updated 5/9/2006 8:07:02 PM ET 2006-05-10T00:07:02

Shares of US Airways Group Inc. surged more than 9 percent Tuesday after the airline posted a first-quarter profit, surprising analysts who expected a loss for the quarter.

The Tempe-based airline, created in September by the combination of bankrupt US Airways and America West Airlines, reported quarterly earnings of $65 million, or 76 cents per share, compared with a loss of $174 million, or $6.58 per share, a year ago. Excluding special items, the company posted a profit of $5 million, or 5 cents per share, versus a loss of $16 million, or $1.09 per share, in the year-earlier quarter.

Analysts on average expected a loss of 16 cents per share, according to a Thomson Financial poll.

“Those guys deserve the accolades,” said Ray Neidl, an analyst with Calyon Securities Inc. who tracks the airline industry and estimated a 20 cent per-share loss for the quarter. “Making a profit in the first quarter with $75 per barrel oil is quite a feat.”

Shares of US Airways closed up $4.33, or 9.15 percent, at $51.63 after earlier rising more than 10 percent in trading on the New York Stock Exchange. The close was its highest since shares in the new company began trading on Sept. 27.

Solid demand and fewer overall flights allowed the airline to increase fares an average of 20 percent over the year, which helped US Airways’ push to profitability despite skyrocketing fuel costs, president and CEO Doug Parker said. The former US Airways — hurt by its bankruptcy filing and subsequent passenger defections — had been hemorrhaging cash as it tried to retain fliers before the deal with America West.

“US Airways got in the mode of deeply discounting ... because they felt they had to,” Parker said. “We don’t think we have to do that anymore.”

Parker said he now expects the company to post a full year profit, including ongoing costs to integrate the two airline systems. Earlier guidance had the company on track to turn a profit before accounting for those costs.

“The fact is, we know we still have a lot of work to do and we are well on our way to getting that work done,’ Parker said.

Parker cheered the company’s 25,000 employees for stepping up to the plate and driving it to profitability. But there’s still plenty of issues for the airline — including those very employees, who are working under transitional contracts and are in negotiations for a firm deal.

Parker said the airline’s goal is to put contracts in place that don’t increase costs that now are in line to be competitive. A statement from the Air Line Pilots Association said the two pilots unions at the airline are working to get a single contract that rewards them for their efforts.

Other issues for US Airways include fixing problematic baggage systems in Philadelphia and merging complex operations across the company.

Some success had already been apparent. The company improved on-time performance to a No. 1 ranking among major airlines in the fourth quarter of 2005 and first quarter of 2006, according to Department of Transportation figures. It merged operations at 30 of 37 airports where both airlines operated, refinanced $1.25 billion in debt and started recalling pilots, flight attendants and bringing outsourced reservations work back in-house.

Among the nuts and bolts expenses that comes with merging two major airlines: $5 million spent repainting planes in the first quarter, with more to come.

US Airways said its results are compared with America West’s standalone results for the first quarter of 2005, before America West acquired US Airways in September 2005. The combination was structured so that America West — the acquiring company — became a subsidiary of US Airways Group.

Per-share results were affected by a change in the number of shares outstanding: About 93.4 million in the recent quarter versus 25.7 million in the 2005 quarter.

Operating revenue surged to $2.65 billion from $733 million a year ago. Analysts’ revenue target for the recent quarter was $2.61 billion.

Passenger traffic more than doubled in the quarter to 16.39 billion revenue passenger miles from 6.37 billion the year before. A revenue passenger mile equals one paying passenger flown one mile.

Soaring fuel costs weighed on the company’s earnings, although they were tempered somewhat by a hedging program. The company estimated it spent $183 million more than it would have if fuel had been the same price as in the year-earlier period. The company said its fuel hedging program saved it $26 million.

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