Exit Financing & The Future

[UseYourHead]

Rico,

Don't confuse them with the facts...if it is not negative/anti-US Airways it will not be well recieved with this bunch.

Sad really :-(

Keep up the well thought out debate, we need it around here.

Geeze,

I knew you guys would have to move onto something new after you were each proved wrong about concessions/strikes/collapse

I will add the transformation of our company to te list after iit is accompished as well...

My point still stands, the Legacies are in no position to respond, the LCC's only have a finite amount of growth they can accomplish before the year's end, and right now we are in a good position to change things for the better.

Change takes time, and money. We have to be careful with each. But over the year I think (once again) you guys will be eating your words regarding U's chances.

Wait and see.

[post="242085"][/post]​

 

[Rico]

I would just like to see a little optimism around here for a change, or at least a willingness to see what happens... Rather than the Death March Chant that has become old.

Most of you need to realize that there has never been a better opportunity for U to fail OR succeed, as there is right now.

So let's try to do what we can to make it successful.

 

[UseYourHead]

I agree

I would just like to see a little optimism around here for a change, or at least a willingness to see what happens... Rather than the Death March Chant that has become old.

Most of you need to realize that there has never been a better opportunity for U to fail OR succeed, as there is right now.

So let's try to do what we can to make it successful.

[post="242102"][/post]​

 

[sfb]

I knew you guys would have to move onto something new after you were each proved wrong about concessions/strikes/collapse

This isn't anything new. Some/many of us have been asking what the company was going to do besides come after labor for well over a year. And you have to ask some fundamental questions about how the company intends to reduce non-labor costs or improve revenue; for example:

* If rolling the hub at PHL reduces costs, it should do so independent of lower wage rates. But why has it taken so long to begin fixing PHL, considering that AA rolled its two largest hubs long ago and Delta is managing to reschedule ATL in a matter of months?

* If systemwide GoFares are revenue-positive, they will add revenue regardless of labor cuts. If they are revenue-negative, they will decrease revenue with or without paycuts.

* Given how Independence Air has struggled in its attempt to be a low-fare carrier using RJ's, how exactly will US Airways be different in its mad rush to add more and more high-cost regional jets?

* How exactly will US Airways reduce its astronomical non-fuel, non-labor CASM to compete with the LCC's and the rest of the industry?

I will add the transformation of our company to te list after iit is accompished as well...

I'd be happy to eat my words if US Airways management pulls off a real transformation rather than bumping along for a few more years like TWA. TWA struggled for years in spite of its CASM (and pay rates) being one of the lowest among the network carriers.

My point still stands, the Legacies are in no position to respond, the LCC's only have a finite amount of growth they can accomplish before the year's end, and right now we are in a good position to change things for the better.

How exactly do the other legacies need to respond? AMR has about $3 billion in cash and equivalents; they can likely afford to lose some money on 5-10 routes out of MIA if they see it as being strategic. But the scope of what US can do at FLL is going to be severely limited by the facilities there for years -- assuming the focus city succeeds and you don't have B6 or NK deciding to take some of your traffic on the Caribbean/Central America routes. What would you envision as being Delta's "response?" They've already rolled out SimpliFares systemwide, so their response to systemwide GoFares would be what, exactly?

Southwest has 29 net aircraft coming this year. JetBlue has 22 aircraft joining its fleet. AirTran has 21 aircraft being delivered in 2005. Spirit has A321's coming, and Independence (if they survive) has A319's arriving. Delta will redeploy at least 12 757's to Song. All in all, at least 75 (and probably closer to 100) additional airliners will be joining the fleets of the various LCC's with a significant presence in US Airways' core East Coast market. Sure, that's a "finite amount of growth," but how much do they need to grow in order to make life difficult for US as it's just emerging from bankruptcy protection?

Change takes time, and money. We have to be careful with each. But over the year I think (once again) you guys will be eating your words regarding U's chances.

Wait and see.

You're absolutely right, and I will be the first to admit I'm wrong if indeed I am in the long term. But, I'm going to hazard a few guesses regarding the future based on the company's agreement with the ATSB. They're required to have at least $341 million in unrestricted cash on June 30; let's assume everything goes great and they're $100 million over the covenant. Let's also assume they get $250 million in equity investment from an investor. That gives $691 million in unrestricted cash -- right around what's owed to the ATSB. One would assume that there will continue to be restrictions on the company's cash balance, giving little room to maneuver even outside of bankruptcy. Southwest is going to be adding flights in PIT, and I have to believe that jetBlue and AirTran will be making things difficult for a reorganized US. Unless the airline's transformation is more dramatic than has been revealed to this point, I cannot see how it all turns out well. Call me a naysayer if you want.

Go ahead and prove me wrong. Don't just say that Citigroup and Govco are backing the plan; they took over the ATSB-backed part of the loan which means they have no risk. Don't tell me that Bombardier and Embraer are backing the plan; Bombardier's in trouble itself and the planes were built and sitting on a ramp in Canada. The E170's had been built and were sitting on a ramp in Brazil. GECAS has a significant interest in US Airways surviving simply because having 280 airframes all hit the market at once would be a serious blow to leasing rates worldwide. Heck, they're helping Indy, too. How does US get its CASM down to 9 cents when the non-labor, non-fuel CASM is over 5 cents?

My guess is that all I'll get in response is personal attacks.

 

[Rico]

Why would I personally attack you...?

Fact of the matter is that ou and I both are making assumptions based off of limited information.

Neither one of us can claim to be "correct" as a result.

But logic dictates that things would not have gone this far, if all of the issues you raised were not already thought of. Do you think the ATSB would have said "have at it" with reckless abandon, if U did not have a viable answer to each of the questions you raised.

Yeah, each of the creditors have "hedged their bets" in regards to U, but so what? That does not negate the viability of whatever the POR is going to be. Does it...?

All I know is that right now, the situation is as good for us to make a turnaround as it will ever get. Period.

JetBlue will not get their own EMB-190's until 4th quarter (alongside our own probably).

SWA growth in PHL is stymied for now, PIT is a small time affair that is months away, and CLT is nothing but wishful thinking at this point.

AirTran will grow, but that growth will hurt DAL moreso than U. They are limited by slots and gate space, not planes.

RJ's...? We are not buying the 32/35/44 seaters that DAL?CAL/AMR are stuck with, we are not adding durther 50 seaters either. We are adding 70 seaters into markets in which they are revenue psotive, and give us a decided competitive advantage like in DCA. Enough already with the mantra of a "RJ Flood" overtaking U and consuming everything mainline it it;s path. Try a dozen or so additional 70 seaters, that is it.

So chill out with the doom and gloom. The sky is not falling.

U is about to let the Plan of Reorganization out of the bag in a few weeks. So why dontcha wait until then to attack what you have little information about at this time.

Peace

 

[PITbull]

TechBoy:

I simply report what has been said inside the company and publicly by the chairman of the board and principal investor.

Regards,

USA320Pilot

[post="241680"][/post]​

If fuel prices do not come down....at least to an average of $44-45 over the next
6 months, and the fares stay low or even lower.... it will be dooms day for U, and many others.

 

[Finish or Ignore]

Well, I will agree that management has now gotten the cost cuts from labor which they claim to need. But given the company's track record, I believe it is prudent to remain skeptical (though open-minded) about the company's intent to implement the rest of the promised changes to the business. I suppose that makes me a "naysayer" and a purveyor of negative drivel (NOT DRIBBLE!!!!!), but I'm still waiting for the truly substantive changes to happen. I'm not holding my breath for "systemwide GoFares"

[post="242055"][/post]​

Very well put..What is the track record?
Rico/USA320/Use Your Head
It is a good trait to be optimistic..but when YOU ignore facts it reflects on you. We aren't where we are because of "internet and fundamentals" (USA320). The FLL buildup is more because LUV aint there. Yet. Not because of some savy business plan. As I said they have bought some time, and hopefully they can continue on. Some things have changed with the company and some are exactly the same. Pardon us if we don't have rose colored glasses like you.

 

[LGA / 037]

All the stock is allocated to RSA, employees, some institutional investors and the rest is the general public.




Will that stock be cancelled ?

 

[NuGuy]

The FLL buildup is more because LUV aint there. Yet. Not because of some savy business plan.

[post="242154"][/post]​

Good god, you are kidding, right? SW has the entire east portion of terminal 1. They overnight something like 12 or 13 aircraft a night there, more even than DL, which has almost owned FLL since time immortal.

FLL has no available gate space, and going through the wholly inadequate customs there with all these new Caribbean flights, its going to make PHL look like a walk in the park.

Even NOW FLL has gate holds almost every day due to traffic saturation from both airlines AND the large numbers of corporate jets. The setup and local traffic only allows a one runway operation.

The proposed extention of the south runway is on hold pending the eternal appeals of the "enviromental review" from neighborhood groups.

With JB, Airtran, Spirit and even NW adding more flights, FLL is going to become a parking lot.

MHO...

Nu

 

[funguy2]

sfb: you've articulated the argument well. Those with rose-colored glasses are free to see the world as they wish, however optimism will not win the day at US Airways. A well defined, implemented pragmatic plan might have a shot. I have seen a little bit of evidence of a marginally defined plan and only a few steps of implementation.

finish_or_ignore and NuGuy: The FLL build-up is a joke. It is true that Southwest is not in the int'l game from FLL (or anywhere else) yet. But what the FLL build-up represents to me is a continuing pattern of running from the problem... Abandoning markets where LCCs are because US Airways cannot compete. Its been a part of the US Airways strategy since 1991 or so. Perhaps mixed in with a pinch of, "maybe we'll get there before Spirit, and maybe we'll be an LCC by the time its done".

Of course, the challenge is to do all of this on a shoe-string budget and flawless implementation. Any hickup at this point could cause the whole house of cards to collapse, by simply being unable to pay current bills.

rico: You continue to ignore the fact that the aicraft is reducing its "mainline" fleet by 15 airframes, and adding 12 70-seat RJ's, thus increasing the percentage of RJs in the fleet, and increasing CASM (assuming all else is equal). Furthermore, if you beleive USA320Pilot, there are plans to re-institute ERJ-170 and CRJ700 acuisitions post BK, while Airbus deliveries have been placed on long term hold. Thus increasing the proportionate amount of RJs to big jets, and increasing CASM in the long term.

Lastly, I have stated some very specific structural problems which need to be addressed immediately, to which you have no response, and the company continues to go down the same road of mis-steps. I do see that improvements are occuring, the issue is whether they occur fast enough to cover continuing losses. With a huge revenue hit coming from DAL and LUV, and the inability to quickly change the structural problems, and the majority of employees "tapped-out" of concessions (what, should starting ramp pay be below minimum wage?), I see this being a continuing issue for US Airways, even if it continues to hobble along.

 

[BoeingBoy]

This is as good a place as any without starting a new thread.....

From JP Morgan (are they one of the "anointed" sources?):

"We believe the incremental impact [of DAL's Simplifares] on Continental will be meaningfully less than at US Airways and Northwest Airlines (nasdaq: NWAC - news - people ), two airlines generally unaccustomed to offering low hub fares."

Continental Airlines Set For Share Price Rebound

Jim

 

[mweiss]

Thus increasing the proportionate amount of RJs to big jets, and increasing CASM in the long term.

[post="242204"][/post]​

This is said an awful lot, and on its face is accurate. Nonetheless, I'd like to toss a hand grenade into that argument for a moment, if for no other reason than to encourage some additional rational discussion and perhaps discover something new.

We keep talking about CASM, and it certainly is important. At the same time, I'm sure we're all aware that the CASM of a 747-400 is much lower than an A320. So, taking the "RJs are bad because they increase CASM" argument to its logical conclusion, US should dump the current fleet and replace it with 747s.

Of course, that's absurd. Why? Let's ignore the acquisition and infrastructure costs for a moment, because they're not relevant to my point. We certainly would have no trouble filling a 747 for any of these flights. I can already hear you saying that I'm nuts, but I'm right. Face it, if the seats were sold for, say, $5 apiece, you'd fill that 747 in no time.

And there's the rub. The issue we keep ignoring (mostly because it makes the discussion easier) is the shape of the demand curve. That is, as we add seats, we have to cast a wider net in order to fill them. To cast a wider net, we have to lower the fare, which means we're lowering RASM at the same time that we're lowering CASM.

This is the classic supply-demand equilibrium problem!

So, while it's true that the RJs have a higher CASM associated with them, it is certainly possible that demand is low enough that RASM would increase more than CASM by downgauging...at least in some markets.

There is a potential flaw in this argument, however. It works very well if you have a monopoly on the route. If, however, you have competition on the route, your competitor might just upgauge in response to your downgauging. If that happens, the market supply doesn't change; you just service fewer customers at the same RASM...but now at a higher CASM.

So the RJ strategy can work under two scenarios:

• US has a monopoly in the market. This is a rapidly shrinking list of markets.
• US has competitors in the market, but they won't upgauge. This is a serious gamble, particularly if the competitors have a lower CASM. Such a move would, in fact, give a significant competitive advantage to the other airline if it simply upgauges.

Something to think about.

 

[BoeingBoy]

Michael,

my 2 cents worth ...

I think most would not argue with a network carrier having some amount of RJ's. Aside from the factors you mention, there are time of day, day of week, and market size factors that enter into RJ's making sense (or turboprops from a purely CASM view, but passenger perception does enter into it). This in spite of the patently obvious fact that RJ's do increase system CASM if all else is equal.

It certainly isn't me that has repeatedly said that our "cost structure" (now there's a hard to pin down expression) has to be competitive with the LCC's. In fact, I have said something of the opposite - a well-run network carrier should be able to realize a yield premium over the LCC's. But management keeps harping on the "competitive cost structure". Since the emphasis is supposedly on costs, there follows some questions.

When do you have enough RJ's and more merely increase system CASM needlessly? Is 28% of system capacity enough or do you need 50%? Is one RJ per 2 mainline aircraft enough or do you need parity?

Would available financing be better spent on additional mainline aircraft (or keeping the one's we have) or on additional RJ's?

Jim

 

[mweiss]

I think most would not argue with a network carrier having some amount of RJ's.

I'd even argue for a point to point carrier having some amount of them...under the right circumstances.

It certainly isn't me that has repeatedly said that our "cost structure" has to be competitive with the LCC's.

Nope. Me, either. But we have had conversations that revolve around costs without discussing revenues. It's easy to do, particularly in a thread that is focused on costs.

When do you have enough RJ's and more merely increase system CASM needlessly? Is 28% of system capacity enough or do you need 50%? Is one RJ per 2 mainline aircraft enough or do you need parity?

The answers to those questions depend on the routes you're serving, and the three-dimensional shapes of the demand surfaces for those routes. The three dimensions of that surface are fare, quantity demanded, and time of the flight.

Would available financing be better spent on additional mainline aircraft (or keeping the one's we have) or on additional RJ's?

[post="242263"][/post]​

Depends on the answers to your earlier questions.

 

[sfb]

Rico-

Well, the ATSB also signed off on the business plan for post-Bankruptcy I, and we all can see in retrospect that it was a dog on the revenue side, even though the company came in under the cost projections. To be honest, I'm not privy to the information they're getting from the company, but I'd imagine they're willing to give the company some slack up to the point where the taxpayers' money might be threatened. The support of the other players like GECAS, Citigroup, Bombardier, etc. doesn't convince me yet given the other considerations each one has -- what you term "hedg[ing] their bets."

SWA's entry into PIT is months away, but then, so is US Airways' planned emergence from bankruptcy. And the real unanswered question is how quickly they intend to build up service there. PIT O&D represented close to 10% (9.3%, to be more specific) of US Airways' revenues in 2002; how much of that can the company afford to lose going forward?

As for PHL, SWA is not as constrained as you might think. They did pick up a couple of extra gates which would allow them to increase service by about 50% from 42 daily departures this spring. Moreover, US's exclusive-use gate leases at PHL in the B-C Terminal expire in June of next year, which throws the whole gate availability issue up in the air long-term.

AirTran's growth at ATL is pretty much on hold at this point because they've just about maxed out their half of Concourse C. While they certainly impact Delta, FL's growth on the East Coast also has a significant effect on US. The big unanswered question right now is where they're going to put all their new planes this year, since they lost out on MDW.

With the mainline fleet shrinking and the number of 70-seaters increasing, my issue with the RJ's coming is that they have higher CASM than the larger jets they're replacing. This isn't entirely bad, as mweiss mentions, in that they make routes possible which cannot support a 120-seat 737-300 or A319. What is false, though, is that the 70- and 90-100-seat RJ's are some sort of magic bullet that will make you competitive with the LCC's. Getting clearance for the E170's to use DCA commuter slots was a boon to the company, and adding routes like DCA-DFW and DCA-IAH is innovative if business travelers can be lured away from mainline aircraft on AA or CO offering a first class cabin. But using the E170 in a relatively strong market like PHL-IAH really seems like a poor decision when you have Southwest flying PHL-HOU for the budget-minded and CO offering mainline on PHL-IAH.

To expound on Michael's point further -- the RJ's could help the company if it really were going to more of a point-to-point focus. Adding point-to-point routes from cities east of the Mississippi to LGA, DCA, and BOS, focused primarily on O&D traffic at moderate yields, makes a lot of sense. But if they're being used to downsize flying to and through the hubs, simply to push yields up by restricting capacity, the long-term effect is that LCC's will continue to invade your stronger spoke markets and eventually the bigger hub markets as well.

I'm waiting on the POR to see if there's anything new. I'm still not convinced that this isn't a modified rehash of Gangwal's "Plan B" back in August, 2001.