updated 4/29/2005 1:00:05 PM ET 2005-04-29T17:00:05

Bankrupt US Airways Group Inc.’s losses widened by 8 percent to $191 million in the first three months of 2005 as steep fuel costs and cheap fares undermined the airline’s cost-cutting efforts.

If you exclude one-time items associated with the company’s bankruptcy, the losses would have been even more severe, at $280 million.

The airline, which is seeking a new investor or a possible merger with America West Holdings Corp. to lift it out of bankruptcy, cut its personnel costs by 26 percent, or $164 million, from $641 million in the year-ago quarter to $477 million.

The cuts were the result of tough negotiations with the airline’s unions, in which many unions agreed to steep pay cuts to avoid having an even worse deal forced upon them by the bankruptcy court.

But nearly every dollar in personnel savings was gobbled up by a 58 percent increase in fuel costs. Aviation fuel costs jumped from $233 million in the year-ago quarter to $368 million.

Meanwhile, on the revenue side, the airline continued to be squeezed by low-fare competitors, including Southwest Airlines Co., which last year began operations at US Airways’ hub in Philadelphia.

Passenger revenue, which accounts for 89 percent of the corporation’s entire revenue, was down 4.4 percent, from $1.51 billion in the year-ago quarter to $1.45 billion.

The revenue drop occurred despite a 6 percent increase in mainline revenue passenger miles, the standard industry measure for passenger traffic. That means the airline was carrying more passengers for less money in an effort to compete with the low-fare carriers.

“We find ourselves in the same situation as most of the industry, where fuel costs cannot be fully recovered through traffic growth and incremental fare increases,” US Airways chief executive Bruce Lakefield said in a statement.

The company reported $513 million in unrestricted cash as of March 31, compared to $978 million on March 31, 2004. The cash reserves are crucial to the company’s ability to receive continued financing from the federal Air Transportation Stabilization Board. If cash reserves drop below $300 million, the ATSB could find US Airways in default on its loan.

The second quarter is historically US Airways’ best period from a financial perspective, and the company had previously projected that its cash reserves would increase over the next three months. It is unclear, though, if those projections hold true in the current environment.

Lakefield said the airline is continuing talks with potential investors to provide additional financing that would allow the airline to emerge from bankruptcy. Two regional airlines have already agreed to invest a combined $250 million, but the airline has said it needs at least $100 million more. It has been in talks with America West, the nation’s eighth-largest airline, about a merger deal that would include new financing.

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