2012        2011  

Basic EPS:

                   

Net income (loss)

     $ 306         $ 92         $ 355         $ (23
    

 

 

      

 

 

      

 

 

      

 

 

 

Weighted average common shares outstanding (in thousands)

       162,310           162,016           162,220           161,953   
    

 

 

      

 

 

      

 

 

      

 

 

 

Basic EPS

     $ 1.89         $ 0.57         $ 2.19         $ (0.14
    

 

 

      

 

 

      

 

 

      

 

 

 

Diluted EPS:

                   

Net income (loss)

     $ 306         $ 92         $ 355         $ (23

Interest expense on 7.25% convertible senior notes

       8           7           15           —     

Interest expense on 7% senior convertible notes

       —             —             —             —     
    

 

 

      

 

 

      

 

 

      

 

 

 

Net income (loss) for purposes of computing diluted EPS

     $ 314         $ 99         $ 370         $ (23
    

 

 

      

 

 

      

 

 

      

 

 

 

Share computation for diluted EPS (in thousands):

                   

Weighted average common shares outstanding

       162,310           162,016           162,220           161,953   

Dilutive effect of stock awards

       3,726           2,145           2,832           —     

Assumed conversion of 7.25% convertible senior notes

       37,746           37,746           37,746           —     

Assumed conversion of 7% senior convertible notes

       199           199           199           —     
    

 

 

      

 

 

      

 

 

      

 

 

 

Weighted average common shares outstanding as adjusted

       203,981           202,106           202,997           161,953   
    

 

 

      

 

 

      

 

 

      

 

 

 

Diluted EPS

     $ 1.54         $ 0.49         $ 1.82         $ (0.14
    

 

 

      

 

 

      

 

 

      

 

 

 

The following were excluded from the computation of diluted EPS because inclusion of shares would be antidilutive (in thousands):

  

Stock options, SARs and RSUs

       1,752           1,482           1,648           1,470   

7.25% convertible senior notes

       —             —             —             37,746   

7% senior convertible notes

       —             —             —             199   

 

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4. Debt

The following table details the Company’s debt (in millions). Variable interest rates listed are the rates as of June 30, 2012.

 

                                                 
       June 30,
2012
     December 31,
2011
 

Secured

       

Citicorp North America loan, variable interest rate of 2.75%, installments due through 2014

     $ 1,120       $ 1,136   

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.64% to 10.47%, maturing from 2012 to 2029

       1,678         1,729   

Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 5.90% to 11%, maturing from 2014 to 2024

       1,300         1,279   

Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021

       29         30   
    

 

 

    

 

 

 
       4,127         4,174   

Unsecured

       

Barclays prepaid miles, variable interest rate of 5%, interest only payments

       200         200   

Airbus advance, repayments through 2018

       114         142   

7.25% convertible senior notes, interest only payments until due in 2014

       172         172   

7% senior convertible notes, interest only payments until due in 2020

       5         5   

Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023

       29         29   

Other unsecured obligations, maturing in 2012

       10         10   
    

 

 

    

 

 

 
       530         558   
    

 

 

    

 

 

 

Total long-term debt and capital lease obligations

       4,657         4,732   

Less: Total unamortized discount on debt

       (174      (166

Current maturities

       (449      (436
    

 

 

    

 

 

 

Long-term debt and capital lease obligations, net of current maturities

     $ 4,034       $ 4,130   
    

 

 

    

 

 

 

The Company was in compliance with the covenants in its debt agreements at June 30, 2012.

2012 Barclays Amendment

In February 2012, US Airways Group amended its co-branded credit card agreement with Barclays Bank Delaware. This amendment provides that the $200 million pre-purchase of frequent flier miles previously scheduled to reduce commencing in January 2012 will now be reduced commencing in January 2014 over a period of up to approximately two years.

2012 Slot Financing

In April 2012, US Airways entered into a loan agreement pursuant to which US Airways borrowed an aggregate principal amount of $100 million. The net proceeds after fees were approximately $98 million. The loan is payable in full at maturity on March 23, 2014. The loan bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR plus an applicable LIBOR margin. US Airways has agreed to maintain a level of unrestricted cash in the same amount required by the Citicorp credit facility and has also agreed to maintain certain collateral coverage ratios. The loan is collateralized by certain airport take-off and landing slots.

2012-1 EETC Financing Transactions

In May 2012, US Airways created three pass-through trusts which issued approximately $623 million aggregate face amount of Series 2012-1 Class A, Class B and Class C Enhanced Equipment Trust Certificates in connection with the refinancing of two Airbus aircraft owned by US Airways and the financing of 12 Airbus aircraft scheduled to be delivered from September 2012 to March 2013 (the “2012 EETCs”). The 2012 EETCs represent fractional undivided interests in the respective pass-through trusts and are not obligations of US Airways. Proceeds received from the sale of EETCs are initially held by a depository in escrow for the benefit of the certificate holders until US Airways issues equipment notes to the trust, which purchases the notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by US Airways and are not reported as debt on US Airways’ condensed consolidated balance sheet because the proceeds held by the depositary are not US Airways’ assets.

 

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As of June 30, 2012, $78 million of the escrowed proceeds from the 2012 EETCs have been used to purchase equipment notes issued by US Airways in three series: Series A equipment notes in an aggregate principal amount of $48 million bearing interest at 5.90% per annum, Series B equipment notes in an aggregate principal amount of $15 million bearing interest at 8% per annum and Series C equipment notes in an aggregate principal amount of $15 million bearing interest at 9.125% per annum. Interest on the equipment notes is payable semiannually in April and October of each year, beginning in October 2012. Principal payments on the equipment notes are scheduled to begin in April 2013. The final payments on the Series A equipment notes, Series B equipment notes and Series C equipment notes will be due in October 2024, October 2019 and October 2015, respectively. US Airways’ payment obligations under the equipment notes are fully and unconditionally guaranteed by US Airways Group. The net proceeds from the issuance of these equipment notes were used in part to repay the existing debt associated with the two Airbus aircraft, with the balance used for general corporate purposes. The equipment notes are secured by liens on aircraft. The remaining $545 million of escrowed proceeds will be used to purchase equipment notes as the new aircraft are delivered.

Fair Value of Debt

The fair value of the Company’s long-term debt was approximately $4.38 billion and $4.23 billion at June 30, 2012 and December 31, 2011, respectively. The fair values were estimated using quoted market prices where available. For long-term debt not actively traded, fair values were estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. If the Company’s long-term debt was measured at fair value, it would have been categorized as Level 2 in the fair value hierarchy.

5. Income Taxes

At December 31, 2011, the Company had approximately $1.95 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. All of the Company’s NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. The Company’s net deferred tax assets, which include $1.87 billion of the NOLs, are subject to a full valuation allowance. The Company also had approximately $82 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $347 million and $61 million, respectively. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset the Company’s tax provision dollar for dollar.

For each of the three and six month periods ended June 30, 2012 and 2011, the Company did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs may be limited or unavailable to be used.

When profitable, the Company is ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, the Company was able to utilize AMT NOLs to fully offset its AMT taxable income in each of the three and six month periods ended June 30, 2012.

 

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6. Express Expenses

Expenses associated with the Company’s wholly owned regional airlines and affiliate regional airlines operating as US Airways Express are classified as express expenses on the condensed consolidated statements of operations. Express expenses consist of the following (in millions):

 

                                                                                                   
       Three Months
Ended June 30,
       Six Months
Ended June 30,
 
       2012        2011        2012        2011  

Aircraft fuel and related taxes

     $ 282         $ 287         $ 558         $ 530   

Salaries and related costs

       78           67           151           137   

Capacity purchases

       275           261           552           527   

Aircraft rent

       13           13           26           26   

Aircraft maintenance

       23           49           55           96   

Other rent and landing fees

       33           35           67           69   

Selling expenses

       47           49           87           90   

Special items, net

       3           —             3           1   

Depreciation and amortization

       8           6           15           12   

Other expenses

       41           44           91           95   
    

 

 

      

 

 

      

 

 

      

 

 

 

Express expenses

     $ 803         $ 811         $ 1,605         $ 1,583   
    

 

 

      

 

 

      

 

 

      

 

 

 

7. Slot Transaction

In May 2011, US Airways Group and US Airways entered into an Amended and Restated Mutual Asset Purchase and Sale Agreement (the “Mutual APA”) with Delta Air Lines, Inc. (“Delta”). The Mutual APA amended and restated the Mutual Asset Purchase and Sale Agreement dated August 11, 2009 by and among the parties. Pursuant to the Mutual APA, Delta agreed to acquire 132 slot pairs at LaGuardia from US Airways and US Airways agreed to acquire from Delta 42 slot pairs at Washington National and the rights to operate additional daily service to Sao Paulo, Brazil in 2015, and Delta agreed to pay US Airways $66.5 million in cash. One slot equals one take-off or landing, and each pair of slots equals one round-trip flight. The Mutual APA was structured as two simultaneous asset sales.

On October 11, 2011, the U.S. Department of Transportation (“DOT”) and the Federal Aviation Administration each granted their approval to the transaction. The DOT’s approval was conditioned on the divestiture of 16 slot pairs at LaGuardia and eight slot pairs at Washington National to airlines with limited or no service at those airports as well as the full cooperation of US Airways and Delta to enable the startup of the operations by the airlines purchasing the divested slots. Additionally, to allow the airlines who purchased the divested slots to establish competitive service, the DOT prohibited US Airways and Delta from operating any of the newly acquired slots during the first 90 days after the closing date of the sale of the divested slots and from operating more than 50 percent of the total number of slots between the 91st day and 210th day following the closing date of the sale of the divested slots.

In December 2011, the slot divestitures described above were completed by Delta and on December 13, 2011, the transaction closed and ownership of the respective slots was transferred between the airlines. Accordingly as of December 31, 2011, the Company’s balance sheet reflected the transfer of the LaGuardia slots to Delta and the receipt of the Washington National slots, which were included within other intangible assets on the accompanying condensed consolidated balance sheet. The newly acquired Washington National slots serve as collateral under the Company’s Citicorp credit facility.

The fair value of the LaGuardia slots transferred to Delta in exchange for the Washington National slots and related cash payment was $223 million, which resulted in a gain of approximately $147 million. Due to the DOT restrictions preventing operating use of the LaGuardia slots acquired by Delta, the gain was fully deferred as of December 31, 2011 and was included within other current liabilities on the accompanying condensed consolidated balance sheet. The Company will recognize the gain in the periods in which the DOT operating restrictions lapse (March 2012 and July 2012). In March 2012, the Company recognized $73 million of the gain, which is included within other nonoperating expense, net on the accompanying condensed consolidated statement of operations. The Company will recognize the remaining gain (expected to approximate $74 million) in the third quarter of 2012.

 

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8. Legal Proceedings

The Company is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, retroactive to January 1, 2010, this work group was entitled to a significant increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in the Company’s favor, and supplemental briefs concerning a collateral issue involving a smaller wage increase have been filed. The Company believes that the union’s position is without merit and that the possibility of an adverse outcome is remote.

On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011 allowing two of the four counts in the complaint to proceed. The Company intends to pursue these claims vigorously, but there can be no assurance of the outcome of this litigation.

The Company and/or its subsidiaries are defendants in various other pending lawsuits and proceedings, and from time to time are subject to other claims arising in the normal course of its business, many of which are covered in whole or in part by insurance. The outcome of those matters cannot be predicted with certainty at this time, but the Company, having consulted with outside counsel, believes that the ultimate disposition of these contingencies will not materially affect its consolidated financial position or results of operations.

 

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Item 1B. Condensed Consolidated Financial Statements of US Airways, Inc.

US Airways, Inc.

Condensed Consolidated Statements of Operations

(In millions)

(Unaudited)

 

     Three Months
Ended June 30,
    Six Months
Ended June 30,
 
     2012     2011     2012     2011  

Operating revenues:

        

Mainline passenger

   $ 2,446      $ 2,280      $ 4,562      $ 4,180   

Express passenger

     916        835        1,680        1,520   

Cargo

     39        43        79        86   

Other

     394        386        778        751   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     3,795        3,544        7,099        6,537   

Operating expenses:

        

Aircraft fuel and related taxes

     906        948        1,766        1,682   

Salaries and related costs

     674        577        1,279        1,149   

Express expenses

     841        838        1,671        1,625   

Aircraft rent

     161        163        323        327   

Aircraft maintenance

     172        181        336        344   

Other rent and landing fees

     132        145        272        274   

Selling expenses

     126        120        237        220   

Special items, net

     9        6        11        9   

Depreciation and amortization

     64        61        127        124   

Other

     315        326        626        634   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,400        3,365        6,648        6,388   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     395        179        451        149   

Nonoperating income (expense):

        

Interest income

     —          1        1        2   

Interest expense, net

     (60     (53     (118     (107

Other, net

     (13     (8     59        (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total nonoperating expense, net

     (73     (60     (58     (113
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     322        119        393        36   

Income tax provision

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 322      $ 119      $ 393      $ 36   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)

 

                                                                                                   
       Three Months
Ended June 30,
     Six Months
Ended June 30,
 
       2012        2011      2012        2011  

Net income

     $ 322         $ 119       $ 393         $ 36   

Other comprehensive loss:

                 

Reversal of net unrealized gains on available-for-sale securities

       —             (2      —             (3

Pension and other postretirement benefits

       —             —           —             (1
    

 

 

      

 

 

    

 

 

      

 

 

 

Total other comprehensive loss

       —             (2      —             (4
    

 

 

      

 

 

    

 

 

      

 

 

 

Total comprehensive income

     $ 322         $ 117       $ 393         $ 32   
    

 

 

      

 

 

    

 

 

      

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)

 

     June 30,
2012
    December 31,
2011
 

ASSETS

  

Current assets

    

Cash and cash equivalents

   $ 2,510      $ 1,940   

Accounts receivable, net

     428        325   

Materials and supplies, net

     225        199   

Prepaid expenses and other

     654        527   
  

 

 

   

 

 

 

Total current assets

     3,817        2,991   

Property and equipment

    

Flight equipment

     4,470        4,441   

Ground property and equipment

     927        873   

Less accumulated depreciation and amortization

     (1,538     (1,428
  

 

 

   

 

 

 
     3,859        3,886   

Equipment purchase deposits

     245        153   
  

 

 

   

 

 

 

Total property and equipment

     4,104        4,039   

Other assets

    

Other intangibles, net of accumulated amortization of $135 million and $124 million, respectively

     503        512   

Restricted cash

     393        365   

Other assets

     217        209   
  

 

 

   

 

 

 

Total other assets

     1,113        1,086   
  

 

 

   

 

 

 

Total assets

   $ 9,034      $ 8,116   
  

 

 

   

 

 

 

LIABILITIES & STOCKHOLDER’S EQUITY

  

Current liabilities

    

Current maturities of debt and capital leases

   $ 433      $ 420   

Accounts payable

     334        305   

Payables to related parties, net

     547        601   

Air traffic liability

     1,403        910   

Accrued compensation and vacation

     225        167   

Accrued taxes

     227        165   

Other accrued expenses

     1,036        1,058   
  

 

 

   

 

 

 

Total current liabilities

     4,205        3,626   

Noncurrent liabilities and deferred credits

    

Long-term debt and capital leases, net of current maturities

     2,631        2,698   

Deferred gains and credits, net

     258        280   

Postretirement benefits other than pensions

     161        158   

Employee benefit liabilities and other

     424        392   
  

 

 

   

 

 

 

Total noncurrent liabilities and deferred credits

     3,474        3,528   

Commitments and contingencies

    

Stockholder’s equity

    

Common stock, $1 par value, 1,000 shares issued and outstanding

     —          —     

Additional paid-in capital

     2,445        2,445   

Accumulated other comprehensive income

     22        22   

Accumulated deficit

     (1,112     (1,505
  

 

 

   

 

 

 

Total stockholder’s equity

     1,355        962   
  

 

 

   

 

 

 

Total liabilities and stockholder’s equity

   $ 9,034      $ 8,116   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

                                                 
       Six Months
Ended June 30,
 
       2012      2011  

Net cash provided by operating activities

     $ 834       $ 539   

Cash flows from investing activities:

       

Purchases of property and equipment

       (186      (98

Purchases of marketable securities

       —           (30

Sales of marketable securities

       —           33   

Increase in long-term restricted cash

       (28      (24

Proceeds from dispositions of property and equipment

       —           1   
    

 

 

    

 

 

 

Net cash used in investing activities

       (214      (118

Cash flows from financing activities:

       

Repayments of debt and capital lease obligations

       (247      (401

Proceeds from issuance of debt

       178         324   

Deferred financing costs

       (13      (11

Other

       32         —     
    

 

 

    

 

 

 

Net cash used in financing activities

       (50      (88
    

 

 

    

 

 

 

Net increase in cash and cash equivalents

       570         333   

Cash and cash equivalents at beginning of period

       1,940         1,856   
    

 

 

    

 

 

 

Cash and cash equivalents at end of period

     $ 2,510       $ 2,189   
    

 

 

    

 

 

 

Non-cash investing and financing activities:

       

Interest payable converted to debt

     $ 11       $ 17   

Supplemental information:

       

Interest paid, net of amounts capitalized

     $ 86       $ 72   

Income taxes paid

       —           —     

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of US Airways, Inc. (“US Airways”) should be read in conjunction with the consolidated financial statements contained in US Airways’ Annual Report on Form 10-K for the year ended December 31, 2011. US Airways is a wholly owned subsidiary of US Airways Group, Inc. (“US Airways Group”).

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent traveler program and the deferred tax asset valuation allowance. US Airways’ accumulated other comprehensive income balances at June 30, 2012 and December 31, 2011 related to other postretirement benefits.

2. Special Items, Net

Special items, net as shown on the condensed consolidated statements of operations included the following charges for the three and six months ended June 30, 2012 and 2011 (in millions):

 

                                                                                                   
       Three Months
Ended June  30,
       Six Months
Ended June 30,
 
       2012        2011        2012        2011  

Special items, net (a)

     $ 9         $ 6         $ 11         $ 9   
    

 

 

      

 

 

      

 

 

      

 

 

 

 

(a)

The 2012 and 2011 second quarter and six month periods consisted primarily of corporate transaction and auction rate securities arbitration costs. The 2012 second quarter and six month periods also included a gain on a vendor settlement.

 

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3. Debt

The following table details US Airways’ debt (in millions). Variable interest rates listed are the rates as of June 30, 2012.

 

                                                 
       June 30,
2012
     December 31,
2011
 

Secured

       

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.64% to 10.47%, maturing from 2012 to 2021

     $ 1,648       $ 1,699   

Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 5.90% to 11%, maturing from 2014 to 2024

       1,300         1,279   

Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021

       29         30   
    

 

 

    

 

 

 
       2,977         3,008   

Unsecured

       

Airbus advance, repayments through 2018

       114         142   

Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023

       29         29   

Other unsecured obligations, maturing in 2012

       10         10   
    

 

 

    

 

 

 
       153         181   
    

 

 

    

 

 

 

Total long-term debt and capital lease obligations

       3,130         3,189   

Less: Total unamortized discount on debt

       (66      (71

Current maturities

       (433      (420
    

 

 

    

 

 

 

Long-term debt and capital lease obligations, net of current maturities

     $ 2,631       $ 2,698   
    

 

 

    

 

 

 

US Airways was in compliance with the covenants in its debt agreements at June 30, 2012.

2012 Slot Financing

In April 2012, US Airways entered into a loan agreement pursuant to which US Airways borrowed an aggregate principal amount of $100 million. The net proceeds after fees were approximately $98 million. The loan is payable in full at maturity on March 23, 2014. The loan bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR plus an applicable LIBOR margin. US Airways has agreed to maintain a level of unrestricted cash in the same amount required by US Airways Group’s Citicorp credit facility and has also agreed to maintain certain collateral coverage ratios. The loan is collateralized by certain airport take-off and landing slots.

2012-1 EETC Financing Transactions

In May 2012, US Airways created three pass-through trusts which issued approximately $623 million aggregate face amount of Series 2012-1 Class A, Class B and Class C Enhanced Equipment Trust Certificates in connection with the refinancing of two Airbus aircraft owned by US Airways and the financing of 12 Airbus aircraft scheduled to be delivered from September 2012 to March 2013 (the “2012 EETCs”). The 2012 EETCs represent fractional undivided interests in the respective pass-through trusts and are not obligations of US Airways. Proceeds received from the sale of EETCs are initially held by a depository in escrow for the benefit of the certificate holders until US Airways issues equipment notes to the trust, which purchases the notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by US Airways and are not reported as debt on US Airways’ condensed consolidated balance sheet because the proceeds held by the depositary are not US Airways’ assets.

As of June 30, 2012, $78 million of the escrowed proceeds from the 2012 EETCs have been used to purchase equipment notes issued by US Airways in three series: Series A equipment notes in an aggregate principal amount of $48 million bearing interest at 5.90% per annum, Series B equipment notes in an aggregate principal amount of $15 million bearing interest at 8% per annum and Series C equipment notes in an aggregate principal amount of $15 million bearing interest at 9.125% per annum. Interest on the equipment notes is payable semiannually in April and October of each year, beginning in October 2012. Principal payments on the equipment notes are scheduled to begin in April 2013. The final payments on the Series A equipment notes, Series B equipment notes and Series C equipment notes will be due in October 2024, October 2019 and October 2015, respectively. US Airways’ payment obligations under the equipment notes are fully and unconditionally guaranteed by US Airways Group. The net proceeds from the issuance of these equipment notes were used in part to repay the existing debt associated with the two Airbus aircraft, with the balance used for general corporate purposes. The equipment notes are secured by liens on aircraft. The remaining $545 million of escrowed proceeds will be used to purchase equipment notes as the new aircraft are delivered.

 

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Fair Value of Debt

The fair value of US Airways’ long-term debt was approximately $2.90 billion and $2.92 billion at June 30, 2012 and December 31, 2011, respectively. The fair values were estimated using quoted market prices where available. For long-term debt not actively traded, fair values were estimated using a discounted cash flow analysis based on US Airways’ current incremental borrowing rates for similar types of borrowing arrangements. If US Airways’ long-term debt was measured at fair value, it would have been categorized as Level 2 in the fair value hierarchy.

4. Related Party Transactions

The following represents the net payable balances to related parties (in millions):

 

                                                 
       June 30,
2012
       December 31,
2011
 

US Airways Group

     $ 472         $ 514   

US Airways Group’s wholly owned subsidiaries

       75           87   
    

 

 

      

 

 

 
     $ 547         $ 601   
    

 

 

      

 

 

 

US Airways Group has the ability to move funds freely between its operating subsidiaries to support operations. These transfers are recognized as intercompany transactions.

The net payable to US Airways Group’s wholly owned subsidiaries consists of amounts due under regional capacity agreements with the other airline subsidiaries and fuel purchase arrangements with a non-airline subsidiary.

5. Income Taxes

US Airways is part of the US Airways Group consolidated income tax return.

At December 31, 2011, US Airways had approximately $1.85 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. All of US Airways’ NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. US Airways’ net deferred tax assets, which include $1.78 billion of the NOLs, are subject to a full valuation allowance. US Airways also had approximately $79 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $349 million and $61 million, respectively. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset US Airways’ tax provision dollar for dollar.

For each of the three and six month periods ended June 30, 2012 and 2011, US Airways did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs may be limited or unavailable to be used.

When profitable, US Airways is ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, US Airways was able to utilize AMT NOLs to fully offset its AMT taxable income in each of the three and six month periods ended June 30, 2012.

 

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6. Express Expenses

Expenses associated with affiliate regional airlines operating as US Airways Express are classified as express expenses on the condensed consolidated statements of operations. Express expenses consist of the following (in millions):

 

                                                                                                   
       Three Months
Ended June  30,
       Six Months
Ended June 30,
 
       2012        2011        2012        2011  

Aircraft fuel and related taxes

     $ 282         $ 288         $ 559         $ 531   

Salaries and related costs

       6           6           12           12   

Capacity purchases

       456           445           911           892   

Other rent and landing fees

       28           29           56           57   

Selling expenses

       47           49           87           90   

Depreciation and amortization

       2           —             4           —     

Other expenses

       20           21           42           43   
    

 

 

      

 

 

      

 

 

      

 

 

 

Express expenses

     $ 841         $ 838         $ 1,671         $ 1,625   
    

 

 

      

 

 

      

 

 

      

 

 

 

7. Slot Transaction

In May 2011, US Airways Group and US Airways entered into an Amended and Restated Mutual Asset Purchase and Sale Agreement (the “Mutual APA”) with Delta Air Lines, Inc. (“Delta”). The Mutual APA amended and restated the Mutual Asset Purchase and Sale Agreement dated August 11, 2009 by and among the parties. Pursuant to the Mutual APA, Delta agreed to acquire 132 slot pairs at LaGuardia from US Airways and US Airways agreed to acquire from Delta 42 slot pairs at Washington National and the rights to operate additional daily service to Sao Paulo, Brazil in 2015, and Delta agreed to pay US Airways $66.5 million in cash. One slot equals one take-off or landing, and each pair of slots equals one round-trip flight. The Mutual APA was structured as two simultaneous asset sales.

On October 11, 2011, the U.S. Department of Transportation (“DOT”) and the Federal Aviation Administration each granted their approval to the transaction. The DOT’s approval was conditioned on the divestiture of 16 slot pairs at LaGuardia and eight slot pairs at Washington National to airlines with limited or no service at those airports as well as the full cooperation of US Airways and Delta to enable the startup of the operations by the airlines purchasing the divested slots. Additionally, to allow the airlines who purchased the divested slots to establish competitive service, the DOT prohibited US Airways and Delta from operating any of the newly acquired slots during the first 90 days after the closing date of the sale of the divested slots and from operating more than 50 percent of the total number of slots between the 91st day and 210th day following the closing date of the sale of the divested slots.

In December 2011, the slot divestitures described above were completed by Delta and on December 13, 2011, the transaction closed and ownership of the respective slots was transferred between the airlines. Accordingly as of December 31, 2011, US Airways’ balance sheet reflected the transfer of the LaGuardia slots to Delta and the receipt of the Washington National slots, which were included within other intangible assets on the accompanying condensed consolidated balance sheet. The newly acquired Washington National slots serve as collateral under US Airways Group’s Citicorp credit facility.

The fair value of the LaGuardia slots transferred to Delta in exchange for the Washington National slots and related cash payment was $223 million, which resulted in a gain of approximately $147 million. Due to the DOT restrictions preventing operating use of the LaGuardia slots acquired by Delta, the gain was fully deferred as of December 31, 2011 and was included within other current liabilities on the accompanying condensed consolidated balance sheet. US Airways will recognize the gain in the periods in which the DOT operating restrictions lapse (March 2012 and July 2012). In March 2012, US Airways recognized $73 million of the gain, which is included within other nonoperating expense, net on the accompanying condensed consolidated statement of operations. US Airways will recognize the remaining gain (expected to approximate $74 million) in the third quarter of 2012.

 

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8. Legal Proceedings

US Airways is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, retroactive to January 1, 2010, this work group was entitled to a significant increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in US Airways’ favor, and supplemental briefs concerning a collateral issue involving a smaller wage increase have been filed. US Airways believes that the union’s position is without merit and that the possibility of an adverse outcome is remote.

On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011 allowing two of the four counts in the complaint to proceed. US Airways intends to pursue these claims vigorously, but there can be no assurance of the outcome of this litigation.

US Airways is a defendant in various other pending lawsuits and proceedings, and from time to time is subject to other claims arising in the normal course of its business, many of which are covered in whole or in part by insurance. The outcome of those matters cannot be predicted with certainty at this time, but US Airways, having consulted with outside counsel, believes that the ultimate disposition of these contingencies will not materially affect its consolidated financial position or results of operations.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of US Airways Group, Inc.’s and US Airways, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of the Company, but rather updates disclosures made in the 2011 Form 10-K.

Background

US Airways Group is a holding company whose primary business activity is the operation of a major network air carrier through its wholly owned subsidiaries US Airways, Piedmont Airlines, Inc. (“Piedmont”), PSA Airlines, Inc. (“PSA”), Material Services Company, Inc. (“MSC”) and Airways Assurance Limited (“AAL”).

We operate the fifth largest airline in the United States as measured by domestic revenue passenger miles (“RPMs”) and available seat miles (“ASMs”). We have hubs in Charlotte, Philadelphia and Phoenix and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport. We offer scheduled passenger service on more than 3,200 flights daily to more than 200 communities in the United States, Canada, Mexico, Europe, the Middle East, the Caribbean, and Central and South America. We also have an established East Coast route network, including the US Airways Shuttle service. For the six months ended June 30, 2012, we had approximately 27 million passengers boarding our mainline flights. As of June 30, 2012, we operated 339 mainline jets and are supported by our regional airline subsidiaries and affiliates operating as US Airways Express under capacity purchase agreements, which operated 241 regional jets and 47 turboprops. Our prorate carriers operated four regional jets at June 30, 2012.

The U.S. Airline Industry

During the second quarter of 2012, the U.S. airline industry experienced year-over-year growth in passenger revenues as well as a decline in the price of fuel.

Passenger revenue growth was driven by ongoing industry capacity discipline and strong consumer demand for air travel. In its most recent data available, Airlines for America, the trade association for U.S. airlines, reported the following increases in U.S. industry passenger revenues and yields, which indicate continued growth despite more difficult year-over-year comparisons.

2012 vs. 2011

 

                                                                          
        April     May     June  

Passenger Revenues

       7.1     4.5     6.1

Yields

       5.9     4.3     5.2

2011 vs. 2010

 

                                                                          
        April     May     June  

Passenger Revenues

       12.0     14.7     8.4

Yields

       7.9     10.8     7.0

With respect to international versus domestic performance, Airlines for America reported that in the second quarter of 2012, domestic market yields outperformed international market yields. International markets experienced weaker demand due to global economic uncertainty.

Jet fuel prices continue to follow the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. The average daily spot price for Brent crude oil during the second quarter of 2012 was $108 per barrel as compared to an average daily spot price of $117 per barrel during the second quarter of 2011. The price of Brent crude oil fell throughout the second quarter amid uncertainty surrounding the European economy and slower worldwide economic growth. The daily spot price for Brent crude oil averaged $120 per barrel in April 2012, $110 per barrel in May 2012, $95 per barrel in June 2012, and closed the quarter at $94 per barrel on June 29, 2012.

 

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While the U.S. airline industry is currently benefiting from a favorable revenue environment and lower fuel prices described above, uncertainty exists regarding the economic conditions driving these factors. See Part II, Item 1A, Risk Factors – “Downturns in economic conditions adversely affect our business” and “Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.

US Airways Group

For the second quarter of 2012, we reported our largest ever quarterly profit on both an operating income and net income basis. Driven by year-over-year growth in revenues and a decrease in our fuel costs, we realized operating income of $404 million and net income of $306 million in the second quarter of 2012. This compares to operating income of $177 million and net income of $92 million in the second quarter of 2011.

Revenue

Mainline and express passenger revenues increased $247 million, or 7.9%, as compared to the 2011 period driven by a 7.4% increase in yield as compared to the 2011 period. Our mainline and express passenger revenue per available seat mile (“PRASM”) was 14.59 cents in the second quarter of 2012, a 6.8% increase, as compared to 13.66 cents in the 2011 period. Total revenue per available seat mile (“RASM”) was 16.30 cents in the second quarter of 2012 as compared to 15.36 cents in the 2011 period, representing a 6.1% improvement. Total revenues include our ancillary revenue initiatives, which generated $154 million in revenues for the second quarter of 2012, an increase of $14 million over the 2011 period principally related to our Choice Seats program.

Fuel

We have not entered into any transactions to hedge our fuel consumption and as a result we fully realized the benefits of the decline in fuel prices during the second quarter of 2012. The average mainline and express price per gallon of fuel was $3.18 for the second quarter of 2012 as compared to an average cost per gallon of $3.29 in the second quarter of 2011, a decrease of 3.5%. Accordingly, our mainline and express fuel expense decreased $47 million to $1.19 billion for the second quarter of 2012, which was 3.8% lower than the 2011 period, on a 0.4% decrease in consumption.

Capacity

Total system capacity for the second quarter of 2012 increased 1.0% as compared to the second quarter of 2011 due primarily to our strong operational performance, which led to a record completion factor for the second quarter of 2012. For the full year 2012, total system capacity is expected to be up approximately two percent versus 2011. Domestic capacity is expected to be up approximately two percent and international capacity is expected to be up approximately one percent.

Cost Control

We remain committed to maintaining a low cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the price of fuel. Our mainline costs per available seat mile (“CASM”) excluding special items, fuel and profit sharing increased 0.09 cents, or 1.1%, from 8.16 cents in the second quarter of 2011 to 8.25 cents in the second quarter of 2012.

The following table details our mainline CASM for the three months ended June 30, 2012 and 2011:

 

                                                                          
       2012      2011      Percent
Increase
(Decrease)
 
       (In cents)         

Mainline CASM excluding special items, fuel and profit sharing:

          

Total mainline CASM

       13.14         13.15         (0.1

Special items, net

       (0.05      (0.03      32.7   

Aircraft fuel and related taxes

       (4.67      (4.96      (5.7

Profit sharing

       (0.17      —           nm   
    

 

 

    

 

 

    

Total mainline CASM excluding special items, fuel and profit sharing (1)

       8.25         8.16         1.1   
    

 

 

    

 

 

    

 

(1)

We believe that the presentation of mainline CASM excluding fuel is useful to investors as both the cost and availability of fuel are subject to many economic and political factors beyond our control, and excluding special items and profit sharing provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items, fuel and profit sharing to evaluate our operating performance. Amounts may not recalculate due to rounding.

 

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Customer Service

We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. Outstanding efforts from our 32,000 employees drove very strong operational performance in the second quarter of 2012 as we achieved our best-ever quarter performance in on-time arrivals and baggage handling and our best-ever second quarter performance in completion factor.

We reported the following operating statistics to the Department of Transportation (“DOT”) for mainline operations for the second quarter of 2012 and 2011:

 

     2012      2011      Better (Worse) 2012-2011  
     April      May      June (e)      April      May      June      April     May     June  

On-time performance (a)

     90.6         85.5         86.2         77.4         74.8         73.0         13.2 pts      10.7 pts      13.2 pts 

Completion factor (b)

     99.7         99.5         99.1         98.9         98.9         98.4         0.8 pts      0.6 pts      0.7 pts 

Mishandled baggage (c)

     1.83         2.02         2.23         2.36         2.83         3.24         22.5     28.6     31.2

Customer complaints (d)

     1.76         2.33         2.42         1.52         2.02         2.56         (15.8 )%      (15.3 )%      5.6

 

(a)

Percentage of reported flight operations arriving on time as defined by the DOT.

 

(b)

Percentage of scheduled flight operations completed.

 

(c)

Rate of mishandled baggage reports per 1,000 passengers.

 

(d)

Rate of customer complaints filed with the DOT per 100,000 enplanements.

 

(e)

June 2012 operating statistics are preliminary as the DOT has not issued its June 2012 Air Travel Consumer Report as of the date of this filing.

Liquidity Position

As of June 30, 2012, our total cash, cash equivalents and restricted cash was $2.91 billion, of which $393 million was restricted.

 

                                                 
       June 30,
2012
       December 31,
2011
 
       (In millions)  

Cash and cash equivalents

     $ 2,515         $ 1,947   

Long-term restricted cash

       393           365   
    

 

 

      

 

 

 

Total cash, cash equivalents and restricted cash

     $ 2,908         $ 2,312   
    

 

 

      

 

 

 

The improvement in our liquidity in the first half of 2012 was due primarily to the strong revenue environment and seasonal factors. An April 2012 loan agreement, pursuant to which US Airways borrowed an aggregate principal amount of $100 million, also contributed to the improvement.

Long-term restricted cash primarily includes cash collateral to secure workers’ compensation claims and credit card processing holdback requirements for advance ticket sales for which US Airways has not yet provided air transportation.

2012 Outlook

Looking forward it is difficult to predict the price of oil, the strength of the economy or the capacity actions of other airlines. Over the past few years we have taken significant actions to align capacity with demand, focus our network on our four key markets, introduce new revenue streams, control costs and continue our exceptional operating reliability. We believe that these actions have positioned us well.

 

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US Airways Group’s Results of Operations

Driven by year-over-year growth in revenues and a decrease in our fuel costs, we realized operating income of $404 million in the second quarter of 2012, representing our largest ever quarterly operating profit. We realized income before income taxes of $306 million in the second quarter of 2012. This compares to operating income of $177 million and income before income taxes of $92 million in the 2011 period.

In the first six months of 2012, we realized operating income of $463 million and income before income taxes of $355 million. This compares to operating income of $138 million and a loss before income taxes of $23 million in the 2011 period. The six month period year-over-year increase in our income was driven primarily by our strong second quarter 2012 performance.

Our results have been impacted by the following net special charges (credits) (in millions):

 

                                                                                                   
       Three Months
Ended June  30,
       Six Months
Ended June 30,
 
       2012        2011        2012      2011  

Mainline operating special items, net (a)

     $ 9         $ 6         $ 11       $ 9   

Express operating special items, net (b)

       3           —             3         1   

Nonoperating special items, net (c)

       3           8           (70      8   
    

 

 

      

 

 

      

 

 

    

 

 

 

Total

     $ 15         $ 14         $ (56    $ 18   
    

 

 

      

 

 

      

 

 

    

 

 

 

 

(a)

The 2012 and 2011 second quarter and six month periods consisted primarily of corporate transaction and auction rate securities arbitration costs. The 2012 second quarter and six month periods also included a gain on a vendor settlement.

 

(b)

The 2012 second quarter and six month periods each consisted of special charges related to ratification of a new Piedmont fleet and passenger services contract.

 

(c)

The 2012 second quarter consisted of debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft. The 2012 six month period consisted of a $73 million gain recognized in March 2012 relating to the slot transaction with Delta Air Lines, Inc. (“Delta”). See Note 7 to the condensed consolidated financial statements included in Part I, Item 1A of this report for more information on the Delta transaction. This gain was partially offset by $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs discussed above.

The 2011 second quarter and six month periods each consisted of $6 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million of losses related to investments in auction rate securities.

At December 31, 2011, we had approximately $1.95 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. All of our NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. Our net deferred tax assets, which include $1.87 billion of the NOLs, are subject to a full valuation allowance. We also had approximately $82 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $347 million and $61 million, respectively. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset our tax provision dollar for dollar.

For each of the three and six month periods ended June 30, 2012 and 2011, we did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs may be limited or unavailable to be used.

When profitable, we are ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, we were able to utilize AMT NOLs to fully offset our AMT taxable income in each of the three and six month periods ended June 30, 2012.

 

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The table below sets forth our selected mainline and express operating data:

 

     Three Months Ended
June  30,
     Increase     Six Months Ended
June 30,
     Increase  
     2012      2011      (Decrease)     2012      2011      (Decrease)  

Mainline

                

Revenue passenger miles (millions) (a)

     16,403         16,260         0.9     30,704         29,830         2.9

Available seat miles (millions) (b)

     19,387         19,116         1.4     37,105         36,151         2.6

Passenger load factor (percent) (c)

     84.6         85.1         (0.5 ) pts      82.7         82.5         0.2  pts 

Yield (cents) (d)

     14.91         14.02         6.3     14.86         14.01         6.0

Passenger revenue per available seat mile (cents) (e)

     12.62         11.93         5.8     12.30         11.56         6.3

Operating cost per available seat mile (cents) (f)

     13.14         13.15         (0.1 )%      13.35         13.12         1.7

Passenger enplanements (thousands) (g)

     13,902         13,799         0.8     27,188         26,303         3.4

Departures (thousands)

     115         116         (0.7 )%      229         228         0.6

Aircraft at end of period

     339         338         0.3     339         338         0.3

Block hours (thousands) (h)

     313         320         (2.2 )%      612         614         (0.3 )% 

Average stage length (miles) (i)

     1,025         1,017         0.8     990         982         0.8

Average passenger journey (miles) (j)

     1,738         1,722         0.9     1,674         1,661         0.8

Fuel consumption (gallons in millions)

     286         288         (0.5 )%      550         543         1.2

Average aircraft fuel price including related taxes (dollars per gallon)

     3.17         3.29         (3.9 )%      3.21         3.10         3.7

Full-time equivalent employees at end of period

     31,467         31,321         0.5     31,467         31,321         0.5

Express (k)

                

Revenue passenger miles (millions) (a)

     2,803         2,850         (1.6 )%      5,262         5,288         (0.5 )% 

Available seat miles (millions) (b)

     3,649         3,688         (1.1 )%      7,078         7,180         (1.4 )% 

Passenger load factor (percent) (c)

     76.8         77.3         (0.5 ) pts      74.3         73.6         0.7  pts 

Yield (cents) (d)

     32.68         29.32         11.5     31.92         28.75         11.1

Passenger revenue per available seat mile (cents) (e)

     25.10         22.65         10.8     23.73         21.17         12.1

Operating cost per available seat mile (cents) (f)

     22.01         22.01         —       22.68         22.04         2.9

Passenger enplanements (thousands) (g)

     7,304         7,410         (1.4 )%      13,840         13,757         0.6

Aircraft at end of period

     288         281         2.5     288         281         2.5

Fuel consumption (gallons in millions)

     88         88         0.2     172         171         0.7

Average aircraft fuel price including related taxes (dollars per gallon)

     3.20         3.28         (2.2 )%      3.25         3.10         4.6

Total Mainline and Express

                

Revenue passenger miles (millions) (a)

     19,206         19,110         0.5     35,966         35,118         2.4

Available seat miles (millions) (b)

     23,036         22,804         1.0     44,183         43,331         2.0

Passenger load factor (percent) (c)

     83.4         83.8         (0.4 ) pts      81.4         81.0         0.4  pts 

Yield (cents) (d)

     17.50         16.30         7.4     17.36         16.23         6.9

Passenger revenue per available seat mile (cents) (e)

     14.59         13.66         6.8     14.13         13.15         7.4

Total revenue per available seat mile (cents) (l)

     16.30         15.36         6.1     15.89         14.92         6.5

Passenger enplanements (thousands) (g)

     21,206         21,209         —       41,028         40,060         2.4

Aircraft at end of period

     627         619         1.3     627         619         1.3

Fuel consumption (gallons in millions)

     374         376         (0.4 )%      722         714         1.1

Average aircraft fuel price including related taxes (dollars per gallon)

     3.18         3.29         (3.5 )%      3.22         3.10         3.9

 

(a)

Revenue passenger mile (“RPM”) — A basic measure of sales volume. One RPM represents one passenger flown one mile.

 

(b)

Available seat mile (“ASM”) — A basic measure of production. One ASM represents one seat flown one mile.

 

(c)

Passenger load factor — The percentage of available seats that are filled with revenue passengers.

 

(d)

Yield — A measure of airline revenue derived by dividing passenger revenue by RPMs.

 

(e)

Passenger revenue per available seat mile (“PRASM”) — Passenger revenues divided by ASMs.

 

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(f)

Operating cost per available seat mile (“CASM”) — Operating expenses divided by ASMs.

 

(g)

Passenger enplanements — The number of passengers on board an aircraft, including local, connecting and through passengers.

 

(h)

Block hours — The hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

 

(i)

Average stage length — The average of the distances flown on each segment of every route.

 

(j)

Average passenger journey — The average one-way trip measured in miles for one passenger origination.

 

(k)

Express statistics include Piedmont and PSA, as well as operating and financial results from capacity purchase agreements with Air Wisconsin Airlines Corporation, Republic Airline Inc., Mesa Airlines, Inc., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc.

 

(l)

Total revenue per available seat mile (“RASM”) — Total revenues divided by total mainline and express ASMs.

Three Months Ended June 30, 2012

Compared with the

Three Months Ended June 30, 2011

Operating Revenues:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating revenues:

              

Mainline passenger

     $ 2,446         $ 2,280           7.3   

Express passenger

       916           835           9.6   

Cargo

       39           43           (10.7

Other

       353           345           2.7   
    

 

 

      

 

 

      

Total operating revenues

     $ 3,754         $ 3,503           7.2   
    

 

 

      

 

 

      

Total operating revenues in the second quarter of 2012 were $3.75 billion as compared to $3.50 billion in the 2011 period, an increase of $251 million, or 7.2%. Significant changes in the components of operating revenues are as follows:

 

   

Mainline passenger revenues were $2.45 billion in the second quarter of 2012 as compared to $2.28 billion in the 2011 period. Mainline RPMs increased 0.9% as mainline capacity, as measured by ASMs, increased 1.4%, resulting in a 0.5 point decrease in load factor to 84.6%. Mainline passenger yield increased 6.3% to 14.91 cents in the second quarter of 2012 from 14.02 cents in the 2011 period. Mainline PRASM increased 5.8% to 12.62 cents in the second quarter of 2012 from 11.93 cents in the 2011 period. These increases in mainline yield and PRASM were due principally to the strong revenue environment resulting from ongoing industry capacity discipline and strong consumer demand for air travel.

 

   

Express passenger revenues were $916 million in the second quarter of 2012 as compared to $835 million in the 2011 period. Express RPMs decreased 1.6% as express capacity, as measured by ASMs, decreased 1.1%, resulting in a 0.5 point decrease in load factor to 76.8%. Express passenger yield increased 11.5% to 32.68 cents in the second quarter of 2012 from 29.32 cents in the 2011 period. Express PRASM increased 10.8% to 25.10 cents in the second quarter of 2012 from 22.65 cents in the 2011 period. These increases in express yield and PRASM were the result of the same strong revenue environment discussed in mainline passenger revenues above. The installation of first class seating on certain US Airways Express regional jets also contributed to the increase.

 

   

Cargo revenues were $39 million in the second quarter of 2012, a decrease of $4 million, or 10.7%, from the 2011 period. The decrease in cargo revenues was primarily due to decreases in international freight volumes driven by uncertainty surrounding the European economy.

 

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Operating Expenses:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating expenses:

              

Aircraft fuel and related taxes

     $ 906         $ 948           (4.4

Salaries and related costs

       674           577           16.8   

Aircraft rent

       161           163           (1.1

Aircraft maintenance

       172           181           (4.6

Other rent and landing fees

       132           145           (9.1

Selling expenses

       126           120           4.5   

Special items, net

       9           6           34.6   

Depreciation and amortization

       61           59           4.2   

Other

       306           316           (3.1
    

 

 

      

 

 

      

Total mainline operating expenses

       2,547           2,515           1.3   

Express expenses:

              

Fuel

       282           287           (2.0

Other

       521           524           (0.5
    

 

 

      

 

 

      

Total express expenses

       803           811           (1.1
    

 

 

      

 

 

      

Total operating expenses

     $ 3,350         $ 3,326           0.7   
    

 

 

      

 

 

      

Total operating expenses were $3.35 billion in the second quarter of 2012, an increase of $24 million, or 0.7%, compared to the 2011 period. The increase in operating expenses was primarily driven by a $97 million, or 16.8%, increase in salaries and related costs, primarily due to our record profitability and the 76% increase in the price of our common stock during the second quarter of 2012. This increase was partially offset by a $47 million, or 3.8%, decrease in mainline and express fuel costs as the average price per gallon of fuel decreased 3.5% to $3.18 in the second quarter of 2012 from $3.29 in the 2011 period, on a 0.4% decrease in consumption.

Mainline Operating Expenses per ASM:

Our mainline CASM decreased 0.01 cents, or 0.1%, from 13.15 cents in the second quarter of 2011 to 13.14 cents in the second quarter of 2012. Excluding special items, fuel and profit sharing our mainline CASM increased 0.09 cents, or 1.1%, from 8.16 cents in the second quarter of 2011 to 8.25 cents in the second quarter of 2012, while mainline capacity increased 1.4%.

The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special items, fuel and profit sharing for the three months ended June 30, 2012 and 2011:

 

                                                                          
       2012      2011      Percent
Increase
(Decrease)
 
       (In cents)         

Mainline CASM:

          

Aircraft fuel and related taxes

       4.67         4.96         (5.7

Salaries and related costs

       3.47         3.02         15.2   

Aircraft rent

       0.83         0.85         (2.5

Aircraft maintenance

       0.89         0.95         (6.0

Other rent and landing fees

       0.68         0.76         (10.4

Selling expenses

       0.65         0.63         3.1   

Special items, net

       0.05         0.03         32.7   

Depreciation and amortization

       0.32         0.31         2.8   

Other

       1.58         1.65         (4.5
    

 

 

    

 

 

    

Total mainline CASM

       13.14         13.15         (0.1

Special items, net

       (0.05      (0.03   

Aircraft fuel and related taxes

       (4.67      (4.96   

Profit sharing

       (0.17      —        
    

 

 

    

 

 

    

Total mainline CASM excluding special items, fuel and profit sharing (1)

       8.25         8.16         1.1   
    

 

 

    

 

 

    

 

(1)

We believe that the presentation of mainline CASM excluding fuel is useful to investors as both the cost and availability of fuel are subject to many economic and political factors beyond our control, and excluding special items and profit sharing provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items, fuel and profit sharing to evaluate our operating performance. Amounts may not recalculate due to rounding.

 

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Significant changes in the components of mainline operating expense per ASM are as follows:

 

   

Aircraft fuel and related taxes per ASM decreased 5.7% primarily due to a 3.9% decrease in the average price per gallon of fuel to $3.17 in the second quarter of 2012 from $3.29 in the 2011 period.

 

   

Salaries and related costs per ASM increased 15.2% primarily due to profit sharing and other incentive compensation expense driven by our record profitability and a 76% increase in the price of our common stock from $7.59 to $13.33 during the second quarter of 2012.

 

   

Aircraft maintenance per ASM decreased 6.0% primarily due to the replacement of certain older Boeing 737 aircraft in our fleet during the 2012 period with new Airbus A320 family aircraft.

 

   

Other rent and landing fees per ASM decreased 10.4% primarily due to the receipt of a rent credit for one of our hubs in the second quarter of 2012.

 

   

Other expenses per ASM decreased 4.5% primarily due to lower passenger inconvenience fees driven by our outstanding operational performance and lower third party reservation fees resulting from the insourcing of our domestic call centers.

Express Operating Expenses:

Total express expenses decreased $8 million, or 1.1%, in the second quarter of 2012 to $803 million from $811 million in the 2011 period. The period-over-period decrease included a $5 million, or 2.0%, decrease in fuel costs. The average price per gallon of fuel decreased 2.2% to $3.20 in the second quarter of 2012 from $3.28 in the 2011 period.

Nonoperating Income (Expense):

 

                                                                          
       2012      2011      Percent
Increase
(Decrease)
 
       (In millions)         

Nonoperating income (expense):

          

Interest income

     $ —         $ 1         (75.1

Interest expense, net

       (85      (79      7.2   

Other, net (a)

       (13      (7      66.0   
    

 

 

    

 

 

    

Total nonoperating expense, net

     $ (98    $ (85      13.9   
    

 

 

    

 

 

    

 

(a)

Other nonoperating expense of $13 million in the second quarter of 2012 consisted primarily of $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the second quarter of 2012 and $3 million in special charges for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.

Other nonoperating expense of $7 million in the second quarter of 2011 consisted primarily of special charges including $6 million for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million for losses related to investments in auction rate securities.

 

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Table of Contents

Six Months Ended June 30, 2012

Compared with the

Six Months Ended June 30, 2011

Operating Revenues:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating revenues:

              

Mainline passenger

     $ 4,562         $ 4,180           9.1   

Express passenger

       1,680           1,520           10.5   

Cargo

       79           86           (8.4

Other

       700           678           3.1   
    

 

 

      

 

 

      

Total operating revenues

     $ 7,021         $ 6,464           8.6   
    

 

 

      

 

 

      

Total operating revenues in the first six months of 2012 were $7.02 billion as compared to $6.46 billion in the 2011 period, an increase of $557 million, or 8.6%. Significant changes in the components of operating revenues are as follows:

 

   

Mainline passenger revenues were $4.56 billion in the first six months of 2012 as compared to $4.18 billion in the 2011 period. Mainline RPMs increased 2.9% as mainline capacity, as measured by ASMs, increased 2.6%, resulting in a 0.2 point increase in load factor to 82.7%. Mainline passenger yield increased 6.0% to 14.86 cents in the first six months of 2012 from 14.01 cents in the 2011 period. Mainline PRASM increased 6.3% to 12.30 cents in the first six months of 2012 from 11.56 cents in the 2011 period. These increases in mainline yield and PRASM were due principally to the strong revenue environment resulting from ongoing industry capacity discipline and strong consumer demand for air travel.

 

   

Express passenger revenues were $1.68 billion in the first six months of 2012 as compared to $1.52 billion in the 2011 period. Express RPMs decreased 0.5% as express capacity, as measured by ASMs, decreased 1.4%, resulting in a 0.7 point increase in load factor to 74.3%. Express passenger yield increased 11.1% to 31.92 cents in the first six months of 2012 from 28.75 cents in the 2011 period. Express PRASM increased 12.1% to 23.73 cents in the first six months of 2012 from 21.17 cents in the 2011 period. These increases in express yield and PRASM were the result of the same strong revenue environment discussed in mainline passenger revenues above. The installation of first class seating on certain US Airways Express regional jets also contributed to the increase.

 

   

Cargo revenues were $79 million in the first six months of 2012, a decrease of $7 million, or 8.4%, from the 2011 period. The decrease in cargo revenues was primarily due to decreases in international freight volumes driven by uncertainty surrounding the European economy.

 

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Operating Expenses:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating expenses:

              

Aircraft fuel and related taxes

     $ 1,766         $ 1,682           5.0   

Salaries and related costs

       1,279           1,149           11.3   

Aircraft rent

       323           327           (1.2

Aircraft maintenance

       336           344           (2.5

Other rent and landing fees

       272           274           (0.8

Selling expenses

       237           220           7.4   

Special items, net

       11           9           20.9   

Depreciation and amortization

       122           119           3.0   

Other

       607           619           (1.9
    

 

 

      

 

 

      

Total mainline operating expenses

       4,953           4,743           4.4   

Express expenses:

              

Fuel

       558           530           5.4   

Other

       1,047           1,053           (0.5
    

 

 

      

 

 

      

Total express expenses

       1,605           1,583           1.4   
    

 

 

      

 

 

      

Total operating expenses

     $ 6,558         $ 6,326           3.7   
    

 

 

      

 

 

      

Total operating expenses were $6.56 billion in the first six months of 2012, an increase of $232 million, or 3.7%, compared to the 2011 period. The increase in operating expenses was primarily driven by a $130 million, or 11.3%, increase in salaries and related costs as well as a $112 million, or 5.1%, increase in mainline and express fuel costs. The increase in salaries and related costs was primarily due to our second quarter 2012 record profitability and the 163% increase in the price of our common stock during the first six months of 2012. Fuel costs increased as the average price per gallon of fuel increased 3.9% to $3.22 in the first six months of 2012 from $3.10 in the 2011 period, on a 1.1% increase in consumption.

Mainline Operating Expenses per ASM:

Our mainline CASM increased 0.23 cents, or 1.7%, from 13.12 cents in the first six months of 2011 to 13.35 cents in the first six months of 2012. Excluding special items, fuel and profit sharing our mainline CASM increased 0.03 cents, or 0.3%, from 8.44 cents in the first six months of 2011 to 8.47 cents in the first six months of 2012, while mainline capacity increased 2.6%.

The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special items, fuel and profit sharing for the six months ended June 30, 2012 and 2011:

 

                                                                          
       2012      2011      Percent
Increase
(Decrease)
 
       (In cents)         

Mainline CASM:

          

Aircraft fuel and related taxes

       4.76         4.65         2.3   

Salaries and related costs

       3.45         3.18         8.5   

Aircraft rent

       0.87         0.90         (3.8

Aircraft maintenance

       0.90         0.95         (5.0

Other rent and landing fees

       0.73         0.76         (3.4

Selling expenses

       0.64         0.61         4.7   

Special items, net

       0.03         0.03         17.8   

Depreciation and amortization

       0.33         0.33         0.3   

Other

       1.64         1.71         (4.5
    

 

 

    

 

 

    

Total mainline CASM

       13.35         13.12         1.7   

Special items, net

       (0.03      (0.03   

Aircraft fuel and related taxes

       (4.76      (4.65   

Profit sharing

       (0.09      —        
    

 

 

    

 

 

    

Total mainline CASM excluding special items, fuel and profit sharing (1)

       8.47         8.44         0.3   
    

 

 

    

 

 

    

 

(1)

We believe that the presentation of mainline CASM excluding fuel is useful to investors as both the cost and availability of fuel are subject to many economic and political factors beyond our control, and excluding special items and profit sharing provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items, fuel and profit sharing to evaluate our operating performance. Amounts may not recalculate due to rounding.

 

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Table of Contents

Significant changes in the components of mainline operating expense per ASM are as follows:

 

   

Aircraft fuel and related taxes per ASM increased 2.3% primarily due to a 3.7% increase in the average price per gallon of fuel to $3.21 in the first six months of 2012 from $3.10 in the 2011 period.

 

   

Salaries and related costs per ASM increased 8.5% during the first six months of 2012 primarily due to profit sharing and other incentive compensation expense driven by our second quarter 2012 record profitability and a 163% increase in the price of our common stock from $5.07 to $13.33 during the first six months of 2012.

 

   

Aircraft maintenance per ASM decreased 5.0% primarily due to the replacement of certain older Boeing 737 aircraft in our fleet during the 2012 period with new Airbus A320 family aircraft.

 

   

Selling expenses per ASM increased 4.7% primarily due to higher credit card fees as a result of the increase in passenger revenues in the 2012 period.

 

   

Other expenses per ASM decreased 4.5% primarily due to lower passenger inconvenience fees driven by our outstanding operational performance and lower third party reservation fees resulting from the insourcing of our domestic call centers.

Express Operating Expenses:

Total express expenses increased $22 million, or 1.4%, in the first six months of 2012 to $1.61 billion from $1.58 billion in the 2011 period. The period-over-period increase included a $28 million, or 5.4%, increase in fuel costs. The average price per gallon of fuel increased 4.6% to $3.25 in the first six months of 2012 from $3.10 in the 2011 period.

Nonoperating Income (Expense):

 

                                                                          
       2012      2011      Percent
Increase
(Decrease)
 
       (In millions)         

Nonoperating income (expense):

          

Interest income

     $ 1       $ 2         (73.9

Interest expense, net

       (167      (156      7.0   

Other, net (a)

       58         (7      nm   
    

 

 

    

 

 

    

Total nonoperating expense, net

     $ (108    $ (161      (32.9
    

 

 

    

 

 

    

 

(a)

Other nonoperating income of $58 million in the first six months of 2012 consisted primarily of a special $73 million gain relating to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1A of this report for more information on the Delta transaction. This gain was partially offset by $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first six months of 2012 and $3 million in special charges for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.

Other nonoperating expense of $7 million in the first six months of 2011 consisted primarily of special charges including $6 million for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million for losses related to investments in auction rate securities.

 

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Table of Contents

US Airways’ Results of Operations

Driven by year-over-year growth in revenues and a decrease in its fuel costs, US Airways realized operating income of $395 million in the second quarter of 2012, representing US Airways’ largest ever quarterly operating profit. US Airways realized income before income taxes of $322 million in the second quarter of 2012. This compares to operating income of $179 million and income before income taxes of $119 million in the 2011 period.

In the first six months of 2012, US Airways realized operating income of $451 million and income before income taxes of $393 million. This compares to operating income of $149 million and income before income taxes of $36 million in the 2011 period. The six month period year-over-year increase in US Airways’ income was driven primarily by its strong second quarter 2012 performance.

US Airways’ results have been impacted by the following net special charges (credits) (in millions):

 

                                                                                                   
       Three Months
Ended June  30,
       Six Months
Ended June 30,
 
       2012        2011        2012      2011  

Mainline operating special items, net (a)

     $ 9         $ 6         $ 11       $ 9   

Nonoperating special items, net (b)

       3           8           (70      8   
    

 

 

      

 

 

      

 

 

    

 

 

 

Total

     $ 12         $ 14         $ (59    $ 17   
    

 

 

      

 

 

      

 

 

    

 

 

 

 

(a)

The 2012 and 2011 second quarter and six month periods consisted primarily of corporate transaction and auction rate securities arbitration costs. The 2012 second quarter and six month periods also included a gain on a vendor settlement.

 

(b)

The 2012 second quarter consisted of debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft. The 2012 six month period consisted of a $73 million gain recognized in March 2012 relating to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1B of this report for more information on the Delta transaction. This gain was partially offset by $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs discussed above.

The 2011 second quarter and six month periods each consisted of $6 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million of losses related to investments in auction rate securities.

At December 31, 2011, US Airways had approximately $1.85 billion of gross NOLs to reduce future federal taxable income. All of US Airways’ NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. US Airways’ net deferred tax assets, which include $1.78 billion of the NOLs, are subject to a full valuation allowance. US Airways also had approximately $79 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $349 million and $61 million, respectively. In accordance with GAAP, utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset US Airways’ tax provision dollar for dollar.

For each of the three and six month periods ended June 30, 2012 and 2011, US Airways did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs may be limited or unavailable to be used.

When profitable, US Airways is ordinarily subject to AMT. However as the result of a special tax election made in 2009, US Airways was able to utilize AMT NOLs to fully offset its AMT taxable income in each of the three and six month periods ended June 30, 2012.

 

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Table of Contents

The table below sets forth US Airways’ selected mainline and express operating data:

 

     Three Months Ended
June  30,
     Increase     Six Months Ended
June  30,
     Increase  
     2012      2011      (Decrease)     2012      2011      (Decrease)  

Mainline

                

Revenue passenger miles (millions) (a)

     16,403         16,260         0.9     30,704         29,830         2.9

Available seat miles (millions) (b)

     19,387         19,116         1.4     37,105         36,151         2.6

Passenger load factor (percent) (c)

     84.6         85.1         (0.5 )pts      82.7         82.5         0.2 pts 

Yield (cents) (d)

     14.91         14.02         6.3     14.86         14.01         6.0

Passenger revenue per available seat mile (cents) (e)

     12.62         11.93         5.8     12.30         11.56         6.3

Aircraft at end of period

     339         338         0.3     339         338         0.3

Fuel consumption (gallons in millions)

     286         288         (0.5 )%      550         543         1.2

Average aircraft fuel price including related taxes (dollars per gallon)

     3.17         3.29         (3.9 )%      3.21         3.10         3.7

Express (f)

                

Revenue passenger miles (millions) (a)

     2,803         2,850         (1.6 )%      5,262         5,288         (0.5 )% 

Available seat miles (millions) (b)

     3,649         3,688         (1.1 )%      7,078         7,180         (1.4 )% 

Passenger load factor (percent) (c)

     76.8         77.3         (0.5 )pts      74.3         73.6         0.7 pts 

Yield (cents) (d)

     32.68         29.32         11.5     31.92         28.75         11.1

Passenger revenue per available seat mile (cents) (e)

     25.10         22.65         10.8     23.73         21.17         12.1

Aircraft at end of period

     288         281         2.5     288         281         2.5

Fuel consumption (gallons in millions)

     88         88         0.2     172         171         0.7

Average aircraft fuel price including related taxes (dollars per gallon)

     3.21         3.28         (2.2 )%      3.25         3.11         4.6

Total Mainline and Express

                

Revenue passenger miles (millions) (a)

     19,206         19,110         0.5     35,966         35,118         2.4

Available seat miles (millions) (b)

     23,036         22,804         1.0     44,183         43,331         2.0

Passenger load factor (percent) (c)

     83.4         83.8         (0.4 )pts      81.4         81.0         0.4 pts 

Yield (cents) (d)

     17.50         16.30         7.4     17.36         16.23         6.9

Passenger revenue per available seat mile (cents) (e)

     14.59         13.66         6.8     14.13         13.15         7.4

Total revenue per available seat mile (cents) (g)

     16.47         15.54         6.0     16.07         15.09         6.5

Aircraft at end of period

     627         619         1.3     627         619         1.3

Fuel consumption (gallons in millions)

     374         376         (0.4 )%      722         714         1.1

Average aircraft fuel price including related taxes (dollars per gallon)

     3.18         3.29         (3.5 )%      3.22         3.10         3.9

 

(a)

Revenue passenger mile (“RPM”) — A basic measure of sales volume. One RPM represents one passenger flown one mile.

 

(b)

Available seat mile (“ASM”) — A basic measure of production. One ASM represents one seat flown one mile.

 

(c)

Passenger load factor — The percentage of available seats that are filled with revenue passengers.

 

(d)

Yield — A measure of airline revenue derived by dividing passenger revenue by RPMs.

 

(e)

Passenger revenue per available seat mile (“PRASM”) — Passenger revenues divided by ASMs.

 

(f)

Express statistics include Piedmont and PSA, as well as operating and financial results from capacity purchase agreements with Air Wisconsin Airlines Corporation, Republic Airline Inc., Mesa Airlines, Inc., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc.

 

(g)

Total revenue per available seat mile (“RASM”) — Total revenues divided by total mainline and express ASMs.

 

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Table of Contents

Three Months Ended June 30, 2012

Compared with the

Three Months Ended June 30, 2011

Operating Revenues:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating revenues:

              

Mainline passenger

     $ 2,446         $ 2,280           7.3   

Express passenger

       916           835           9.6   

Cargo

       39           43           (10.7

Other

       394           386           2.5   
    

 

 

      

 

 

      

Total operating revenues

     $ 3,795         $ 3,544           7.1   
    

 

 

      

 

 

      

Total operating revenues in the second quarter of 2012 were $3.80 billion as compared to $3.54 billion in the 2011 period, an increase of $251 million, or 7.1%. Significant changes in the components of operating revenues are as follows:

 

   

Mainline passenger revenues were $2.45 billion in the second quarter of 2012 as compared to $2.28 billion in the 2011 period. Mainline RPMs increased 0.9% as mainline capacity, as measured by ASMs, increased 1.4%, resulting in a 0.5 point decrease in load factor to 84.6%. Mainline passenger yield increased 6.3% to 14.91 cents in the second quarter of 2012 from 14.02 cents in the 2011 period. Mainline PRASM increased 5.8% to 12.62 cents in the second quarter of 2012 from 11.93 cents in the 2011 period. These increases in mainline yield and PRASM were due principally to the strong revenue environment resulting from ongoing industry capacity discipline and strong consumer demand for air travel.

 

   

Express passenger revenues were $916 million in the second quarter of 2012 as compared to $835 million in the 2011 period. Express RPMs decreased 1.6% as express capacity, as measured by ASMs, decreased 1.1%, resulting in a 0.5 point decrease in load factor to 76.8%. Express passenger yield increased 11.5% to 32.68 cents in the second quarter of 2012 from 29.32 cents in the 2011 period. Express PRASM increased 10.8% to 25.10 cents in the second quarter of 2012 from 22.65 cents in the 2011 period. These increases in express yield and PRASM were the result of the same strong revenue environment discussed in mainline passenger revenues above. The installation of first class seating on certain US Airways Express regional jets also contributed to the increase.

 

   

Cargo revenues were $39 million in the second quarter of 2012, a decrease of $4 million, or 10.7%, from the 2011 period. The decrease in cargo revenues was primarily due to decreases in international freight volumes driven by uncertainty surrounding the European economy.

 

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Operating Expenses:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating expenses:

              

Aircraft fuel and related taxes

     $ 906         $ 948           (4.4

Salaries and related costs

       674           577           16.8   

Aircraft rent

       161           163           (1.1

Aircraft maintenance

       172           181           (4.6

Other rent and landing fees

       132           145           (9.1

Selling expenses

       126           120           4.5   

Special items, net

       9           6           34.6   

Depreciation and amortization

       64           61           4.1   

Other

       315           326           (3.2
    

 

 

      

 

 

      

Total mainline operating expenses

       2,559           2,527           1.3   

Express expenses:

              

Fuel

       282           288           (2.0

Other

       559           550           1.7   
    

 

 

      

 

 

      

Total express expenses

       841           838           0.4   
    

 

 

      

 

 

      

Total operating expenses

     $ 3,400         $ 3,365           1.1   
    

 

 

      

 

 

      

Total operating expenses were $3.40 billion in the second quarter of 2012, an increase of $35 million, or 1.1%, compared to the 2011 period. The increase in operating expenses was primarily driven by a $97 million, or 16.8%, increase in salaries and related costs, primarily due to US Airways’ record profitability and the 76% increase in the price of US Airways Group’s common stock during the second quarter of 2012. This increase was partially offset by a $48 million, or 3.8%, decrease in mainline and express fuel costs as the average price per gallon of fuel decreased 3.5% to $3.18 in the second quarter of 2012 from $3.29 in the 2011 period on a 0.4% decrease in consumption.

Mainline Operating Expenses:

Significant changes in the components of mainline operating expenses are as follows:

 

   

Aircraft fuel and related taxes decreased 4.4% primarily due to a 3.9% decrease in the average price per gallon of fuel to $3.17 in the second quarter of 2012 from $3.29 in the 2011 period.

 

   

Salaries and related costs increased 16.8% primarily due to profit sharing and other incentive compensation expense driven by US Airways’ record profitability and a 76% increase in the price of US Airways Group’s common stock from $7.59 to $13.33 during the second quarter of 2012.

 

   

Aircraft maintenance decreased 4.6% primarily due to the replacement of certain older Boeing 737 aircraft in US Airways’ fleet during the 2012 period with new Airbus A320 family aircraft.

 

   

Other rent and landing fees decreased 9.1% primarily due to the receipt of a rent credit for one of US Airways’ hubs in the second quarter of 2012.

 

   

Other expenses decreased 3.2% primarily due to lower passenger inconvenience fees driven by US Airways’ outstanding operational performance and lower third party reservation fees resulting from the insourcing of US Airways’ domestic call centers.

 

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Express Operating Expenses:

Total express expenses increased $3 million, or 0.4%, in the second quarter of 2012 to $841 million from $838 million in the 2011 period.

Nonoperating Income (Expense):

 

                                                                          
       2012      2011      Percent
Increase
(Decrease)
 
       (In millions)         

Nonoperating income (expense):

          

Interest income

     $ —         $ 1         (75.1

Interest expense, net

       (60      (53      12.7   

Other, net (a)

       (13      (8      65.8   
    

 

 

    

 

 

    

Total nonoperating expense, net

     $ (73    $ (60      21.6   
    

 

 

    

 

 

    

 

(a)

Other nonoperating expense of $13 million in the second quarter of 2012 consisted primarily of $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the second quarter of 2012 and $3 million in special charges for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.

Other nonoperating expense of $8 million in the second quarter of 2011 consisted primarily of special charges including $6 million for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million for losses related to investments in auction rate securities.

 

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Six Months Ended June 30, 2012

Compared with the

Six Months Ended June 30, 2011

Operating Revenues:

 

                                                                          
       2012        2011        Percent
Increase
(Decrease)
 
       (In millions)           

Operating revenues:

              

Mainline passenger

     $ 4,562         $ 4,180           9.1   

Express passenger

       1,680           1,520           10.5   

Cargo

       79           86           (8.4

Other

       778           751           3.5   
    

 

 

      

 

 

      

Total operating revenues

     $ 7,099         $ 6,537           8.6   
    

 

 

      

 

 

      

Total operating revenues in the first six months of 2012 were $7.10 billion as compared to $6.54 billion in the 2011 period, an increase of $562 million, or 8.6%. Significant changes in the components of operating revenues are as follows:

 

   

Mainline passenger revenues were $4.56 billion in the first six months of 2012 as compared to $4.18 billion in the 2011 period. Mainline RPMs increased 2.9% as mainline capacity, as measured by ASMs, increased 2.6%, resulting in a 0.2 point increase in load factor to 82.7%. Mainline passenger yield increased 6.0% to 14.86 cents in the first six months of 2012 from 14.01 cents in the 2011 period. Mainline PRASM increased 6.3% to 12.30 cents in the first six months of 2012 from 11.56 cents in the 2011 period. These increases in mainline yield and PRASM were due principally to the strong revenue environment resulting from ongoing industry capacity discipline and strong consumer demand for air travel.

 

   

Express passenger revenues were $1.68 billion in the first six months of 2012 as compared to $1.52 billion in the 2011 period. Express RPMs decreased 0.5% as express capacity, as measured by ASMs, decreased 1.4%, resulting in a 0.7 point increase in load factor to 74.3%. Express passenger yield increased 11.1% to 31.92 cents in the first six months of 2012 from 28.75 cents in the 2011 period. Express PRASM increased 12.1% to 23.73 cents in the first six months of 2012 from 21.17 cents in the 2011 period. These increases in express yield and PRASM were the result of the same strong revenue environment discussed in mainline passenger revenues above. The installation of first class seating on certain US Airways Express regional jets also contributed to the increase.

 

   

Cargo revenues were $79 million in the first six months of 2012, a decrease of $7 million, or 8.4%, from the 2011 period. The decrease in cargo revenues was primarily due to decreases in international freight volumes driven by uncertainty surrounding the European economy.

 

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Operating Expenses: