US Airways 2007 Annual Report Download - page 46

Table of Contents
Total revenue in 2006 was $11.56 billion compared to $5.07 billion in 2005. The majority of the increase in revenue resulted from
the inclusion of the results of US Airways Group as a result of the merger. In addition, an increase of $373 million, or 11.4%, was driven
by an increase in passenger yield of 12.8% due to improvements in the revenue environment from increased demand and reductions in
industry capacity.
Total operating expenses in 2006 were $11 billion compared to $5.29 billion in 2005, primarily reflecting the impact of the merger.
The remaining increase in operating expense of $288 million or 8.5% was driven by the following factors:
• Aircraft fuel and related tax expense increased $99 million or 12.2% due primarily to a 16.5% increase in the average price per
gallon of fuel to $2.09 in 2006 from $1.80 in 2005.
• Loss (gain) on fuel hedging instruments, net fluctuated from a gain of $75 million in 2005 to a loss of $79 million in 2006 as a
result of a period over period increase in the volume of barrels hedged during a period in which the fair market value of the
costless collar transactions decreased.
• Other operating expenses increased $36 million or 11.3% in 2006 primarily due to the transition from the FlightFund frequent
flyer program to the Dividend Miles program, which resulted in higher costs due to the Dividend Miles program allowing
members to redeem awards on Star Alliance partner airlines.
Total nonoperating expense increased $36 million or 31% from 2005 to 2006, primarily reflecting the results of the merger. Interest
income increased $123 million to $153 million in 2006 due to higher average cash balances as a result of the merger and higher average
rates of return on investments as well as $8 million of interest income earned by AWA in 2006 on certain prior year federal tax refunds.
Interest expense increased $148 million to $295 million due to higher average debt balances as a result of the merger.
The 2006 period includes $6 million of nonoperating expense related to prepayment penalties and $5 million in accelerated
amortization of debt issuance costs in connection with the refinancing of the loan formerly guaranteed by the ATSB and two loans
previously provided to AWA by GECC, as well as $17 million in payments in connection with the inducement to convert $70 million of
the 7% Senior Convertible Notes to common stock and a $2 million write off of debt issuance costs associated with those converted
notes. These expenses were offset by $11 million of derivative gains attributable to stock options in Sabre and warrants in a number of
companies. The 2005 period includes nonoperating expense of $8 million related to the write-off of the unamortized value of the ATSB
warrants upon their repurchase in October 2005 and an aggregate $2 million write-off of debt issuance costs associated with the exchange
of the 7.25% Senior Exchangeable Notes due 2023 and retirement of a portion of the loan formerly guaranteed by the ATSB.
US Airways' Results of Operations
In connection with emergence from bankruptcy in September 2005, US Airways adopted fresh-start reporting in accordance with
AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." As a result of the
application of fresh-start reporting, the financial statements prior to September 30, 2005 are not comparable with the financial statements
for the periods after September 30, 2005. While the effective date of the plan of reorganization and the merger was September 27, 2005,
the results of operations for US Airways during the four day period from September 27 through September 30, 2005 are not material to
the financial statement presentation. References to "Successor Company" refer to US Airways on or after September 30, 2005, after
giving effect to the application of fresh-start reporting for bankruptcy. References to "Predecessor Company" refer to US Airways prior to
September 30, 2005.
On September 26, 2007, as part of the integration efforts following the merger of US Airways Group and America West Holdings in
September 2005, AWA surrendered its FAA operating certificate. As a result, all mainline airline operations are now being conducted
under US Airways' FAA operating certificate. In connection with the combination of all mainline airline operations under one FAA
operating certificate, US Airways Group contributed 100% of its equity interest in America West Holdings, the parent company of AWA,
to US Airways. As a result, America West Holdings and AWA are now wholly owned subsidiaries of US Airways. In addition, AWA
transferred substantially all of its assets and liabilities to US Airways. All off-balance sheet commitments of AWA
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