UPDATE 2-US Airways 3rd-quarter profit falls; shares off

Wednesday, 23 Oct 2013 | 11:21 AM ET

Oct 23 (Reuters) - US Airways Group Inc reported lower third-quarter profit on Wednesday as it set aside more money for taxes and recorded merger costs, sending its shares down nearly 2 percent.

But the carrier, which hopes to fend off a U.S. Justice Department lawsuit challenging a proposed merger with American Airlines parent AMR Corp, had a higher-than-expected profit, excluding special items, as the average airfare rose.

"From an operational performance standpoint, it's been a continuing great story," said Robert Mann, an airline consultant based in Port Washington, New York. "On that basis, US Airways can certainly add a lot of value to where American has recently been."

A combined US Airways-American would be the world's biggest carrier and cap the latest round of airline consolidation that has put the industry on sounder financial footing.

American is hoping to emerge from Chapter 11 protection with the merger. A bankruptcy court has already approved American's reorganization plan, which takes into account the merger.

The Justice Department sued to block the merger in August, saying it would hurt competition and lead to higher ticket prices. A federal court trial is set to start Nov. 25.

US Airways posted net income of $216 million, or $1.04 a share, in the third quarter, down about 12 percent from $245 million, or $1.24 a share, a year earlier.

Adjusted for merger-related costs and other special items, profit came to $1.16 a share, while analysts estimated $1.12, according to Thomson Reuters I/B/E/S.

US Airways, itself the product of a 2005 merger with America West, recorded a provision of $120 million for income taxes in the latest third quarter, up from $1 million the prior year.

Yield, a measure of the average airfare paid per mile flown, rose 4 percent to 16.75 cents.

Quarterly revenue climbed 9 percent to $3.86 billion. Passenger unit revenue, the amount garnered for each passenger flown one mile, rose 5.1 percent. Operating costs were up 5 percent, with expenses tied to salaries up nearly 12 percent.

U.S. airlines have pared money-losing routes and gained new revenue sources such as baggage and seat-selection charges to help boost profits. Delta Air Lines Inc and American both reported higher-than-expected earnings in recent days on strong revenues for the third quarter, which includes summer vacation travel.

Shares of US Airways were off 1.8 percent to $21.57 in morning trading along with most other major U.S. airlines amid a broader market selloff.

United Continental Holdings Inc was down 0.3 percent to $31.09, and Southwest Airlines Co dipped 0.1 percent at $16.34. Delta rose 0.2 percent at $25.53.

  Price   Change %Change