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| LCC > SEC Filings for LCC > Form 10-K on 20-Feb-2013 | All Recent SEC Filings |
20-Feb-2013
Annual Report
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, PSA, MSC and AAL. Effective upon US Airways Group's emergence from bankruptcy on September 27, 2005, US Airways Group merged with America West Holdings, with US Airways Group as the surviving corporation.
We operate the fifth largest airline in the United States as measured by domestic RPMs and 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 3,000 flights daily to 198 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. We had approximately 54 million passengers boarding our mainline flights in 2012. As of December 31, 2012, we operated 340 mainline jets and are supported by our regional airline subsidiaries and affiliates operating as US Airways Express under capacity purchase agreements, which operated 238 regional jets and 44 turboprops. Our prorate carriers operated four regional jets at December 31, 2012.
2012 Year in Review
The U.S. Airline Industry
Even against a backdrop of uncertain economic conditions and high fuel prices, most of the U.S. industry experienced a profitable 2012 as consumer demand remained strong.
In its most recent data available, Airlines for America, the trade association
for U.S. airlines, reported that annual U.S. industry passenger revenues and
yields increased 3.8% and 3.2%, respectively, as compared to 2011.
Year-over-year growth rates were lower than experienced in 2011 due primarily to
more difficult year-over-year comparisons. With respect to international versus
domestic revenue performance, Airlines for America reported domestic markets
outperformed international markets, which experienced weaker demand due to the
economic uncertainty in Europe during 2012.
Throughout 2012, jet fuel prices followed the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. On average, fuel costs were up slightly in 2012 as compared to 2011. The Brent crude oil average daily spot price was $112 per barrel during 2012 as compared to $111 in 2011. However, on a daily basis, prices continued to be volatile. Throughout 2012, daily spot prices fluctuated between a high of $128 per barrel in March to a low of $89 per barrel in June and closed the year at $111 per barrel on December 31, 2012.
While the U.S. airline industry is currently benefiting from a favorable revenue environment and moderating fuel price increases as described above, uncertainty exists regarding the economic conditions driving these factors. See Part I, 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 year ending December 31, 2012, we reported our largest annual net profit and achieved our best operational performance in the Company's history.
Driven by strong year-over-year growth in revenues, we realized net income of $637 million in 2012, which represents a 797% increase over net income of $71 million in 2011. Operating income was $856 million as compared to $426 million in 2011, an increase of 101%. Our 2012 net profit included net special credits of $100 million, while 2011 included net special charges of $40 million. See "Reconciliation of GAAP to Non-GAAP Financial Measures" included in Part II, Item 6 of this report for more information on net special items. As described in more detail below, these outstanding financial results were coupled with record annual operational results in on-time performance, completion factor and baggage handling.
For the fourth quarter, a period in which passenger demand has been historically low and our results were negatively impacted by an estimated $35 million due to Hurricane Sandy, we realized net income of $37 million, which represents a 106% increase over net income of $18 million in 2011. Operating income was $125 million, as compared to operating income of $108 million in 2011, an increase of 16%.
Revenue
Mainline and express passenger revenues increased $743 million, or 6.4%, as compared to 2011. The growth in revenues was driven by a 2.8% increase in revenue passenger miles and a 3.5% increase in yield, as total capacity increased 2.0% as compared to 2011. Our mainline and express passenger revenue per available seat mile ("PRASM") was 13.92 cents in 2012, a 4.3% increase, as compared to 13.34 cents in 2011. Total revenue per available seat mile ("RASM") was 15.64 cents in 2012, a 3.9% increase, as compared to 15.06 cents in 2011. Total revenues include our ancillary revenue initiatives, which generated $585 million in revenues in 2012, an increase of $48 million over 2011 principally related to our Choice Seats Program.
Fuel
Mainline and express fuel expense increased $131 million to $4.59 billion in 2012, which was 2.9% higher than 2011, on a 0.9% increase in consumption. The average mainline and express price per gallon of fuel was $3.17 in 2012 as compared to an average price per gallon of $3.11 in 2011, an increase of 2.0%. We have not entered into any transactions to hedge our fuel consumption.
Capacity
Total system capacity for 2012 increased 2.0% as compared to 2011. The increase in capacity was driven by our strong operating performance, which led to higher completion factors, and our fleet replacement program. During 2012 we replaced 15 Boeing 737 aircraft with 12 larger gauge, more modern and fuel-efficient new Airbus A321 aircraft.
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 0.04 cents, or 0.5%, from 8.35 cents in 2011 to 8.39 cents in 2012. This increase was primarily due to higher costs associated with other variable compensation programs driven by our record profitability and a 166% increase in the price of our common stock from $5.07 to $13.50 during 2012.
The following table details our mainline CASM for the years ended December 31, 2012 and 2011:
Percent
Increase
2012 2011 (Decrease)
(In cents)
Mainline CASM excluding special items, fuel and profit
sharing:
Total mainline CASM 13.22 13.09 1.1
Special items, net (0.05 ) (0.03 ) 38.3
Aircraft fuel and related taxes (4.70 ) (4.68 ) 0.4
Profit sharing (0.08 ) (0.02 ) nm
Total mainline CASM excluding special items, fuel and
profit sharing (1) 8.39 8.35 0.5
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(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.
Customer Service
We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation.
During 2012 we continued our work to enhance our customers' experience. As described above in our discussion of capacity, we are continuing our fleet replacement program and replacing older aircraft with larger more modern and fuel-efficient new Airbus aircraft. Additionally, we completed the installation of the Envoy Suite, the airline's fully lie-flat business-class seats with an on-demand in-flight entertainment system, on our fleet of wide-body Airbus A330-300 aircraft, expanded our Wi-Fi internet service to more than 80% of our domestic Embraer and Airbus narrow body fleet, and launched our PreferredAccess program, which gives our customers priority check in and boarding. In 2012, we also launched DineFresh, a premium meal option for customers flying in Economy class to Europe, the Middle East and South America, and we are the only U.S.-based carrier to offer this service.
Outstanding efforts from our employees drove record operational performance in 2012, as we achieved our best on-time performance, highest completion factor and lowest mishandled baggage ratio in our Company's history. During 2012 we also earned three first place monthly rankings for on-time performance and three first place monthly rankings for baggage handling among the big hub-and-spoke carriers as reported by the DOT Air Travel Consumer Report.
We reported the following operating statistics to the DOT for mainline operations for the years ended December 31, 2012 and 2011:
Better
2012 2011 (Worse)
On-time performance (a) 85.9 79.8 6.1 pts
Completion factor (b) 99.0 98.4 0.6 pts
Mishandled baggage (c) 2.14 2.70 20.7 %
Customer complaints (d) 1.74 1.92 9.4 %
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(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.
Liquidity Position
As of December 31, 2012, our total cash, cash equivalents, investments in
marketable securities and restricted cash was $2.71 billion, of which $336
million was restricted.
December 31, December 31,
2012 2011
(In millions)
Cash, cash equivalents and investments in
marketable securities $ 2,376 $ 1,947
Long-term restricted cash 336 365
Total cash, cash equivalents, investments in
marketable securities and restricted cash $ 2,712 $ 2,312
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The improvement in our liquidity in 2012 was due primarily to our record profitability resulting from the strong revenue environment. 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.
2013 Outlook
We have taken significant actions over the last few years to align capacity with demand, focus our network on our four key markets, introduce new ancillary revenue streams, control costs and continue our exceptional operating reliability. Although it is difficult to predict the price of oil, the strength of the economy or the capacity actions of other airlines, we believe that we are positioned well.
US Airways Group's Results of Operations
In 2012, we realized operating income of $856 million and income before income taxes of $637 million. We experienced growth in revenues in 2012 due to a strong pricing environment resulting from ongoing industry capacity discipline and consumer demand for air travel. Our 2012 results were also impacted by recognition of $100 million in net special credits.
In 2011, we realized operating income of $426 million and income before income taxes of $90 million. We experienced higher revenues in 2011 due to the strong pricing environment resulting from ongoing industry capacity discipline and robust consumer demand for air travel, which substantially offset a significant increase in fuel costs. Our 2011 results were also impacted by recognition of $19 million in net special charges.
In 2010, we realized operating income of $781 million and income before income taxes of $502 million. We experienced growth in revenues in 2010 driven by higher yields as a result of the improved economy and industry capacity discipline. Our 2010 results were also impacted by recognition of $55 million in net special credits.
The table below presents our pre-tax special charges (credits) (in millions):
Year Ended December 31,
2012 2011 2010
Mainline operating special items, net (a) $ 34 $ 24 $ 5
Express operating special items, net 3 2 (1 )
Nonoperating special items, net (b) (137 ) (7 ) (59 )
Total $ (100 ) $ 19 $ (55 )
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(a) The 2012 and 2011 periods consisted primarily of corporate transaction and auction rate securities arbitration costs.
The 2010 period consisted of a $6 million non-cash charge related to the decline in value of certain spare parts, $5 million in aircraft costs related to capacity reductions and other net special charges of $10 million, which included a settlement and corporate transaction costs. These costs were offset in part by a $16 million refund of Aviation Security Infrastructure Fee ("ASIF") previously paid to the TSA during the years 2005 to 2009.
(b) The 2012 period primarily consisted of a $142 million gain related to the slot transaction with Delta, offset in part by $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.
The 2011 period consisted of a $15 million credit in connection with an award received in an arbitration involving investments in auction rate securities, offset in part by $6 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs as well as $2 million of losses related to investments in auction rate securities.
The 2010 period consisted of $53 million of net realized gains related to the sale of certain investments in auction rate securities as well as an $11 million settlement gain, offset in part by $5 million in non-cash charges related to the write off of debt issuance costs.
At December 31, 2012, we had approximately $1.50 billion of gross NOLs to reduce future federal taxable income. To the extent profitable, all of our NOLs are expected to be available to reduce federal taxable income in the calendar year 2013. The NOLs expire during the years 2025 through 2031. Our net deferred tax assets, which include $1.42 billion of the NOLs, are subject to a full valuation allowance. At December 31, 2012, the federal and state valuation allowances were $118 million and $42 million, respectively, which includes $32 million allocated to certain capital loss carryforwards. 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.
When profitable, we are ordinarily subject to 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 for each of the years ended 2012, 2011 and 2010.
For the year ended December 31, 2012, we recognized an AMT credit of $2 million resulting from our elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In addition, we did not record federal income tax expense and recorded $2 million of state income tax expense related to certain states where NOLs were limited or unavailable to be used.
For the year ended December 31, 2011, we recorded a special non-cash tax charge of $21 million in connection with the sale of our final remaining investment in auction rate securities in July 2011. This charge recognized in the statement of operations the tax provision that was recorded in other comprehensive income, a subset of stockholders' equity, in the fourth quarter of 2009. In addition, we recognized an AMT credit of $2 million resulting from our elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. We did not record any additional federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.
For the year ended December 31, 2010, we did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.
The table below sets forth our selected mainline and express operating data:
Increase Increase
Year Ended December 31, (Decrease) (Decrease)
2012 2011 2010 2012-2011 2011-2010
Mainline
Revenue passenger miles (millions)
(a) 62,435 60,779 58,977 2.7 % 3.1 %
Available seat miles (millions) (b) 74,211 72,603 71,588 2.2 % 1.4 %
Passenger load factor (percent) (c) 84.1 83.7 82.4 0.4 pts 1.3 pts
Yield (cents) (d) 14.38 13.99 12.96 2.8 % 7.9 %
Passenger revenue per available seat
mile (cents) (e) 12.10 11.71 10.68 3.3 % 9.6 %
Operating cost per available seat
mile (cents) (f) 13.22 13.09 11.73 1.1 % 11.6 %
Passenger enplanements (thousands)
(g) 54,277 52,959 51,853 2.5 % 2.1 %
Departures (thousands) 449 452 451 (0.5 )% 0.2 %
Aircraft at end of period 340 340 339 - % 0.3 %
Block hours (thousands) (h) 1,209 1,217 1,199 (0.7 )% 1.6 %
Average stage length (miles) (i) 1,004 991 981 1.4 % 0.9 %
Average passenger journey (miles) (j) 1,704 1,691 1,674 0.8 % 1.0 %
Fuel consumption (gallons in
millions) 1,102 1,095 1,073 0.6 % 2.0 %
Average aircraft fuel price including
related taxes (dollars per gallon) 3.17 3.11 2.24 2.0 % 38.7 %
Full time equivalent employees at end
of period 31,236 31,548 30,871 (1.0 )% 2.2 %
Express (k)
Revenue passenger miles (millions)
(a) 10,883 10,542 10,616 3.2 % (0.7 )%
Available seat miles (millions) (b) 14,214 14,070 14,230 1.0 % (1.1 )%
Passenger load factor (percent) (c) 76.6 74.9 74.6 1.7 pts 0.3 pts
Yield (cents) (d) 30.56 29.03 26.57 5.3 % 9.3 %
Passenger revenue per available seat
mile (cents) (e) 23.40 21.75 19.83 7.6 % 9.7 %
Operating cost per available seat
mile (cents) (f) 22.24 22.23 19.18 0.1 % 15.9 %
Passenger enplanements (thousands)
(g) 28,269 27,613 27,707 2.4 % (0.3 )%
Aircraft at end of period 282 283 281 (0.4 )% 0.7 %
Fuel consumption (gallons in
millions) 345 338 336 1.9 % 0.5 %
Average aircraft fuel price including
related taxes (dollars per gallon) 3.19 3.12 2.29 2.0 % 36.7 %
Total Mainline and Express
Revenue passenger miles (millions)
(a) 73,318 71,321 69,593 2.8 % 2.5 %
Available seat miles (millions) (b) 88,425 86,673 85,818 2.0 % 1.0 %
Passenger load factor (percent) (c) 82.9 82.3 81.1 0.6 pts 1.2 pts
Yield (cents) (d) 16.78 16.21 15.04 3.5 % 7.8 %
Passenger revenue per available seat
mile (cents) (e) 13.92 13.34 12.20 4.3 % 9.4 %
Total revenue per available seat mile
(cents) (l) 15.64 15.06 13.88 3.9 % 8.5 %
Passenger enplanements (thousands)
(g) 82,546 80,572 79,560 2.5 % 1.3 %
Aircraft at end of period 622 623 620 (0.2 )% 0.5 %
Fuel consumption (gallons in
millions) 1,447 1,433 1,409 0.9 % 1.7 %
Average aircraft fuel price including
related taxes (dollars per gallon) 3.17 3.11 2.25 2.0 % 38.2 %
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(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.
(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.
2012 Compared With 2011
Operating Revenues:
Percent
Increase
2012 2011 (Decrease)
(In millions)
Operating revenues:
Mainline passenger $ 8,979 $ 8,501 5.6
Express passenger 3,326 3,061 8.7
Cargo 155 170 (8.4 )
Other 1,371 1,323 3.6
Total operating revenues $ 13,831 $ 13,055 5.9
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Total operating revenues in 2012 were $13.83 billion as compared to $13.06 billion in 2011, an increase of $776 million, or 5.9%. Significant changes in the components of operating revenues are as follows:
• Mainline passenger revenues were $8.98 billion in 2012 as compared to $8.50 billion in 2011. Mainline RPMs increased 2.7% as mainline capacity, as measured by ASMs, increased 2.2%, resulting in a 0.4 point increase in load factor to 84.1%. Mainline passenger yield increased 2.8% to 14.38 cents in 2012 from 13.99 cents in 2011. Mainline PRASM increased 3.3% to 12.10 cents in 2012 from 11.71 cents in 2011. These increases in mainline yield and PRASM were due principally to the strong revenue environment resulting from ongoing industry capacity discipline and consumer demand for air travel.
• Express passenger revenues were $3.33 billion in 2012 as compared to $3.06 billion in 2011. Express RPMs increased 3.2% as express capacity, as measured by ASMs, increased 1.0%, resulting in a 1.7 point increase in . . .
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