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US Airways prospects looking up in 2008

US Airways Group Inc. is eager to ring in the new year after getting beat up on Wall Street in 2007.
/ Source: The Associated Press

US Airways Group Inc. is eager to ring in the new year after getting beat up on Wall Street in 2007.

Though the company consistently surpassed analysts' earnings expectations, shares for the Tempe, Ariz.-based carrier have taken a 12-month nose dive. By December, investors saw their stock drop three-quarters in value.

US Airways shares reached a 52-week low of $14.41 from a high of $62.50, while the AMEX Airline Index of major carriers fell to $34.29 from a high of $66.92.

Surging oil prices are certainly to blame for sinking US Airways stock along with every other airline. But the carrier also endured a regular stream of bad news as management struggled to combine operations two years after America West Airlines bought the former US Airways.

In January, US Airways whiffed on a hostile bid for Delta Air Lines. Then check-in kiosks temporarily failed in March as the company combined reservations systems, and a spring ice storm stranded thousands of passengers.

The unions rebuffed management's efforts to merge staffs from the former America West and US Airways. Meanwhile, customers ranked US Airways at the bottom of the industry in service.

Company officials point to a number of reasons to be optimistic in 2008.

They've fixed a glitch-prone reservations system, and in September the Federal Aviation Administration awarded the combined airlines a single operating certificate. They've hired former Northwest Airlines executive Robert Isom to smooth out the airline's operation. And as passengers clogged airports during the busy holiday travel season, US Airways posted its best on-time performance of the year.

"Now is a time where we can all get together, get on the same page, get a new play book and go forward," US Airways spokesman Phil Gee said.

Still, if the carrier is going to have a better year in 2008, it's going to have to deal with a number of issues that President Scott Kirby has told analysts investors say weigh on its stock.

If its customers are any indication, US Airways has a lot of work to do. The carrier posted a higher rate of customer complaints than any other major carrier throughout much of the 2007. During parts of the year, US Airways also had the worst record on mishandled baggage and late flights.

In response, the company has added a few more minutes between flights to help its schedule run smoothly.

"It's something we needed to do to get the airline back on track," Gee said.

"If you run your operation on time, you're not going to have misconnected bags, misconnected passengers. Everything kind of falls in line if you run an on-time airline."

In November, the carrier posted its best on-time performance of the year with 81 percent of its flights arriving within 14 minutes of their posted schedule.

Besides operating on schedule, US Airways also is hoping to make the in-flight experience better next year with new meals on domestic and trans-Atlantic flights. And it's experimenting with a new seat-back entertainment system that would allow customers to pick their own movies to watch during the trip. The system should be ready by spring.

The carrier also is promising to fly one of the most modern fleets in the industry. US Airways will be busy upgrading its fleet in 2008, replacing numerous old Boeing 737s with new Embraer 190s. By the first or second quarter, US Airways expects to finish a $20 million upgrade of its international Boeing 767 jets with new seats and video screens.

More than two years after America West bought the former US Airways, the company has yet to combine employee contracts for pilots, flight attendants, mechanics and fleet service workers.

The pilots are going to be an especially difficult bunch to deal with in 2008.

They've been fighting internally over seniority for almost a year as staff lists from America West and US Airways were combined. In August, pilots from the former US Airways, who are known within the company as "East" pilots, walked out on negotiations, demanding immediate pay raises before they come back.

Meanwhile, another group of disgruntled East pilots is trying to form a new union that would revise the seniority rules.

US Airways continues to work on its employee contracts, but Gee said ongoing delays with the pilots will naturally complicate the flight attendants' contract because "you can't do one without the other."

Investors have told US Airways executives they're worried about the company's lack of international flights, and for good reason, Calyon Securities analyst Ray Neidl said.

In addition to offering customers more options, a robust international presence helps airlines offset high domestic operations costs by allowing them to raise prices overseas, Neidl said.

US Airways is working on expanding its international service. To that end, the carrier is snapping up wide-body jets, and company officials said they expect to command a fleet of 17 Airbus A330-200s by 2011.

Kirby told analysts at a Calyon Securities conference early in December that the airline is growing its international capacity by 15 to 20 percent per year. "And we have more growth prospects ahead of us than most other carriers simply because we are starting from a lower base."

Though high oil prices will continue to dog US Airways and other carriers, Neidl said he expects US Airways to overcome its problems and have a good performance in 2008. He's put an "Add" rating on US Airways stock.

"I'm still looking for only an economic slowdown next year, not a recession," he said. "If that's the case, they should be able to make money in that type of environment, even with the oil prices staying at high levels."