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Executives

Dan Cravens – Director of IR

Doug Parker – Chairman and CEO

Derek Kerr – SVP and CFO

Scott Kirby – President

Robert Isom – EVP and COO

Analysts

Kevin Christy – UBS

Jamie Baker – JP Morgan

Gary Chase – Barclays Capital

William Green – Morgan Stanley

Mike Linenberg – Merrill Lynch

Bill Mastoris – Broadpoint Capital

Ray Neidl – West Calyon

Benjamin Spillman – Las Vegas Review Journal

Donna Hogan – East Valley Tribune

Tom Fontaine – Beaver County Times

Dan McKenzie – Credit Suisse

Susan Carey – Wall Street Journal

Dawn Gilbertson – Arizona Republic

Tom Olson – Pittsburgh Tribune-Review

Mary Schlangenstein – Bloomberg News

Tom Belton – Philadelphia Inquirer

US Airways Group, Inc. (LCC) Q3 2008 Earnings Call Transcript October 23, 2008 1:00 PM ET

Operator

Please standby we’re about to begin. Good day everyone and welcome to this US Airways third quarter 2008 earnings conference call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Dan Cravens, Director of Investor Relations. Go ahead, sir.

Dan Cravens

Thanks, Sean. Good morning, everybody, and thanks for joining us today for our third quarter earnings call. With us in the room today is Doug Parker, our Chairman and CEO; Scott Kirby, our President; Robert Isom, Chief Operating Officer; Derek Kerr, our Chief Finance Officer; Janet Dhillon, our General Counsel; C.A. Howlett, Senior Vice President of Public Affairs; and Elise Eberwein, our Senior Vice President of People Communications.

As we usually do, we are going to start with Doug. He will start with – provide general comments on our third quarter financial results and provide an industry overview. Derek will then take us through the detail on the quarter, including our cost structure and liquidity this year. Scott will then follow with commentary on the revenue environment and our operational performance during the quarter. And then after we hear from those comments, we will open the call for analyst questions and lastly questions from the media.

But before we begin, we must state that today’s call contains forward-looking statements, including statements concerning future fuel prices and our future financial performance. These statements represent our predictions and expectations as to future events, but numerous risks and uncertainties could cause actual results to differ materially from those projected.

Information about some of these risks and uncertainties can be found in our earnings press release issued this morning, our Form 10-Q for the quarter ended June 30, 2008, and other SEC filings on the company. In addition, we will be discussing certain non-GAAP financial measures this morning such as net loss and CASM, excluding unusual items.

As a reconciliation of those numbers, the GAAP financial measures is included in the earnings release and that can also be found on our website, the www.usairways.com, under the Investor Relations tab. A webcast of this call is also available on our website. That will be archived on the website for one month. The information that we’re giving you on the call is as of today’s date and we undertake no obligation to update the information subsequently.

At this point, I’ll turn the call over to Doug, and thanks again for joining us.

Doug Parker

Thanks, Dan. We actually have a couple of releases that went out this morning; one on earnings but another one on US Airways securing $950 million in financing. I actually wanted to talk about both of those, but I’ll start with the one that I think is much more relevant to our shareholders, our customers, our employees, and our future; and that’s the financing. We – Derek will provide a lot more details on this, but I just want to give an overview.

You recall on last quarter’s earnings call, those of you who listened in, you had some questions about US Airways’ liquidity and at the time, we certainly didn’t deny it was an issue, we simply stated that predictions of archives [ph] assumed that we weren’t going to take any action, and we tried to impress upon those listening that we had no intention of sitting still. And in fact, we didn’t. And as we announced this morning, we now have raised $950 million of new financing and near-term commitments, $400 million of which has already gone to pre-pay a portion of our bank debt in exchange for a $400 million reduction in the unrestricted cash covenant.

The result of this is two really important things. Number one, it provides now a very comfortable cushion versus our industry cash covenant which was the biggest near term concern. If you look at the 3Q results, you’ll see that we ended with unrestricted cash of around $1.5 billion that was just $250 million above the old unrestricted cash covenant of $1.25 billion. Today, after this financing, the cushion versus the covenant’s well over $1 billion which we’re extremely comfortable with.

The things this has done is dramatically improved our position relative to our competitors in the industry. With this financing, our total cash balance relative to our size is now among the highest in the network carriers, and before the financing, we were among the lowest in this measure. So this financing truly is a transformation and they allowed us to leapfrog a number of competitors in terms of relative cash. Well, I don’t think any of the airlines today are particularly vulnerable.

If someone cares to do an analysis or story about which are the most vulnerable, US Airways should no longer be near the top of that list. So, this is really a truly remarkable achievement. We couldn’t be more pleased. If you think about the unprecedented turmoil going on in the financial markets and realize what our team was able to pull off raising nearly $1 billion, much of which is unsecured for an airline with a B minus credit rating is just phenomenal.

I can’t thank the team enough that did this. A lot of people worked extremely hard. In particular, I want to thank Derek Kerr and Janet Dhillon, Tom Weir, our Treasurer, Kara Gin, our Vice-President of Financial Planning and Analysis who – they and their teams just put incredibly long hours of hard work and incredible persistence and creativity to get this thing done as the global credit markets were imploding around us during the process.

Having said that, they would tell you and be the first to tell you no matter how hard they worked and how creative they were, we couldn’t have gotten this done without a good story to tell, and the fact is we have a great story. Derek will discuss our third quarter results, but the reality is the third quarter results are not particularly reflective of the future for US Airways or the industry. It’s really remarkable how much has changed in such a short period and we’ll be talking about a third quarter that looks a lot different than the future looks.

First and foremost, third quarter had oil as high as $147 a barrel. Today’s it’s nearly $80 dollars per barrel lower than that, and remember that every dollar for us is close to $40 million a year in expense savings. $80 a barrel had a dramatic impact on our earnings potential.

Second thing, the third quarter results do not reflect much of the capacity pull down the US Airways and the industry announced in the third quarter but implemented this fall. Third quarter result also do not have the impacts of the A la carte revenue initiatives, and those initiatives are worth $400 million to $500 million annually to US Airways and most of those were implemented early in the third – in the middle of third quarter and are taking the fallback [ph] now.

Having said all that, we’ve acknowledged of course the third quarter results also don’t have the impact of what potentially it could be an economic crisis driven decline in demand. But first, Scott will discuss at this point, let’s say potential concern, not one that we've actually experienced. And second, it’s extremely difficult if not impossible for us to imagine the demand decline that would more than offset positive impacts that I noted from a precipitous fuel decline and capacity cuts in A la carte revenues.

And then furthermore, as it relates even more specifically to us at US Airways, our team is doing just a fantastic job of running a reliable airline. We’re number one among the ten largest US airlines in on-time performance so far in 2008 after being 10th out of 10 in 2007. This turnout is due to the incredible efforts of our 34,000 hardworking employees and we’re extremely thankful to their efforts.

So you take that performance combined with a positive outlook to the future, that gives a great story to our investors and our business partners (inaudible) big way with $950 million of committed capital. We are very appreciative with your confidence in us and we plan to reward that commitment by continuing to run a good airline and by returning US Airways profitability in the years ahead, so that those investors will see very nice returns on their investment in us.

With that settled, I’ll turn it over to Derek to talk and give you more details on both the financing and earnings.

Derek Kerr

Thanks, Doug. This morning, we reported a net loss of $865 million or a loss of $8.45 for diluted share on a GAAP basis. This compares to a net profit of $177 million or $187 per share a year ago. When you exclude the special items which I’ll talk about in a minute, the company’s net loss for the third quarter was $242 million or a loss of $2.35 per diluted share versus a net profit of $185 million or $1.96 per diluted share in the third quarter of last year.

As it has been the case during the first two quarters in 2008, the third quarter loss was driven by record high fuel prices. We have held fuel price constant in third quarter at 2007 levels. US Airways’ fuel expense including realized gains of fuel hedging instruments would have been approximately $538 million lower.

During the quarter, the company did recognize $623 million of special charges. These special charges include a $488 million non-cash, unrealized net loss associated with the change in fair value of the company’s outstanding fuel hedge contracts, of which approximately $320 million was a reversal for mark to market gains recognized in prior periods. Our net unrealized loss position at the end of the quarter was $141 million, which represents the hedges we have in place through third quarter 2009.

Other special charges include a $127 million impairment loss on certain available for sale auction rate securities, of which $103 million was previously recorded in other comprehensive income, a subset of stockholders' equity that is now considered to be other than temporary. We also had an $8 million charge related to involuntary furloughs as well as terminations of non-union administrative and management staff as a result of out planned capacity reductions.

I’ve excluded these special items from the remainder of the calls to better reflect our financial performance on an ongoing basis. Looking at the numbers for capacity, we were – total capacity was $23.3 billion, ASMs up 0.4% from 2007. Mainline capacity was $19.4 billion, ASM is down 1.4% from a year ago, while express capacity was $3.9 billion, ASMs up 9.9%.

We are still projecting the fourth quarter full year to be $74.1 billion ASMs down 2.3% for the full year versus 2007. And for the fourth quarter, we’re forecasting ASMs to be $17 billion which is 6% reduction from 2007. We’re still completing the 2009 planning process at this point, but preliminary numbers projects domestic ASM down 8% to 10% for full year, and total ASM is down 4% to 6%.

On the revenue side, we continue to be pleased with the impact of our A la carte pricing model we implemented back in the second quarter. During the third quarter, we implemented the sale of beverages and expanded our new choice seat option. We’re on target to realize the annual benefit of $400 million to $500 million per year. We previously announced during the quarter our other operating revenues were up 43% versus 2007, and Scott will talk a little bit more about the A la carte pricing initiatives later in the call.

For the quarter, our total operating revenues were $3.3 billion, up 7.4% from the same period in 2007. Mainline passenger revenue were $2.2 billion, up 3%. Mainline revenue passenger miles were $16.3 resulting in a record low factor for the third quarter of 83.9%, 0.5% point higher than 2007. Third quarter 2007 consolidated passenger RASM was up 4.6%. Mainline was up 4.4%. Express up 1.3% for the third quarter 2008. For the same period, line yields increased 4.4% to $15.45, and our combine load factor was 82.3%.

On the expense side, our airline operating expenses including special items for the quarter were $3.5 billion, up 22% compared to a year ago. Mainline operating cost per ASM excluding special items was $13.45, up 21% year-over-year driven by record high fuel prices. Excluding special items, fuel and realized gains, losses on fuel hedging instruments are mainline cost per ASM was about $0.08 in the quarter, an increase of 5.3% versus 2007.

As we’ve talked about throughout 2008, this increase in mainline cost for ASM was driven mainly by higher maintenance cost due to more engine overhauls performed in 2008 versus 2007. That impact was 3.1 point of the 5.3 mainline CASM increases. The company has continued to invest in its operational improvement plan. The plan continues to produce industry leading on time performance results. And as Doug said, we were number one in the ten largest carriers for the first eight months of 2008. Due to this remarkable turnaround, I’m proud to say we have paid out approximately $16 million in performance bonuses so far this year.

Record high fuel costs continue to be the story for us in the industry in the third quarter as crude oil peaked at record high levels. Our average mainline fuel price including taxes and realized gains on fuel hedging instruments for the third quarter was $3.50 per gallon, up 62.5% from the previous year. If fuel prices, as said earlier, fuel prices remained constant at $2.16 per gallon, which it was in 2007, we would have had $538 million lower in fuel expense.

For the third quarter, we did have 44% of our total fuel consumption hedge which resulted in a realized gain of $68 million, which is $0.23 per gallon. Year-to-date, we have realized $342 million in gains from our fuel-hedging program. As I’ve mentioned previously, as spot prices for fuel have declined throughout the quarter, the unrealized gain position maintain at the end of the second quarter of $347 million was decreased by $488 million, leaving us in a loss position of $141 million for hedges in place during the next four quarters. The realization of that loss is included in our forward fuel price guidance and will be realized if fuel stays at this range in about $0.70 range.

For the full-year, we are forecasting fuel price to be in the range of $3.05 to $3.10 based on our October 15 forward curve. Our forecast for the fourth quarter is between $3.13 and $3.18. This includes about $0.50 in hedge losses for the quarter. We have 45% of our fourth quarter total volume hedge, with the floor at about $113 per barrel.

We suspended our fuel hedge program in the middle of the third quarter due to concerns about the impact (inaudible) could have on our liquidity, resulting from the significant decline in the price of oil. At this point, we only have 14% of the total volume hedge for 2009 which has turned out to be an advantage as prices have declined.

This breakdown by quarter is as follows. First quarter of 2009, we had 29% and the floor is $120 per barrel. Second quarter, we only had 19% with a floor at $129 per barrel. In the third quarter, we only had 8% with floor at $124 per barrel.

At the end of the third quarter, we had $159 million in letters of credit collateralizing positions held by our hedge counterparties. As of today, that amount of cash collateral has increased to approximately $350 million. The fuel prices remain at $70 a barrel. We would have $275 million in collateral at our counterparties at the end of the fourth quarter, which would be a very good thing for us in the industry as oil remains low and with all the financings we completed this week, posting collateral at that level doesn’t pose a liquidity threat for us.

In terms of CASM ex fuel guidance for the remainder of 2008 is unchanged. We’re still forecasting mainline CASM ex fuel to be up 5% to 7% versus 2007. Fourth quarter mainline should be up 6% to 8%. Express CASM is forecasted to be up 4% to 6% for the fourth quarter. And as I said earlier, we’re still in the middle of our budgeting process for 2009 and we’ll have estimates for next year’s unit cost on our next call.

Next, I’ll talk about our liquidity position. We ended the quarter with $2.3 billion of total cash and investments of which $800 million was restricted, approximately $800 million. The total cash included $261 million of auction rate securities at fair market value that currently are reflected as non-current assets on our balance sheet. Also included in the company’s restricted cash balance was the $159 million in letters of credit collateralizing certain counterparties to the company’s fuel-hedging transactions that I just talked about.

As we announced earlier today, as part of a comprehensive liquidity program launched in mid-August, the company has raised approximately $950 million of financing and near-term liquidity commitments from several of its strategic business partners. On August 20, 2008, the company closed on $800 million of these transactions with $400 million of proceeds used to prepay the company’s $1.6 million bank debt facility. In exchange for this prepayment, the unrestricted cash covenant contained in the loan agreement for the bank debt facility has been reduced from $1.25 billion to $850 million.

The loan agreement's terms remain the same at seven years with substantially all of the principal amount payable at maturity in March of 2014. The remaining proceeds from these financing transactions approximately $370 million, after payment of certain bank and other service fees, increased the company’s total cash position and will be used for general and corporate purposes. The remaining $150 million of liquidity commitments are expected to close during the fourth quarter with cash benefits realized through 2009.

The $950 million financing progress comprised of a number of transactions, including the advance purchase of miles from the airline’s co-branded credit card partner Barclays, amendments to the Airline’s 2007 purchase agreements with Airbus for future deliveries of aircraft, loans secured by certain aircraft engines and spare parts used to prepay the term loan in order to receive a reduction in the unrestricted cash covenant, and commitments from certain other business partners.

The company estimates that 2009 expenses will increase by approximately $90 million due to costs related to these transactions, of which approximately $65 million is a non-cash expense in 2009. Combined with our equity offering completed in 2008, which generated $179 million, and other financings completed during the quarter, US Airways has raised approximately $1.2 billion in cash and deferred payments since we announced our second quarter financial results.

So in summary, we have taken aggressive steps to mitigate the high cost of fuel, capacity reductions, the implementation of A la carte pricing and other cost-saving initiatives, which include continuing to run an operationally reliable airline. As important, we have just completed a comprehensive liquidity program which raised approximately $1.2 billion during the quarter, with a portion of the proceeds going to reduce our minimum cash covenant, with the remainder significantly improving our liquidity position.

With fuel prices at current levels, we expect 2009 to be a much better year than 2008. One last thing, we did not file our third quarter Form 10-Q today as we normally do. We are still in the process of finalizing the subsequent events section outlining our liquidity program. We anticipate that that effort should be complete by week’s end, and we will file our 10-Q with the SEC at that time.

Now, I’ll turn it over to Scott.

Scott Kirby

Thanks, Derek, and I’ll take a minute to talk about our operational results and then turn to the revenue environment. Operationally, the third quarter continued the remarkable turnaround that started in last year’s fourth quarter. We remain number one year-to-date on-time performance and have seen dramatic improvements in all of our other operating specifics.

Turning to the revenue environment. During the second quarter, we saw RASM up 4.4% despite a 4.5% increase in (inaudible). This result lagged the industry average due largely to our international exposure. And throughout the quarter, international demand, for us at least, remained stronger than domestic demand, and less relative capacity reduction at US Airways than the industry. Going forward, domestic and international trends is likely to reverse with domestic capacity reduction benefiting domestic results over international. Additionally, during the quarter, we generated $59 million in new ancillary revenues, which led to 43% increase in other revenues. With one of the highest levels of domestic employments in the industry, a la carte pricing disproportionably benefits US Airways.

Looking forward, we continue to expect the industry capacity reductions to lead to a strong RASM environment. Obviously, as the economy weakens, it creates more uncertainty around future revenues. I would like to make a couple of points about the outlook for demand and give you some color on what we’re actually seeing so far in bookings.

First, we and the industry now have a natural hedge against declining demand and the sensitive the macroeconomic issues caused a decline in demand, they’re likely to drive even lower oil prices. At US Airways, each $1 decline in oil translates into $35 million. So it would take about $3 decline in oil prices to neutralize a single percentage point decline in RASM.

Second, as a number of analysts have already pointed out, given the magnitude of the oil decline, it would take a truly unprecedented decline in demand to overcome the impact of oil. We’re currently forecasting our full-year 2008 price to be a $104 per barrel. So yesterday’s close of $67 per barrel, if we exclude the impacts of hedging, our costs would be improved by $1.3 billion year-over-year. That would require RASM to decline by approximately 12% to produce the same results in 2009 as we produced in 2008.

Third, industry capacity cut of 10% means that we get a 12% decline in RASM. Industry revenue would need to decline by 22% in 2009, with all else being equal to achieve results similar to 2008. And with the exception of 9/11, nothing like that has happened in the history of the airline industry.

Of course, those arguments are largely theoretical and we’ll see what happens with the economy and demand going forward, but I’ll now add a little color on leisure booking trends. We did see a slowdown in leisure bookings in the past 30 days or so. Actually, we saw bookings for leisure oriented markets and bookings for travel more than 60 days in advance start to decline literally on the day that the first bailout note [ph] failed. Leisure bookings in the last month have become highly correlated with the headlines. When the headlines are bad, bookings of 60 days and out are weaker. When the headlines are encouraging, even advanced bookings are reasonably good, which points to a consumer confidence issue.

Meanwhile closing demand for both leisure and business remained strong with capacity cuts more than offsetting any demand weakness. For example, we entered October and booked down a little over one point but will likely end up about one point ahead in load factor. So we gained two load factor points during the month. Like other airlines that have reported, our November/December bookings are down about two points but we expect to close much for all of that gap for the quarter end. And because of the industry capacity discipline, the pricing environment and yields remained strong as well.

So in summary, while we remain uncertain about the demand outlet because of economic conditions, we continue to believe that capacity cuts will more than offset any demand weakness and that when combined with declining fuel prices, that leads us to an optimistic outlook for 2009.

With that, I’ll turn it back to Doug.

Doug Parker

Thanks, guys. Sean, we are ready for questions.

Question-and-Answer Session

Operator

(Operator instructions) We’ll go first to Kevin Christy of UBS.

Kevin Christy – UBS

Hey, thank you very much.

Doug Parker

Hey, Kevin.

Kevin Christy – UBS

Good commentary on the demand, that's quite interesting. Can you talk about international and maybe a little bit on what’s happening in Philadelphia? And actually, I haven’t been paying that close attention to the gates given all that’s happened with oil. But (inaudible).

Scott Kirby

Gate, well international, if you’re talking about demand, certainly for now remained strong. And in Philadelphia, we’ve had a not only remarkable turnaround in the operation there which is a credit to them, (inaudible) and the entire team there; but also a great partnership with the airport authority and with the mayor’s office. So huge turnaround operationally but also a gates situation that is much improved, thanks to that strong working relationship. And in fact, yesterday, we announced two new destinations out of Philadelphia, Birmingham and Oslo, that will start next summer and about a month ago, we announced Tel Aviv out of Philadelphia. So, dramatic turnaround in what’s happening there in Philadelphia and we feel good about our ability to continue working with the airport to grow the international operation out of Philadelphia.

Kevin Christy – UBS

Terrific. How about – and I guess this will be for you as well, I guess, Scott. The behavior change with ancillary bags, are you seeing the – one of the carriers said the 40% reduction in second bags and stuff. Are you seeing a similar trend?

Scott Kirby

We are seeing a similar trend. Actually, about 40% reduction in second bag, smaller reduction in first bag; but it’s remarkable just having fewer bags in the system how much that has helped improve the mishandled baggage ratio. So in our perspective, we have fewer bags and we have a system designed to carry slightly more bags. And now with fewer bags going to the system, we not only lose fewer bags, it helps us run a much better operation. So in a lot of ways, this has actually improved the product.

Doug Parker

Yes, if I can just (inaudible). Actually, I think the last month data we have, the first bag is down about 15%, second bag is down like 50%, for a combined drop of 25% in total checked baggage, to which some might say, we do this, you’re not collecting as much revenue. From our perspective, that’s great news. As Scott said, what it has allowed us to do is do a much better job of what our customers want us to do, which is get them there on time with their bags. Connecting bags are one of the more complicated things that we have to do in terms of customer service delivery. And just relieving some of the pressure, getting it down by 25% allows us to do a much better than 25% job of delivering baggage. So we see our baggage numbers improve dramatically and we’re very, very happy about that. So we’re happy about these fees. One, because it’s good for our shareholders to collect more revenue and to enhance our profitability. But we’re also finding it’s doing a really nice job of allowing us to do a better job where our customers really want. So it’s not just about the dollars, it’s helping our operation as well.

Kevin Christy – UBS

Terrific. And I guess the last question if I could, you started in a pretty big hole. You’re saying that 2009 will be better than 2008 under most any demand scenarios. And clearly, usually going into recession, you wouldn’t think that’s the case. But you’re starting from a huge hole of consensus this close or whatever. I mean, are we talking profits or I mean, the consensus is somewhere around break-even-ish? I mean, is profit likely or where do we sit with that?

Doug Parker

Yes, Kevin. I mean, look, as we’ve said in the release, the environments are volatile right now. I'm not by any means suggesting that we don’t think we can make a profit by not saying we think – we’re not frankly be saying so, rather just to say that when oil went down $80 in a couple of months, it can go back up. What we’re much more comfortable saying is what we’ve said and leave it to you guys to go run numbers and project what you think will happen, and if you see something where you think somehow the Street has gotten somehow misread what we said, we’ll do our best to let investors know that. But right now, we’ll let you guys go figure out what you'd think about oil prices and global demand, and we’ve told you what we can about our thoughts about the future but we certainly – as I said in the last call, I think we were amongst the leaders in saying three months ago that it is not outrageous to assume that the industry can be profitable in 2009. It is certainly not a reason to assume that anymore with oil down to $70 a barrel.

Kevin Christy – UBS

Terrific, I didn’t really expect an answer, but I thought I’ll give it a shot. Thanks.

Doug Parker

I did my best. Thanks, Kevin.

Operator

And our next question comes from Jamie Baker of JP Morgan.

Jamie Baker – JP Morgan

Hey, good morning everybody. Scott, I couldn’t help but note that you make booking air travel sound like having a dog. When headlines are good, you pet your dog when you get home. And when the headlines are poor, you take the dog across the room. My question actually – well, I’m not embracing that behavior, I’m just saying hypothetically. My question actually relates to the Southwest overlap and I’m just wondering to what degree if any their Q1 capacity declines play into US Air’s hand?

Scott Kirby

Well, we certainly like seeing capacity discipline at all airlines. And one that's unique in this cycle is that all the low cost carriers including Southwest are reducing capacity, so we think that bodes well for US Airways. Some of those capacity we'd actually – have already started in some of our big cities like Phoenix and Las Vegas, which were more impacted by a fall-off in leisure demand earlier and both US Airways and Southwest have reduced capacity in those markets. So, I do think that as we move into 2009, haven't seen all of Southwest schedule yet, but that can only be a positive front. I’m not sure, and because we have the highest level of exposure of the Southwest than anyone which is normally to a good thing. In this case, it is probably as a tailwind for US Airways relative to the industry.

Jamie Baker – JP Morgan

Okay, fair enough. And a follow up for Derek, just on the $200 million in Airbus, could you give some color what this relates to, is it a loan, is this PDP related? Any color on the terms would be appreciated.

Derek Kerr

The confidentiality agreements we have behind the deals don’t allow us to go into any detail on the $200 million.

Jamie Baker – JP Morgan

Okay, fair enough. Go home and take your dog.

Doug Parker

Thanks, Jim.

Operator

The next question comes from Gary Chase of Barclays Capital.

Gary Chase – Barclays Capital

Good morning, guys. Scott, I wondered if you could maybe just put a little – shed a little bit more light on some of the things you were talking about on the revenue front and I may have missed this if you said it, you said that some bookings had slowed, but things were sort of coming in at the end of the month. You expect the loads to make up the difference towards the end of the month and that capacity was more than offsetting the difference. Were you trying to convey that you haven’t – the booking patterns maybe changed a little bit but the demand hasn’t, or do you think we’re actually going to see a reduction in the trend as we move through the quarter?

Scott Kirby

Okay. First, Gary, welcome to our partner bank, Barclays.

Gary Chase – Barclays Capital

I have a picture of your airplane on it though.

Scott Kirby

In terms of demand, I think what has happened is because there’s more uncertainty, leisure demand in particular, customers are waiting to book. So people aren’t booking further out but they are still willing to book for culture and travel, so I tried to actually say and we believe that what we’ve seen is the demands curves have shifted that's more even in leisure markets where our advanced bookings have slowed for places like Florida and Hawaii. But as we get closer to the day of departure within 30 days, we see more bookings for those sorts of destinations. So, it’s really early to tell and this could change a lot as the economy changes but I remain pretty bullish on revenues. Looking forward, we just really, we have some data that indicates some slowdown with leisure traffic but today that's being made up by closer end bookings. That could change in a hurry obviously, but we still feel pretty good about the revenue environment.

Gary Chase – Barclays Capital

Okay. And then Derek, you were talking about the increased cost as a result of the transactions and I just think I missed it, you said $90 million in additional cost, $60 million non-cash. Is that one-time transaction related or is that just the interest on a –?

Derek Kerr

No. That’s annual. That’s the interest on the transaction as we put it together. So $90 million mostly interest expense but we’re saying $65 million of that is noncash, so when you are doing your cash flow analysis to pull that up.

Gary Chase – Barclays Capital

Okay. Got it. Thanks very much.

Operator

All right, we’ll go to our next question from William Green of Morgan Stanley.

William Green – Morgan Stanley

Can I just follow up on questions there are on demand here in the quarter. I think back in July, you guys had mentioned that yields were up on those far out bookings in the fourth quarter around 12%, is that about the level you have seen sustained as we’ve come into the fourth quarter?

Scott Kirby

We still see advanced bookings of double digits percent because the pricing environment remains strong. As you get through the entire booking period we are going to see yields up in the high single digit percentages. Advanced bookings, January, for example, which is a really small amount of revenue on the books but yields are up 24% at the moment. Now that’s not the most relevant statistics because we probably only have 15% of our revenue on the books, but advanced book deals are still strong. As you get through the entire booking window, I think it’ll be up high single digits.

William Green – Morgan Stanley

Okay. Well now when you think about how to allocate capacity then going forward, I think you now considered [ph] two secondary cities in Europe, how are you thinking about – I feel like we’re all looking at the international RASM, single kiosks [ph] is strong now but that’s definitely an area where the industry is cutting little capacity, if any, and so there’s some real risk there but you’re adding I guess Birmingham and Oslo. Isn’t that kind of a big risk to be adding now?

Scott Kirby

I think the answer’s no. That’s still the best place to be adding fast. First, US Airways is behind the rest of the industry because of two trips to bankruptcy and catching up with a fully developed international network. We’ve got by wide margin the smallest percentage of our capacity in international. So we have a long ways to go just to catch up to the industry. So, for your theory of adding it I think arguably is safer than for the rest of the industry. That said, if we do start to see a slowdown internationally, we do have flexibility to reduce capacity. We would do that by moving some of the 757s we fly back to domestic flying if we wanted to, or we just fly less than daily frequency.

We’ve also expanded our seasonal window by about six weeks to start seasonal services earlier and then later, we could shrink that. At the moment though, we don’t see evidence of slowdown in demand, so we aren’t planning to do any of those things. We are watching it carefully and the reason I can give you a full answer on what we might do to reduce international capacity is because we’ve gone through the process of baking it in planning in case international demand does slow, but we just don’t see that yet and particularly with our hubs in Philadelphia and Charlotte, view ourselves as behind the industry and with opportunity to catch up.

William Green – Morgan Stanley.

Okay. Doug, can I ask you one question quickly on – if we look at the stocks now down quite a bit from the last time this was attempted, but it would seem to me that given your outlook financially, particularly in light of the fuel declines that M&A has a lot more compelling economics behind it, do you agree? And if so, why wouldn’t we start thinking about this again?

Doug Parker

I don't know. I think it’s always compelling. It’s been compelling for a long time and it’s still compelling. I don’t know that where we are today makes it much different if some of these should have happened before it hasn’t happened yet for any number of reasons. I still believe it should happen eventually and I don’t have any prediction as to when that might be. But right now, I do think certainly for the last six months, most of us have been trying to figure out how to make it through this crisis of very high oil prices and that’s got the individual management team’s focus primarily upon that and maybe as we get through all this, you’ll see people start thinking more strategically, have the ability to think more strategically than we have been able to off late. I think it’s something that the airline industry needs to do and needs to have whenever it makes sense and maybe it will make sense in 2009, I don’t know that anybody know that yet.

William Green – Morgan Stanley

All right, thanks for the color.

Doug Parker

Yes.

Operator

(Operator instructions) We’ll go next to Mike Linenberg of Merrill Lynch.

Mike Linenberg – Merrill Lynch

Yes, hey. Good afternoon, guys. A couple of questions. You, by far, have been the most aggressive on announcing and putting in place the various ancillary revenue initiatives. You also probably have a bit more overlap with Southwest than other carriers when you think about some of your big markets. Is there anything that you can distinguish whether it’s maybe increased complaints from passengers dealing with those fees and markets where you’re head to head with the Southwest versus where you compete with other carriers who are putting in the ancillary initiatives?

Scott Kirby

Mike, to date we really haven’t seen much impact. We are watching for it closely and we’ll continue to watch it closely and as you say, we’ve been more aggressive probably than most and have more Southwest overlap. But thus far, and I think it comes back to what drives customer choice which is schedule, price, and frequent flyer programs. So customers that were – had a natural affinity for Southwest in some of our big markets, like Phoenix, still do. And for customers that had a natural affinity for US Airways because they fly longer haul, because they want to be able to sit in First Class, and because they want all those kinds of amenities, continue to fly US Airways. So we haven’t seen much impact yet. Complaints, every time we started on these new programs, complaints spike but then drop down to what we consider low levels. Consumer push-back on this has been minimal. There’s been more push-back in the media, but the actual consumer push-back has been quite minimal.

Mike Linenberg – Merrill Lynch

Okay, thanks.

Doug Parker

I think one of them, Mike, is – that I think about all that is because we’ve handled it so well operationally. I mean, Robert really got up and confronted this. And we’ve seen no operational issues that, well, a lot of which we were concerned about. And indeed, as I tried to note before, it’s actually helping the operation. That helps a lot, I think it’s actually – I think it’s in better products in terms of our ability to provide people what they really want and to charge those who want to avail themselves of some of the more difficult services to provide. We charge them for that. So we’re really excited, but we haven’t seen, as Scott indicated, any indiscernible booking in a way. And the other thing I think we should know is – it’s pretty obvious that you guys really look at the numbers like this all the time. But these – it’s not, our numbers aren’t bigger than others because we’re being more aggressive in terms of what we’re implementing per se. It’s more – because these are passenger-related charges, and we have a higher number of domestic passengers relative to our revenues than others do. So as we see other airlines, for example, announce what they think first bags charges are, we start scratching our heads thinking, “Why is theirs so much lower than what we’re seeing?” Continental, for example, announced, I believe, that they put in the $15 bag charges, so it was $100 million a year, and we’re experiencing this week into off periods $6 million a week from (inaudible) charges. We can’t figure out why Continental Airlines suddenly has $100 million, they think. The answer, of course, is we have much higher domestic passenger count than Continental, they have some more revenues there. So if you take the time to go through that announcement, you’ll find we have – there’s more upside to US Airways on these things than there are for the others. So I guess that helps us financially. It also helps us operationally, so we’re big fans.

Mike Linenberg – Merrill Lynch

It sounds like despite that that thinking, Doug, there’d be huge upside for Southwest. They have it anticipated.

Doug Parker

Yes, yes, that’s – actually, it comes out in the analysis and that’s – they obviously have taken the position that they don’t want it to go this round, and that’s their prerogative. As Scott said, they have customers that we – a number of things Southwest has in place that we haven’t matched over time or have other airlines like ours, and then a lot of things we provide that they can’t match, like they can people from Portland to Maine to Portland, Oregon, and we can’t. We can’t get people internationally through things like the Star Lines and (inaudible) and we can. And they can provide with flights that we can’t. So they’re different airlines and they have their own products and services. They’ve never had change recently, for example; and we have, as some other airlines. So this is just another difference now, and not one that we’re seeing because any booking away but actually enhancing our financials and improvement reference.

Mike Linenberg – Merrill Lynch

Okay, good. And just my second question and this is to Derek. As you talked about that financing the Copa $950 million in financing, you had a lot of your partners. You mentioned some of the partners like Barclays, Airbus. I did see a press release out from Republic, it looks like maybe that $35 million is going to kick into that $150. Are there any other partners worth mentioning? Is it airports, the City of Phoenix, anything? Anybody else that –?

Scott Kirby

No, I think it’s – I mean, the Republic one you did see, that was part of the $800 million. It wasn’t part of the $150 million.

Mike Linenberg – Merrill Lynch

Oh, okay.

Scott Kirby

But those, the ones that are announced and that are out in our 8-K are the ones we can talk about. Other than that, the rest of the deals are confidential.

Mike Linenberg – Merrill Lynch

Okay, very good, great. Thanks, guys.

Doug Parker

And let me just chime in. Maybe I don’t have to, but it just sorted by now. I mean, we have – we try very hard to tell everybody we can. It’s just sometimes that we can’t as well, Mike. I know you understand that, but we have to disclose for transactions that are material to the company, which the ones that we disclosed today obviously arrives to that level. And – while we, while the whole of transaction has got to do with size, it wasn’t material to us; it was material to them.

Mike Linenberg – Merrill Lynch

Yes.

Doug Parker

Because of the extension, so you saw them then put out a release. So we put in our 8K what we needed to disclose because of the material, but they’re confidential agreements so our counterparty was very careful about what we could and couldn’t disclose. We got to pretty much stick to the 8K, but I just wanted to explain why that was for those who may not understand that.

Mike Linenberg – Merrill Lynch

Fair enough. Yes, good.

Doug Parker

Thanks, Mike.

Mike Linenberg – Merrill Lynch

All right, thank you.

Operator

Our next question comes from Bill Mastoris of Broadpoint Capital.

Bill Mastoris – Broadpoint Capital

Thank you. If the revenue environment gets a little bit worse than you anticipate, say past the fourth quarter and into ’09, what type of flexibility do you have to further implement other capacity reductions? And maybe state it another way, how many unencumbered aircraft could you actually pull out of your existing fleet?

Scott Kirby

Our ability to reduce capacity is currently constrained by our Pilot Agreement and from an aircraft perspective, we don’t have much flexibility to reduce a number of aircrafts. We could further reduce utilization of that fleet by about 3% to 4%. That wouldn’t be easy to do but if we wanted to, we could reduce utilization by 3% or 4%. We also have 300 plus aircrafts at Express Carriers and if we wanted to ground some of those, we could do or reduce utilization on those. We could probably take another 3% to 4% of combined capacity out of our total consolidated capacity. So at the moment, we don’t have any plans to further reduce capacity. We also don’t have any plans to add capacity, but that’s where our flexibility is.

Bill Mastoris – Broadpoint Capital

At the start, I assume that some of that would include some of those aircraft that would be coming off as some of the liquidating thrust in the first bankruptcy. Would that be correct, Sir?

Scott Kirby

You broke out, we didn’t understand the question.

Bill Mastoris – Broadpoint Capital

Okay, maybe I’ll have it directed to Derek. Derek, in some of the liquidating thrust that you had in prior bankruptcies, some of those actually, some of the aircrafts actually come off it, so I think it is next year. Do I assume that it’s gotten your capacity reduction numbers there of 3% to 4%, that those would include those aircrafts which come off? Would that be correct?

Derek Kerr

Yes, some of those aircrafts are coming off and getting replaced and some of them we assume will renew leases on.

Bill Mastoris – Broadpoint Capital

Okay.

Doug Parker

So, Bill, again the constraint that Scott said is a contract constraint with our problems in flight attendance. There’s a minimum number of aircraft, in respect of whether the aircraft come off lease or not. There are some minimum number of aircraft we need to maintain in the fleets to stay in compliance with the labor contracts, which of course, we’ll do.

Bill Mastoris – Broadpoint Capital

Okay, second question on – Derek, I know that in our conversations, you’ve mentioned you can never have enough liquidity. Are there other fundraising activities on the horizon? Maybe a new affinity card agreement that might again add to this decision, which right now is certainly much better than it was the end of the second quarter?

Derek Kerr

Yes. No, I think as we’ve announced we do still have $150 million worth of items that we’re still working on and transactions that we’re still working on and we plan to complete by the end of the fourth quarter to get those done. I think as far as the affinity card that we raised $200 million in this transaction with our affinity card provider to pre-purchase miles, that’s what we announced on the second quarter we were going to try to do and we didn’t complete that transaction. So our focus now is on trying to complete the other $150 million and bring those transactions in and complete them by the end of the fourth quarter.

Bill Mastoris – Broadpoint Capital

Okay, thank you.

Operator

And our next question comes from Ray Neidl of West Calyon.

Ray Neidl – West Calyon

Yes. You pretty much discussed the Ala Carte pricing, but I was just wondering with – on the aircraft, some of the order, soft drinks. Are you generating much revenue from that or just giving you a slight tense and more leisure time and then the advertising? How’s that working out? That seems to be to limit advertising seems to be somewhat successful.

Doug Parker

Yes. On the charting on average on board, that has been, smaller dollars but we have been extremely happy with that program as well. The fact of the matter is now as, I have encouraged you to do so if you haven’t, if you could think of line of us and do it in coach, what you will see is the product that again, I am trying act like we take things away that make things better, but as we have started charging for dinks, it is may be into our product much more comfortable and so. They are not, what we are saying, to give you some data, and first off, these data are really soft as our number than now but our flight attendants that I’ve talked to tell me in general less than 25% of our customers actually say, yes I would like to drink when asked to pay two hours for when as opposed to 95% when asked when it is free. So the result is that we are seeing carts not spending in the aisle for the bulk of the flight as they go through to take drink quarters and serve drinks when go back to pick up the trash end of the customer and you have much less time with the cart in the aisle leading much more time for customers to move about the cabin at their leisure instead of all at once and giving our flight attendants much more time to walk up and down through the aisle and take care of individual customer needs as they may arise.

It really is a more comfortable and civil environment than the one we had before where it was primarily that the service from our flight attendance was just to get the men drinks out and picked up. So that we’re happy with and another one, in respect to the dollar amount which isn’t small but not nearly as high as a check bag one that we are really pleased with in terms of how it is unfolded from an operation perspective and one that I can imagine we would change irrespective of competitive forces because we like it better.

Ray Neidl – West Calyon

Okay, advertising.

Scott Kirby

You talking about on board advertising?

Ray Neidl – West Calyon

Right.

Scott Kirby

We have been doing that since 2002 and it is relatively small dollars we have been happy with it for the beginning and successful partnership and we always liked it.

Ray Neidl – West Calyon

Like start paying the airplanes like (inaudible).

Doug Parker

No I have no plans to do on board advertising beyond the feedbacks.

Ray Neidl – West Calyon

I have to try one your coach flights. Our budget indicates we go coach now so that that will be easy for me to do. The other thing is that the Northwest Delta merger’s about to happen. From my analysis, it looks like it is gong to have more an effect on your eastern hubs than your western hubs. Would you like to comment to comment on that?

Doug Parker

We are happy to see the merger happening. Consolidation is good for the industry, I think, got a result in a more rational business and it is one that we are all in favor of and I assume you are right we are glad you – help you’re all right and can get done soon. We will start to have a more rational business.

Ray Neidl – West Calyon

Okay great. Thank you.

Operator

And we’ll take one more analyst call in just a moment and we’d like for the media to go ahead and queue up now.

(Operator instructions) We’ll go next to Dan McKenzie of Credit Suisse.

And we apologize for the delay. We’ll go ahead and take our next question from Benjamin Spillman of the Las Vegas Review Journal.

Benjamin Spillman – Las Vegas Review Journal

Hi. I was wondering if you guys can elaborate a little bit on the consumer conference leisure bookings relationship to the headlines and what is going on particularly in relation to Las Vegas. Any numbers?

Scott Kirby

We did see a slowdown in Las Vegas and also impacted by the size of Las Vegas as a relatively low yield market with high field prices. You needed in excess of 100% load factors to breakeven so we were forced to reduce traffic there. We are happier with the reduced traffic schedule that has allowed us to keep the pricing firmed up a little bit in Las Vegas market. This is too early to tell what’s going to really happen there in Las Vegas with the demand. (inaudible) properties coming online next year which historically has given a boosts demand and so we’ll wait see and hope that that happens.

Benjamin Spillman – Las Vegas Review Journal

What comes first competitive pricing for the travel or competitive lower priced hotel rooms to inspire people to book to travel.

Scott Kirby

Perhaps we would need to see more demand before we added capacity and I think we are actually touching on something that’s capital to us which is added to Las Vegas and across the country if we had more of jet excess airline capacity, airfares got to the point where it’s cheaper to fly than it was to stay in a hotel room for a single night and that trend is reversing, so there’s a lot of airlines capacity, more hotel capacity across the country coming on line. So I think what’s going to happen is the net cost to customers to take trips is declining because small increases in airfare are being overwhelmed by cuts in hotel average daily room rate across the country. So that’s one of the reasons I think that demand from an airline perspective has remained fairly strong.

Benjamin Spillman – Las Vegas Review Journal.

Is this Scott?

Scott Kirby

Yes.

Benjamin Spillman – Las Vegas Review Journal.

Okay, thank you.

Operator

(Operator instructions) We will go next to Donna Hogan of East Valley Tribune.

Donna Hogan – East Valley Tribune

Hi, guys.

Scott Kirby

Hello, Donna.

Donna Hogan – East Valley Tribune

I have a few questions, the specific place cuts that you've planned for the fourth quarter, have they been made yet?

Scott Kirby

Yes.

Donna Hogan – East Valley Tribune

All of them? I mean other than some holiday tinkering that you’ll do.

Scott Kirby

Yeah. Any material reductions have already been made.

Donna Hogan – East Valley Tribune

Okay. Are there any routes that have been eliminated?

Scott Kirby

I don’t remember, I think there are some. But some of the ones that were one flight a day, I just don’t remember for sure which ones, places like Phoenix to Hartford perhaps.

Donna Hogan – East Valley Tribune

That was going to be my next question, are any of them out of sky harbor?

Scott Kirby

That’s what I mean. Out of sky harbor.

Doug Parker

We’ll get back to you, Donna, on the list of any reductions out of Phoenix.

Donna Hogan – East Valley Tribune

Okay. Thank you. Can you tell me now, when you announced the flight cuts and then you actually changed the percentages but kept it in a range and I think it ended up being 6% to 9%, what was the final number of what you cut?.

Scott Kirby

I don’t know the exact number.

Doug Parker

We'll get you that too.

Donna Hogan – East Valley Tribune

Okay. I really have some of the same questions about '09 and particularly that you announced the capacity cuts planned for early '09 and I’m wondering if those at least numbers stay the same given some recent developments in fuel cost and Southwest plan cuts.

Scott Kirby

They have stayed the same.

Donna Hogan – East Valley Tribune

Okay. Do you know what flights? Have you gotten it down to specific flights yet?

Scott Kirby

Anything that we’ve gotten down to specific flights is already announced and if there are further flight cuts, we won’t announce it until (inaudible) schedule.

Donna Hogan – East Valley Tribune

Okay. My other question is about those heavy entertainment systems that you've plan to remove or start removing in November. Are you still planning to turn them off on November 1?

Scott Kirby

Yes.

Donna Hogan – East Valley Tribune

Okay. And is the new system, the little handheld ones, are they ready to go?

Scott Kirby

Well, we are working with two vendors on a seatback entertainment system that we will be beginning a trial probably in the first quarter but that’s all we’re going to have domestically. Internationally, we will still have in-flight entertainment systems but no more domestically until we start the trial in the first quarter.

Donna Hogan – East Valley Tribune

Okay. So basically everything’s off except for what people bring onboard starting November 1, domestically?

Scott Kirby

Correct.

Donna Hogan – East Valley Tribune

Okay. Thanks guys. Let's say then somebody will get back to me today on those routes eliminated?

Scott Kirby

Yes.

Donna Hogan – East Valley Tribune

Thank you.

Operator

And we’ll go next to Tom Fontaine of Beaver County Times.

Tom Fontaine – Beaver County Times

Hello. I think, Doug, you had said earlier that the first bag fees were generating somewhere currently around $6 million a week. Do you have a similar number for the second bag fees and is all that revenue combined? How does that compare to what you anticipated when you implemented the fees?

Doug Parker

I gave the first bag because I wanted people to understand that we are actually really seeing it right now. The other numbers we have, I don't have them in front of me, and I'm not sure we would disclose them because we are not sure, we thought I’d get some experience under our belt on those but what we’re happy to disclose is what I said, also and Derek said in his comments, which is that when you add them all up, we believe that we are going to increase delivery and contribute $400 million to $500 million a year to US Airways in 2009, so they’re up and running and they’re – based upon what we’re already seeing, not projections anymore, we feel very comfortable about that $400 million to $500 million number.

Tom Fontaine – Beaver County Times

Now as part of that, with fewer check bags I guess, does that have any impact on – are there any fuel savings realized?

Doug Parker

Yes. Actually that’s a good point there are – there’s nothing in there. We were talking about the revenues. Those numbers probably do not – they don’t quite add up in aggregate or something that would increase that $400 million to $500 million number significantly. You’re right, there are some cost savings. The biggest one, by the way, is a reduction in delivery charges for mishandled bags.

Tom Fontaine – Beaver County Times

Yes, right.

Doug Parker

But, anyway that is not in that number. That number just is the revenue increase.

Tom Fontaine – Beaver County Times

Okay. And the final thing which is fees, as it relates to Pittsburgh area, is there an update for the flight operations center? I believe that could be opening next month.

Scott Kirby

Yes anytime. We are still on target. It will be opened some time next month and we will be doing a number of moves in a series of steps and hopefully after that talk to people about a grand opening once we are all in.

Tom Fontaine – Beaver County Times

Okay. All right sounds good. Thanks a lot.

Scott Kirby

Thank you.

Operator

And we will go next to Dan McKenzie of Credit Suisse.

Dan McKenzie – Credit Suisse

Yes. Hi. Thanks for squeezing me in here. I am not sure what happened before. Anyways, with respect to the refinancing, I know that you cannot comment too much here but if I heard correctly, it was mostly unsecured financing. If that is the case, I am wondering what else is specifically that any might have been freed up.

Scott Kirby

Hold on to me because I might have said this, I do not think I said mostly. I think there is a lot of an unsecured – again, what we have to focus on Dan, is what is in the AK [ph] and then in the AK which is what we closed the $800 million and we gained some detail on –

Dan McKenzie – Credit Suisse

What?

Scott Kirby

I am trying to have on my head now, $800 million or $600 million. Yes the spare parts, the Barclays and the airbus piece. So anyway, to your question, what did we free up in terms of collateral? Is that the question?

Dan McKenzie – Credit Suisse

Yes, exactly.

Derek Kerr

Dan, really what we did is we took collateral out of the bank loan, refinanced that same exact collateral and then used the great financing to pay down the loan. So there was no free up of collateral from the bank loan at all and the other transactions that we did – did not use collateral as Doug said so there is no freed up collateral in any of these transactions.

Dan McKenzie – Credit Suisse

Got it. Okay. That is helpful. And then, I believe, it is about a year ago that US Airways added 20 minutes or so to the schedules and now the operation is running well in the past and it is coming out in the industry. I am wondering if you are thinking about going back and tightening up the schedules again and if so, that is factored into the cost guidance.

Robert Isom

Hey Dan, it is Robert Isom. In fact, we have actually been tightening up the schedule, ever since that time and one of the things that I do want to point out is that we have had fantastic A14 results the DOT on time performance. That is certainly a result of all of our people getting together and getting our customers to the place they wanted to get on time. So underlying that is actually really strong performance in departing on time where almost 23% was better than we were last year. We are probably one of the top two in the industry now in departing on time. We are on a much tighter completion factor better year-over-year and also As Doug mentioned, operations are resulting in baggage claims being reduced by almost 45% year over year. So that tightening is going on and we are actually achieving a lot of the benefits that we hope to get over time.

Derek Kerr

Yes, to your cost guidance point. I mean, the one we have not given cost guidance yet for 2009, and some of that will be incorporated we get into that point of inter-budgeting process. But you are right. These are all cost saving and one that I find it (inaudible) point is looking at what is going on in the airline in terms of on-time performance in October. The numbers I believe when they reported by (inaudible) phenomenal on-time performance to the airline industry in October. And that is mainly because we have pulled down capacity and that has a real impact on your block times. We knew that was happening of course and we tried very hard to adjust our block times down but we still didn’t get them down low enough based upon what we are seeing out there with the number of airplanes flying around. And I think other airlines did adjustment more than we did. So that is definitely an opportunity for both better operations as classic as now but also in cost savings and we’ll sack that into our 2009 plan when we are ready to give you guidance on what those numbers are.

Dan McKenzie – Credit Suisse

Okay that is helpful. I you just permit me one last question here in a course that a risk of taking a dead horse – given all the commentary and demand but US Airways, of course, does taste [ph] some exposure to the financial meltdown given the hub in Charlotte, somewhat of the many financial center and of course the shuttle markets in the northeast, so yes, I guess I’m just wondering what you’re seeing in this segment or seen how this segment has impacted, and is it even material to you guys.

Doug Parker

Clearly, the financial section has been impacted the worse, We’ve seen a slowdown in New York and the shuttle market not really in Charlotte, and while we’re sad to see Wachovia will no longer headquartered in Charlotte. The good news for Charlotte is, Bank of America, acquiring Merrill Lynch. I think it probably counteracts that. So in that, I don’t expect any impact in Charlotte though we clearly have seen in New York in the shuttle slowdown in revenues.

Dan McKenzie – Credit Suisse

Okay, good. Thanks, I appreciate the perspective.

Operator

And we have 10 more minutes for questions. We will go next to Susan Carey of the Wall Street Journal.

Susan Carey – Wall Street Journal

Good morning, gentlemen. I know you can’t go beyond your – the terms of your 8-K on the –

Scott Kirby

But you’re going to ask us to anyway?

Susan Carey – Wall Street Journal

No, I just want to make sure I’m understanding it, that’s all.

Scott Kirby

I’m just kidding, Susan. Go ahead.

Susan Carey – Wall Street Journal

It’s dense. Okay, so I’m looking at the rough mass, and I’m linking, “Okay, we’ve got $200 million from Barclays, $270 million from the spares, $85 million from the engine agreement, $35 million from Republic, $200 million from Airbus, that brings you to $790 million,” which is close to $800 million. And then you got $150 million yet to arrange or finalized.

Scott Kirby

Okay.

Susan Carey – Wall Street Journal

So when you talk about – when Derek talks about taking collateral that was back in the Citigroup loan, refinancing and then using it to pre-pay that loan. I assumed some of this funding – that I just kicked off at laundry list is that financing, right.

Scott Kirby

Yes.

Doug Parker

It’s two and the one’s you’re –

Derek Kerr

Susan that would be the $270 million spare parts 85 engines.

Susan Carey – Wall Street Journal

And the 85?

Derek Kerr

Right.

Susan Carey – Wall Street Journal

Okay, bear with me. And you talked about in those discussions of those agreements, with the lenders from time to time party there too and GE test or GE capital. So GE capital is the arranger, it’s not them?

Derek Kerr

GE had (inaudible) its right behind of what GE capital is, right? What we –

Susan Carey – Wall Street Journal

The administration of agent and collateral agent?

Derek Kerr

Exactly.

Susan Carey – Wall Street Journal

So these are other parties and there just amalgamating and then handling, and servicing a loan?

Derek Kerr

Yes. Again, the disclosure on GE capital is that they are the administrative agent and –

Susan Carey – Wall Street Journal

Got it. Okay, so then, I take it to mean that the Citigroup’s final question just to check. Citigroup’s involvement in this whole material definitive agreement is really to allow you to pre-pay the loan and then reduce the amount of that covenant [ph]. They are not like giving you any new money. You are paying them back.

Derek Kerr

Yes. And again, the Citigroup is the agent for the entire bank group.

Susan Carey – Wall Street Journal

Okay.

Derek Kerr

For that whole bank debts which have a number of banks in it.

Susan Carey – Wall Street Journal

Okay.

Derek Kerr

Citigroup act as the agent and –

Susan Carey – Wall Street Journal

And that is a syndicated loan?

Derek Kerr

Yes, indicated loan as the agent and the syndicate voted in favor of the amendment.

Susan Carey – Wall Street Journal

Okay, got it. Okay, so we might know more about where the $150 million is going to come from on the next call.

Derek Kerr

Yes. I mean, it depends or again – we might it’s probably what he said. Some of this again maybe not rise to the level individually to be material to the company, so we may not have this level of disclosure about each of those, but we’ll certainly advice [ph] people where we can on that.

Susan Carey – Wall Street Journal

Okay, great. Thanks very much.

Derek Kerr

Thanks, Susan.

Operator

Our next question comes from Dawn Gilbertson of Arizona Republic.

Dawn Gilbertson – Arizona Republic

Good morning. Thanks for getting me in ahead of the Penny Saver. I got a couple of quick question, Scott for you. I just want to make sure I’m completely clear on demand. Are you saying you guys aren’t seeing a follow up in demand? You’re just seeing a change and closer and bookings, can you clarify that?

Scott Kirby

Well, it’s quite that simple. We said we’ve seen a slow down in leader demand. To date, it’s been more than offset by capacity cut. Definitely, we’ve seen a change in the booking curve [ph] that further it out bookings or weaker, but close year-end bookings are stronger. We don’t know what’s going to happen. We are trying hard not to make commentary going forward because we’re not sure, but that’s the evidence that we’ve seen.

Dawn Gilbertson – Arizona Republic

And when you say that change of the booking curve, does that apply both leisure and corporate?

Scott Kirby

It’s hard to tell. I think when I say it, my guess

Dawn Gilbertson – Arizona Republic

Do you have any sense or do you have any insights on – I mean hotels especially here in Phoenix. I mean demand is falling off a cliff, but it has all year. Why do you think maybe you haven’t seen a sharper follow up in demand?

Scott Kirby

Well, I think it goes back to what I said earlier in the Las Vegas question, which is what happen is for years you had flatten hotel capacity with growing airline capacity, so airfares came down in average daily room rate in hotel and occupancy went way up. You now got the reverse. The 10% [ph] capacity reduction in the airline industry and hotel where a lot of rooms expected to grow by 45% next year, so what happened is some of that consumer travel budget that was being spend on hotels is now being spent on airlines.

Dawn Gilbertson – Arizona Republic

Okay, got you. Okay. All right, thanks very much, Scott. I appreciate it.

Doug Parker

Thanks, Dawn.

Operator

We’ll go next to Tom Olson of Pittsburgh Tribune-Review.

Tom Olson – Pittsburgh Tribune-Review

Yes. Hi guys. With all the changes that you made in Pittsburgh in the last five years, is this base profitability yet?

Doug Parker

I don’t think we’re disclosing individual profitability and with an airline loss – whatever our loss in the third quarter, we really didn’t have many of our hubs profitable. And I’m certain Pittsburgh wasn’t but we’ll see.

Tom Olson – Pittsburg Tribune-Review

Hang on sir, what quarter were you saying?

Doug Parker

Say it again.

Tom Olson – Pittsburg Tribune-Review

I’m sorry. In what quarter were you saying?

Doug Parker

The third quarter that we just –

Tom Olson – Pittsburg Tribune-Review

Third quarter, okay?

Doug Parker

Now, oil prices have come down and we expect the demand environment to be better going forward, so we just have to wait and see.

Tom Olson – Pittsburg Tribune-Review

If I could follow up, do you foresee any further reduction to year-end Pittsburgh in terms of daily departures or in the number of destination served given the demand environment and so forth?

Doug Parker

I don’t know for certain what will happen in the future but we don’t currently have plans for further reductions.

Tom Olson – Pittsburg Tribune-Review

Okay, thank you.

Operator

All right, we’ll go next to Mary Schlangenstein of Bloomberg News.

Mary Schlangenstein – Bloomberg News

Thank you. Scott, I wanted to say if you could talk a little bit more in your plans of logging the industry because not only were you behind carriers with international ops but you also log behind JetBlue and Southwestern and their price increases. So I wanted to see what other factors you think might come in to play there that might be less of a factor in the international part, but what – can you talk a little bit more about that please.

Scott Kirby

Yes, I think it’s still the two things I said the most – have guarding the most impact. JetBlue has got unique issues. They’ve been outperforming the industry for a while as they re-gauge the airline, such a big part of it going to Embraer 190s, (inaudible), fewer seats for flight, dries up performance (inaudible), and frankly, actually getting closer to industry average that they were historically because they change their revenue management in the last couple of years to their credit and they’re driving more revenue. It’s outlast – it is – well, they didn’t – on their own (inaudible) as much, I mean, I think you heard on their call – I don’t really get the exact numbers that they said, but they’ve seen much greater capacity to their markets, 15% to 20% to new market, which are larger than we’ve seen in ours.

Mary Schlangenstein – Bloomberg News

Okay. All right. Great. Thank you.

Operator

And we’ll take our last question from Tom Belton of the Philadelphia Inquirer.

Tom Belton – Philadelphia Inquirer

Thank you, gentlemen.

Doug Parker

Hey, Tom.

Tom Belton – Philadelphia Inquirer

Last summer, I believe that in Philadelphia in the national operations, you were using the efforts of buses or passenger transport vehicles at times, and that was something that you didn’t want to do in the past. But was the response by customer at those busy times during the peak of seasonal traveling? What was the customer’s response to having to do that? And as a follow up to that, what’s the prospect or when do you expect additional gate capacity at Philadelphia more international operations?

Dour Parker

Tom, I can take the passenger transport vehicles. We run a fantastic operation in Philadelphia over the summer, and while we did use some of the transport vehicles, we didn’t really notice any impact either in terms of customer response or to our operation. Quite to the contrary, we had by far the best summer that we’ve probably ever had as an airline in Philadelphia. And all measures whether it was arrival in which departure’s on time or baggage performance. And as we talk before real credits to all the folks we got at, they’re working hard. Scott, I’ll let you take the gates, if you want to.

Scott Kirby

Oh, you want the gates too.

Tom Belton – Philadelphia Inquirer

On the gates –

Doug Parker

Tom, we had – a lot of work went it to this summer. We didn’t have exactly the set up that we want over the long run, but we’ve made tremendous progress, and I can tell you that what we see going forward with the schedule and a new announcement on Tel Aviv and Oslo and Birmingham, we think that we’re going to have a plan for next year that will meet our schedule needs, and hopefully we won’t have to use the transport vehicles.

Tom Belton – Philadelphia Inquirer

And is there – any progress on getting additional gate –? Is that still several years after with construction?

Doug Parker

Tom, definitely I’ll let Scott add to it too, but based on our fleet plan and what we’ve got in front of us, right now, we completely [ph] get what we need for next year, we’re going to really focus on the out years as – we determine where the industry and our airlines is going to go.

Scott Kirby

Yes, I would just add that we’ve got a great working relationship with the airport now. And while – needless to say, there has always been an options having these PTVs or otherwise [ph] – we’ve got a joint process now that we’re solving on getting to – we’ve also worked for US Airways in the last security grows is good for the city of Philadelphia, and I’m not sure what the ultimate answers would be in terms of gate further down the road, but I’m confident that the partnership we have with the city will get us to the right place.

Tom Belton – Philadelphia Inquirer

All right, very good. Thank you.

Doug Parker

Thanks, Tom.

Operator

And that’s all the time we have for questions. We’ll go back to the speakers for any additional or any closing remarks.

Doug Parker

Great, thanks. I do have one quick closing remark. It might be spreading around. Thanks to all the people that helped (inaudible). I neglected to thank our advisers, Steve Barry [ph], John Lupin [ph] and team in particular were just fantastic on this as was (inaudible). So those guys are heroes too and deserve our thanks. So I wanted to get that in to the extent everybody is still listening, thanks very much. We appreciate you listening in. Any question at all, please contact Corporate Communications or Investor Relations and we’ll do our best to give any information you need. Thanks again. Talk to you soon.

Operator

Again, ladies and gentlemen, this does conclude today’s conference. We thank you for your participation. You may disconnect at this time.

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Source: US Airways Group, Inc. Q3 2008 Earnings Call Transcript
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