Brancatellis Column/ Trustee Appointed ?
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RowUnderDCA
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CynicalResAgent said:
Oh, my your cynacism has messed with your perception. Have you even paid attention to the transformation plan? What does it say? How will it happen, considering that U doesn't have a time machine, so management can go back in time and stand up to labor in the nineties and make decisions with clairvoyance?
airlineorphan
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N628AU wrote:
In fact 1, 2, 3, 4 and 7 are all by definition morons when it comes to running a company that: ( a ) does things; ( b ) makes things; or ( c ) moves people/things.
Face it, they're from the finance sector (Bronner being a player in that arena though he is actually in the public sector). They know how to make money out of money, but when it comes to running a company that does anything, they have a pretty bad track record.
Of course that's the sector from which we got Lakefield. So no big surprises where I sit.....
In solidarity,
Airlineorphan
In fact 1, 2, 3, 4 and 7 are all by definition morons when it comes to running a company that: ( a ) does things; ( b ) makes things; or ( c ) moves people/things.
Face it, they're from the finance sector (Bronner being a player in that arena though he is actually in the public sector). They know how to make money out of money, but when it comes to running a company that does anything, they have a pretty bad track record.
Of course that's the sector from which we got Lakefield. So no big surprises where I sit.....
In solidarity,
Airlineorphan
BoeingBoy
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N628AU,
"If the plan was so bad, where is the Brancatelli article from March 2003 saying this paln had no chance"
Can't point to an article by Brancatelli (because I don't know if he wrote one then or not. However, Unisys publishes a monthly "Scorecard" on transportation issues. In a May 2003 article titled "Congratulations US Airways. Now What?", they said:
"On March 31, 2003, US Airways emerged from Chapter 11, a remarkable accomplishment given current industry conditions. Congratulations are in order.
But now that the euphoria engendered by surviving a near-death experience is over, the question remains: Is US Airways—or any other legacy carrier—positioned to survive, much less prosper, in the years ahead?
No need to keep you in suspense; unless US Airways can get its unit costs close to the levels of the new-generation airlines, we very much doubt it."
Does that have the ring of truth to you.....
Jim
"If the plan was so bad, where is the Brancatelli article from March 2003 saying this paln had no chance"
Can't point to an article by Brancatelli (because I don't know if he wrote one then or not. However, Unisys publishes a monthly "Scorecard" on transportation issues. In a May 2003 article titled "Congratulations US Airways. Now What?", they said:
"On March 31, 2003, US Airways emerged from Chapter 11, a remarkable accomplishment given current industry conditions. Congratulations are in order.
But now that the euphoria engendered by surviving a near-death experience is over, the question remains: Is US Airways—or any other legacy carrier—positioned to survive, much less prosper, in the years ahead?
No need to keep you in suspense; unless US Airways can get its unit costs close to the levels of the new-generation airlines, we very much doubt it."
Does that have the ring of truth to you.....
Jim
Jim,
Obviously the company had more work to do after exiting Chapter 11 the first time. My point was that he is bashing management with some 20/20 hindsight, and I did not see many or anyone with the foresight to say what they needed to differently then the first plan. I don't see any suggestions from Unisys in your quote from them.
Orphan,
It is a financial world, that is the problem. Without US being able to access the capital (read: Financial) markets, it is doomed with no time to weather any storm, much less a perfect storm of depressed yields, high fuel prices, and the slow winter months approaching. This Chapter 11 is about buying more time to get that done. Without it, the airline could have stopped flying sometime in the fall. This at least gives the airline a shot to get through the leanest months until the holidays to get some additional revenue and hopefully get costs to where they need to be to allow the financial people to get the cash to survive through to the spring and complete the transformation plan.
Obviously the company had more work to do after exiting Chapter 11 the first time. My point was that he is bashing management with some 20/20 hindsight, and I did not see many or anyone with the foresight to say what they needed to differently then the first plan. I don't see any suggestions from Unisys in your quote from them.
Orphan,
It is a financial world, that is the problem. Without US being able to access the capital (read: Financial) markets, it is doomed with no time to weather any storm, much less a perfect storm of depressed yields, high fuel prices, and the slow winter months approaching. This Chapter 11 is about buying more time to get that done. Without it, the airline could have stopped flying sometime in the fall. This at least gives the airline a shot to get through the leanest months until the holidays to get some additional revenue and hopefully get costs to where they need to be to allow the financial people to get the cash to survive through to the spring and complete the transformation plan.
RowUnderDCA said:
Even if management had stood up to labor back in the nineties, the situation today wouldn't be all that different, although the timetables for the bankruptcies might have been shifted back a bit. US Airways might have made profits in 1999 and 2000, though the cash generated would probably have been used by Wolf/Gangwal to buy back more stock, rather than pay down debt.
Look, even if management gets every single labor concession they're asking for, that still doesn't fix the gross inefficiency in the rest of the system. UAIR's stage-adjusted CASM excluding labor and fuel is higher than LUV's CASM excluding fuel! When you count in fuel costs, WN is even further ahead! And mainline labor concessions still won't fix the problem that RJ's are not an effective way to compete with LCC's. RJ's may offer a lower block-hour cost for thinner routes, but they still have an inherently higher CASM. They generally make sense for an airline trying to restrict capacity and charge higher fares, though it remains to be seen how Independence will do with its CRJ's at IAD or how Delta's SimpliFares work out at CVG with its CRJ's.
I've read through the major points of the "Transformation Plan" and remain largely unconvinced of its effectiveness. We can go through them one-by-one:
* Competitive pricing. The TP speaks of simplifying fares, and I agree this is a good idea. And yet, the fare structure is determined by management; a new fare structure could be implemented at any time CCY were to choose. I have heard it claimed (by management) that the simplified pricing structure would lead to lower yields, and that's why it currently exists as little more than a matching of WN and DH fares at PHL and WAS. If this is indeed the case, competitive pricing cannot be counted as contributing to management's $700 million in "cost savings," as it will decrease the bottom line.
* Competitive product. This includes an improved website, more kiosks and gate readers, "reconfigured" seats, IFE, and better PHL facilities. The first two could lead to cost improvements; getting 20% of US Airways' passengers to book via usairways.com, for example, would save around $100 million/year in distribution costs at roughly $10 per passenger. The savings from gate readers are less dramatic (probably around $10 million from eliminating a couple hundred customer service jobs), and the returns from additional kiosk deployment are likely to be minimal at this point. The other product initiatives will probably raise costs, though they may help improve revenues as well.
* Competitive scheduling and distribution. Well, of course, this is a no-brainer. But if it's so important, why didn't the company get the ball rolling a year ago? AA rolled its DFW and ORD hubs before asking for paycuts, downscaled its hub at STL, simplified its fleet, reduced turn times, and added point-to-point flying in certain strategic markets (like RDU, BOS, and LGA) -- and they didn't seem to need until 2007 to do it. And arguably they have had far greater exposure to LCC's than US Airways has. Delta is restructuring its operation as well by eliminating DFW as a hub, and they're doing so over five months, unlike the lingering demise of US's PIT hub (not that I think US should eliminate PIT, mind you).
* Competitive costs. Here's the most contentious point -- and interestingly, at no point in this section of the company's "Supplemental First Day Brief" is there a mention made of Southwest. I'll quote:
First of all, the last sentence of this paragraph isn't supported by the facts. You cannot tell me that a non-labor mainline cost structure which is higher than FL, B6, WN, HP, DL, and NW is "competitive." Even with labor CASM reduced to the HP/B6 level, US's non-fuel CASM will still be 1.1 to 2.7 cents above the LCC's.
Strangely, though, the entire section says nothing about UAIR's high non-labor costs. Nor does it say much, if anything, about the company's inefficient use of its personnel beyond vague references to "work rules." It is telling that US Airways' labor cost per full-time mainline employee was only 5 or 6% higher than Southwest's in the second quarter, and yet for some reason, labor CASM at US was 40% higher than Southwest's in the same quarter. Nor does it mention again that US's non-labor non-fuel CASM was a whopping 115% higher than Southwest's in the same quarter.
All that said, I also don't see the employees of US Airways having much choice here -- either they go along with some really crummy, bottom-of-the-industry concessions or they let ongoing mismanagement to put them in the unemployment lines.
usair_begins_with_u
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Hell yeah.. this is so true.. there are some good people in CCY, but most of Senior Managers and above are worthless idiots.. We are talking about people who pull 85K-105K yr... doing nothing but arguing over adv. bookings reports, adding no value to the bottom line..
Uair mgmt sucks.
Uair mgmt sucks.
WorldTraveler
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N628AU,
The reason all of those lenders were willing to lend money (or sell services to US) is because everyone involved in the airline industry seems to make money EXCEPT the airlines – manufacturers do, suppliers do, airports do (or break even since most are supposed to be non-profit)…. All of the companies you mention are for-profit companies who have collateralized their interest in US except for the ATSB which is governmental (but which still collateralized its investment) and the RSA, which like the employees could well losers in the whole thing – which is why Bronner has been leaning on his many years of great investments for the RSA.
No one who has dealt with US is a moron – they either see money to be made and protected their investment or have enough of it to lose some and not sweat.
Sfb,
US’ real problem is that you cannot shrink a network business such as an airline to profitability. Period. UA is finding out the very same thing. Network businesses such as airlines inherently become more efficient as they grow and less efficient as they shrink. For US and UA, it is compounded because labor agreements with the company stipulate that the highest seniority people will be the last ones standing – which only increases costs. Compounding US and UA’s inability to reduce costs because they are shrinking the airline is the fact that the revenue environment continues to deteriorate for network airlines. Costs are not coming down and revenues even on the remaining routes continues to fall apart.
All of the items US mentioned in the transformation plan are laudable but they don’t fix the basic imbalance between revenues and expenses which only gets bigger as the airline shrinks. Bankruptcy is the only viable way to resize the company by removing costs that don’t fit the desired company size (ie rejecting aircraft leases) but if labor costs continue don’t go down as revenue shrinks, there can never be a viable transformation of the company.
I’m not necessarily endorsing US management’s business plan, but there is some truth to their assertion that labor costs are one of the few costs that cannot be “right-sized†to a new business model without imposing cuts such as those permitted under 1113.
The reason all of those lenders were willing to lend money (or sell services to US) is because everyone involved in the airline industry seems to make money EXCEPT the airlines – manufacturers do, suppliers do, airports do (or break even since most are supposed to be non-profit)…. All of the companies you mention are for-profit companies who have collateralized their interest in US except for the ATSB which is governmental (but which still collateralized its investment) and the RSA, which like the employees could well losers in the whole thing – which is why Bronner has been leaning on his many years of great investments for the RSA.
No one who has dealt with US is a moron – they either see money to be made and protected their investment or have enough of it to lose some and not sweat.
Sfb,
US’ real problem is that you cannot shrink a network business such as an airline to profitability. Period. UA is finding out the very same thing. Network businesses such as airlines inherently become more efficient as they grow and less efficient as they shrink. For US and UA, it is compounded because labor agreements with the company stipulate that the highest seniority people will be the last ones standing – which only increases costs. Compounding US and UA’s inability to reduce costs because they are shrinking the airline is the fact that the revenue environment continues to deteriorate for network airlines. Costs are not coming down and revenues even on the remaining routes continues to fall apart.
All of the items US mentioned in the transformation plan are laudable but they don’t fix the basic imbalance between revenues and expenses which only gets bigger as the airline shrinks. Bankruptcy is the only viable way to resize the company by removing costs that don’t fit the desired company size (ie rejecting aircraft leases) but if labor costs continue don’t go down as revenue shrinks, there can never be a viable transformation of the company.
I’m not necessarily endorsing US management’s business plan, but there is some truth to their assertion that labor costs are one of the few costs that cannot be “right-sized†to a new business model without imposing cuts such as those permitted under 1113.
BoeingBoy
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From the Unisys "Scorecard" referenced above:
"So, just at the moment when it’s too late, US Airways has placed what might be the largest bet ever on regional jets. Let’s hope no new-generation airlines decide to take them on at their hubs."
And for N628AU, there's this:
"This is US Airways’ recovery plan, its own words.
In order to successfully respond to current industry conditions, [US Airways] initiated a restructuring plan that contains the following major elements:
1. achieve competitive mainline cost structure (emphasis supplied),
2. right-sizing the business by reducing mainline fleet count by 13% and by future deployment of 37 - 76 seat regional jets, and
3. execution of a domestic and international code-share alliance with United Airlines and Star Alliance partners.
Notice the absence of anything about changing its business model; it’s all
business as usual, at somewhat lower costs."
And this:
"Finally, and contrary to some press accounts, US Airways is counting on
an increase in yields to make it profitable once again.More than half of the
$2.1 billion additional annual passenger revenue it projects by 2009 “is due
to increased passenger yield and load factors.†The remainder is due to the
increased number of regional jets to be operated by the US Airways Express carriers.
"We wish them well, we really do. But the industry’s long-term experience of ever declining real-dollar yields and the recent landslide in yields resulting from the defection of the full-fare business traveler make the expectation of a billion dollar annual windfall seem a little wishful."
To paraphrase someone else, "It's the business model, stupid". Unisys recoginzed that counting on increasing yield and not restructuring the airline was a fundamental flaw when we emerged from BK1. It took management something like 8 or 9 months to recognize that the "plan" wasn't working and revenue was below expectations. It's now 18 months after emerging from BK1, and management still hasn't restructured the airline.
Jim
"So, just at the moment when it’s too late, US Airways has placed what might be the largest bet ever on regional jets. Let’s hope no new-generation airlines decide to take them on at their hubs."
And for N628AU, there's this:
"This is US Airways’ recovery plan, its own words.
In order to successfully respond to current industry conditions, [US Airways] initiated a restructuring plan that contains the following major elements:
1. achieve competitive mainline cost structure (emphasis supplied),
2. right-sizing the business by reducing mainline fleet count by 13% and by future deployment of 37 - 76 seat regional jets, and
3. execution of a domestic and international code-share alliance with United Airlines and Star Alliance partners.
Notice the absence of anything about changing its business model; it’s all
business as usual, at somewhat lower costs."
And this:
"Finally, and contrary to some press accounts, US Airways is counting on
an increase in yields to make it profitable once again.More than half of the
$2.1 billion additional annual passenger revenue it projects by 2009 “is due
to increased passenger yield and load factors.†The remainder is due to the
increased number of regional jets to be operated by the US Airways Express carriers.
"We wish them well, we really do. But the industry’s long-term experience of ever declining real-dollar yields and the recent landslide in yields resulting from the defection of the full-fare business traveler make the expectation of a billion dollar annual windfall seem a little wishful."
To paraphrase someone else, "It's the business model, stupid". Unisys recoginzed that counting on increasing yield and not restructuring the airline was a fundamental flaw when we emerged from BK1. It took management something like 8 or 9 months to recognize that the "plan" wasn't working and revenue was below expectations. It's now 18 months after emerging from BK1, and management still hasn't restructured the airline.
Jim
WorldTraveler-
Yes, it is difficult in the airline business to shrink to profitability, though not impossible. CO did so when it abandoned its hubs at DEN and GSO, while HP gave up on its CMH mini-hub. The only way to do it, though, is to have solidly profitable markets into which to retreat and a decent revenue environment. The latter, at least, is lacking at present.
My feeling is not that the company should leave labor costs completely alone; rather, it is that the company had done so little in the bankruptcy process to reduce its non-labor costs. From 3Q02 to 3Q03, labor costs dropped by $92 million. Aircraft rent fell by $30 million (largely due to lease rejection on grounded aircraft and some renegotiated leases). All other costs together were down by a whopping $3 million. For the first nine months of 2003, labor costs were down by $514 million (about 20%) over the same period of 2002 -- about five-eighths of the company's total decrease in operating costs. Just as a footnote, I selected those dates to try to compare pre-bankruptcy numbers with post-bankruptcy numbers, though the comparisons are not perfect.
My opinion is that cuts in employee salaries simply will not work without a meaningful restructuring of the rest of the airline and its costs -- and that does not mean shifting still more capacity to RJ's. How can US expect to compete with Southwest or the other LCC's when its mainline stage-adjusted CASM remains 50% or more higher? How can US compete if WN gets access to more gates at PHL or decides to enter PIT?
The company is still failing to "transform" its inefficient use of its labor and non-labor resources -- and without doing so, they will not succeed.
Yes, it is difficult in the airline business to shrink to profitability, though not impossible. CO did so when it abandoned its hubs at DEN and GSO, while HP gave up on its CMH mini-hub. The only way to do it, though, is to have solidly profitable markets into which to retreat and a decent revenue environment. The latter, at least, is lacking at present.
My feeling is not that the company should leave labor costs completely alone; rather, it is that the company had done so little in the bankruptcy process to reduce its non-labor costs. From 3Q02 to 3Q03, labor costs dropped by $92 million. Aircraft rent fell by $30 million (largely due to lease rejection on grounded aircraft and some renegotiated leases). All other costs together were down by a whopping $3 million. For the first nine months of 2003, labor costs were down by $514 million (about 20%) over the same period of 2002 -- about five-eighths of the company's total decrease in operating costs. Just as a footnote, I selected those dates to try to compare pre-bankruptcy numbers with post-bankruptcy numbers, though the comparisons are not perfect.
My opinion is that cuts in employee salaries simply will not work without a meaningful restructuring of the rest of the airline and its costs -- and that does not mean shifting still more capacity to RJ's. How can US expect to compete with Southwest or the other LCC's when its mainline stage-adjusted CASM remains 50% or more higher? How can US compete if WN gets access to more gates at PHL or decides to enter PIT?
The company is still failing to "transform" its inefficient use of its labor and non-labor resources -- and without doing so, they will not succeed.
Oliver Twist
Advanced
Seems to me that I was not the only one who thinks U's Past "Management" was worthless in seeing the writing on the wall. No Vision, No Plan - unless you count the plan that says all of U's people are paid too much.
Last time I checked, WN's salary scale is a lot higher than U's right now and growing. It's the "culture and operation" of U that needs to change, not people's take home pay - except the "uppers" take home pay anyway. FIX the inefficiencies(sp) first, then hit the employees.
2 more pennies to think with.
Last time I checked, WN's salary scale is a lot higher than U's right now and growing. It's the "culture and operation" of U that needs to change, not people's take home pay - except the "uppers" take home pay anyway. FIX the inefficiencies(sp) first, then hit the employees.
2 more pennies to think with.
