Ict/uct Dead!

[Cosmo]

Dave Siegel, CEO of United's code-sharing business partner US Airways, made the following comment yesterday in response to a recent article in Plane Business:

As for our vision, it remains the same and it remains clear: We are going to be a super-regional carrier focused in the East, with a competitive product, cost structure and network (the latter, through strategic domestic and international alliances).

His complete comments with regard to the above-mentioned article can be found in the "Dave's Rebuttal" thread on the US Airways board.

I believe that this comment, straight from the US Airways CEO's mouth, finally lays to rest Chip's theory about an interesting/unique corporate transaction between United and US Airways. It sounds like Siegel knows what he wants US Airways to look like in the future, and that vision doesn't seem to encompass a takeover of most of United's domestic operations.

Any comment, Chip (or anyone else)?

 

[willyloman]

This is the one piece of important information that Chip left out of his "analysis" since Dave first announced his vision plan for U just weeks after his arrival at the airline. Dave announced it to the WSJ (not picked up by Chip). Probably too afraid to face the eventual reality of becoming captain on an RJ.

 

[Fly]

willyloman Posted on Aug 29 2003, 01:42 AM

Probably too afraid to face the eventual reality of becoming captain on an RJ.

The fright the poor man must have had when he realized is life long mistake.

 

[767jetz]

Thanks for the info Cosmo. I would have never found it over on the US board since I spend little time there these days. It does certainly pertain to United since USAir (Piedmont) is our code share partner. Also since the recent discussions on this board have been a constant barrage of theories about US taking over assets from UA.

I'll be curious to read Chip's inevitable response to his own CEO's words.

Brace! Brace! Brace!

 

[737nCH11]

I, too, am awaiting a response (without the rose-colored glasses please).

Chip, this seems pretty cut and dried. This isn't rumor or speculation. This is gospel straight from the mouth of your CEO. It's so blunt and honest that it has to be true. I admire the man for not blowing smoke up everyone's skirt. He could have just as easily lied, but he chose not to.

A regional carrier focused on the east coast which feeds it's STAR partners. Now does it make sense why U dropped SNA and LGW? I guarantee you that it's just a matter of time before LH starts service to PIT and PHL. U will provide them feed for Europe.

As I said before, I could give a rat's red a** what happens here. I just don't want more people to be laid off. But.......Now can you see what everyone has been trying to tell you for the last six months? UAL isn't giving up anything. Tilton has stated that in the media. If that doesn't convince you, then consider the fact that the man is in China launching a code-share deal that will open China's huge travel market to UAL. He's not over there yucking it up with the commies and eating stir- fried cat so he can hand over his flying to USAirways.

I sympathize with you about the plight of the airline industry, but you have to play the hand you are dealt. U's is to become a STAR feeder, plain and simple. Not to be cliche', but you can't seem to see the forest for the trees. Look at all the positive press about UAL in the last several months. Why would they break up the company when they have come so far? The argument that you make was valid in February when things were rather grim for UAL, but that was months ago. Hell, one week in the airline business can be an eternity. Unless you can come up with some new reasons to support your theory, well, as they say in the south, "that dog won't hunt."

Looking forward to your response,

737

 

[USA320Pilot]

737nCH11:

With all due respect, I believe you do not have a clue on what is going on here. Did you miss Ben Baldanza's airline analyst conference call comments about London Gatwick and other international destinations, which I have posted? Furthermore, this is the third year in a row that the company has pulled down Pittsburgh to London service, therefore, this seasonal reduction was expected and prudent.

I have had a number of conversations in person, on the phone, and via email with Dave Siegel regarding US Airways business plan. In fact, he has flown on my jump seat three times and we have talked at CCY.

Dave has made this comment on countless occasions and he is a master at using comments to manage expectations. Furthermore, what a better way to disguise your real intentions to your competition than to throw public curve balls? I recently told Dave that he is a master of third-party comments and he laughed and agreed with my comment. Why? Because he knows I can usually figure out when he is manipulating his audience, which could be AGAA, Leo Mullin, or Gordon Bethune.

As we all know, US Airways chairman of the board David Bronner, who Dave Siegel works for, has speculated in three separate interviews, "that United has a 50-50 chance of surviving." He said that if United were to sell assets, he would consider backing the purchase of some "if it would be beneficial to US Airways."

I can assure you the UCT is alive and well and United ALPA fully understands this.

Interestingly, the new United ALPA Collective Bargaining Agreement dated march 27, 2003, the pilots requested a change in their fragmentation language listed in Attachment G, Section 1, Recognition, Scope, and Career Security. On page 29, the United pilots requested a change from their ERP I and ERP II "pre-nuptial" seniority integration language to new merger integration policy.

The new policy is "mirror image" to US Airways, conforms to ALPA Merger & Fragmentation Policy, and specifically discusses if United is sold or fragmented.

737nCH11, can you tell me why the United ALPA Negotiating Committee and MEC created fragmentation language that is "mirror image" of the US Airways pilot contract?

Also noteworthy, US Airways has a clause that states that if more than 15% of the pilots are transfered the surviving carrier must take US Airways pilots, however, the United pilot contract states that the successor does not have to employ United pilots unless more than 50% of the assets are sold.

Therefore, if US Airways or another airline acquires United aircraft, the acquiring business entity does not have to employ United pilots.

Can anybody tell me why the United pilots negotiated this fragmentation language into their contract?

Regardless, it is looking more and more likely United will have to sell assets to emerge from bankruptcy, unless a corporate raider or white knight emerges to provide exit financing. 737nCH11, I was just wondering, if United’s business plan was so strong, can you tell me why after nearly 9 months in bankruptcy United has no exit financing in place and US Airways had exit financing in place before it filed for a formal reorganization?

Best regards,

Chip

 

[USA320Pilot]

737nCH11:

I thought it would be helpful to post all of Dave's comments:

Dave's Rebuttal

A number of employees have contacted Dave Siegel regarding an online column called “Plane Business Banter†recently written by Holly Hegeman, which featured extensive commentary about US Airways. For the benefit of those who raised questions, as well as all other employees, Dave offers the following rebuttal:

While I am not a regular reader of “Plane Business Banter,†several of our employees forwarded to me excerpts from Holly Hegeman’s column titled, “US Airways: One Year Later.†After reading this issue, it is unlikely that I ever will become a regular subscriber, as its appears that the author clearly has limited understanding of our business. Let me correct some factual errors in an attempt to set the record straight.

First, I applaud Doug Parker, America West’s chairman and chief executive officer, and his management team for implementing a successful new fare structure, and I agree that the industry needs to adopt a simpler structure with lower unrestricted fares and fewer restrictions, which is easier said than done. For America West, which has virtually no high fare traffic, its new structure is revenue positive. If US Airways were to adopt it, we would actually lose revenue, something we absolutely cannot afford to do. Other network carriers have experimented with lower, simpler fare structures recently and these actions have been revenue negative. If you ask Doug Parker, he likely would tell you that what America West did makes sense for them, but not other network carriers.

On the cost side, the data is just plain wrong. Despite reducing our capacity twice as much as other network carriers, our year-over-year unit cost performance (9 percent reduction in Cost per Available Seat Mile, or CASM, excluding fuel) was the best in the industry. At the same time, our unit revenue performance (2 percent increase in Revenue per Available Seat Mile, or RASM) was also the best in the industry, and it was our best relative unit revenue performance during the second quarter in four years.

As for our vision, it remains the same and it remains clear: We are going to be a super-regional carrier focused in the East, with a competitive product, cost structure and network (the latter, through strategic domestic and international alliances). We continue to lead the restructuring effort among mature network carriers, having made the greatest progress in improving revenue, reducing cost and strengthening our capital structure. We also recognize that our work is far from done, a consistent theme with our employees, shareholders and customers. There is no better reminder of this than the increasing challenges presented by low-cost competitors. We are keenly focused on meeting this challenge, since, along with all other mature network carriers, our very survival depends upon it.

Let me now comment on the advice of one of Holly’s long time advisors:

1. Although I hold a bachelor of science degree in applied mathematics and have done graduate-level work in operations research methods and econometrics, I have no idea what a “genetic optimization program†is. I am more familiar, however, with terms like “genetic counseling,†“genetic code,†and “genetic defect.â€

2. At US Airways, we have introduced sophisticated decision optimization tools for demand forecasting (a 16-variable multi-nomial logit model) and aircraft allocation (a complex linear-programming optimization model). These tools have helped us re-schedule and re-fleet the airline, enabling US Airways to achieve its best relative unit revenue performance in four years. The improvement process is ongoing.

3. We continue the optimization process, aided by recently introduced sophisticated profitability systems, never before available to the company. We can now tell with unmatched precision where we are making money and losing money to continue our improvement of the business.

4. We have changed out two-thirds of the officer group since I arrived and eliminated 20 percent of the officer positions, making us the leanest management team in the industry. Although I hold the former Piedmont managers that I worked with at Continental in high regard, and consider Gordon Bethune my mentor, most of these managers are well past retirement age and succeeded in an era of limited competition. Our vision of optimizing our hubs in Philadelphia, Pittsburgh, Charlotte is logical and feasible. The vision suggested by Holly of focusing solely on Charlotte is the “bad dream†she suggests, not to mention that it would result in slashing the workforce further.

5. We have worked tirelessly with labor to implement a friendly restructuring, reaching consensual agreements with our employees. Labor friendly means working through the difficult issues and reaching a consensual agreement. If we had the 1989 Piedmont labor contracts, you are correct, we instantaneously would be significantly profitable. If we had the 2003 America West contracts for that matter, we would be solidly profitable. We do not. We have labor contracts that look more or less like our bigger competitors, Continental, American and United.

6. I actually have given some thought to changing the name back to Piedmont Airlines, but it’s probably too regionally focused.

7. About half of the network carriers own their commuters, half do not. We will own ours if it makes sense and sell them if it does not. We are still executing our plan.

8. What made Piedmont Airlines a success was a good product, competitive labor costs, limited competition and a motivated workforce. Today’s highly competitive environment is different. Focusing solely on Charlotte and its heavy dependency on connecting traffic is just plain suicide. Scaling back, as Holly suggests would eliminate 70 percent of our workforce. There are no profitable hub opportunities left in the Midwest. To the contrary, it is already over hubbed. No amount of “genetic optimization†is going to change that.

9. We serve small and medium-sized cities from small and medium-sized hubs. To profitably match capacity with demand, and feed our hubs, we need to have the right size jet aircraft. Regional jets work by having lower trip costs, i.e., not flying around many empty seats, even though seat mile costs are higher.

The bottom line and what Holly needs to understand is that we were left for dead and have played a difficult hand remarkably well. We continue to try and change our culture, but it is difficult to lay off employees and take away their pay, even when we risked losing everyone’s job. We still pay our line employees very competitive industry wages, especially when compared to the alternatives. The old USAir didn’t work because it had a non-competitive cost structure and excess capacity. The old Piedmont, while a fine airline, lived in another era of limited competition. The world has changed. Painting the airplanes purple and hubbing Dayton again would not work either.

Our vision of focusing on our core assets in Philadelphia, Pittsburgh and Charlotte is working. For this second quarter, we have moved from the bottom of the pack to the middle, with pre-tax margins around the same as Continental and Northwest. We continue to optimize the network, add regional jets and build our alliance partnerships. This team did the same at Northwest and Continental with much success. The difference now is that low cost-competitors are rapidly changing the marketplace. (Our long-term success will depend on our employees’ willingness to forget the past (which we cannot change) and work with management to build a better future.) As I have said many times, our restructuring work is far from done. We have led all mature network carriers over the last 18 months in meeting these challenges and expect to continue to lead the industry these next 18 months as US Airways and other mature network carriers continue to restructure during this time of unprecedented challenge in the industry.

 

[USA320Pilot]

Just one more point...with United's business plan having a lot of holes to plug and revenue about to drop off after Labor Day, we could find out the resolution to the Pittsburgh negotiations and the UCT in maybe as early as two months.

By the way, can anybody else besides 737nCH11 tell me why United ALPA sought Merger & Fragmentation language identical to US Airways and eliminated the pre-nuptial clause?

Regards,

Chip

 

[USA320Pilot]

Cosmo & 737nCH11:

Since you posted just a portion of Dave's comments, I thought I would give you key points from US Airways recent Wall Street analyst conference call, to clear thing sup a bit.

US Airways Analyst Conference Call Key Comments – July 28

Recently I reviewed the July 28 US Airways Analyst Conference Call and I thought it would be of interest to list some of the company’s comments. Listed below are some of the key points for the quarter ending on June 30:

 The company’s financial results included a $92 million charge that reduced profits to account for US Airway's issuing stock to employees as part of post-bankruptcy agreements, however, the stock has yet to be distributed. Without this charge last quarter, the airline would have posted a second quarter net profit of $105 million. The company will take additional non-cash stock charges, for employee distributions, of $28 million in Q3 2003, $12 million in Q4 2003, $46 million in 2004, and $20 million in 2005.

 US Airways recorded total revenue of $1.78 billion in the second quarter that included a 2.8 percent increase in revenue from domestic travel, versus less than 1 percent increase for the rest of the industry.

 US Airways PRASM is 100.4 percent and leads the industry. Unit revenue was up 2.8 percent versus a 0.9 percent unit revenue rise for other ATA carriers.

 That marked US Airways' best showing against competitors since late 1999. The Pittsburgh Tribune review wrote, "That's very encouraging," said William Lauer, chairman of Allegheny Capital Management Inc. in Tarentum, who follows the company. "But the question is, will the normal summertime surge in traffic lead to a more robust fall, or more of a fall in the fall?"

 Year-over-year labor expense dropped 29 percent and aircraft rental expense dropped 18 percent.

 During its in-court restructuring, US Airways reduced its debt by $2.6 billion. The company went from 421 mainline aircraft pre-September 11 to 279 aircraft upon bankruptcy emergence, which created an additional cost reduction of $1.9 billion for a total debt reduction of $4.5 billion.

 Total restricted and unrestricted cash was about $2.0 billion, with $1.42 million in restricted cash. The company’s unrestricted cash grew by $157 million during the quarter.

 US Airways chief executive officer Dave Siegel told Wall Street analysts the company is showing significant improvements since exiting bankruptcy, even though last quarter's results were "less than stellar." The carrier has “one of the best S&P and Moddy’s credit ratings,†he said.

 Ben Baldanza, senior vice president of marketing and planning said US Airways will end direct service from Pittsburgh to London Gatwick on October 28, however, the company is considering “bringing back the non-stop flights next summer. The airline put no timeline on any decision to reinstate Pittsburgh-Gatwick service.

 Siegel believes the MAA EMB-170 “will change the game and will be a revolution.†The aircraft is expected to immediately be profitable and will have a “break even load factor of about 50 percentâ€, he said. 150 of the 170 PSA and MAA RJs have been financed at attractive rates. Siegel noted when fully deployed the RJ expansion is expected to generate $300 million per year in additional revenue and they are cost effective because they are deployed a “trip versus unit cost†basis.

 Siegel said the company is going to consolidate the number of regional partners in a year or two. US Airways expects to significantly reduce the number of turboprops in the fleet during the next few years and will phase out PSA’s Dornier 328s in the next 18 months, because the aircraft has become increasingly difficult to maintain. During bankruptcy the company obtained flexible turboprop lease cancellation agreements where these aircraft will come out of service “at very little cost,†Siegel said.

 “Mesa Airlines is the preferred partner that will expand,†Siegel said.

 Looking ahead, management said they expect competitive pressures, particularly from United, will keep ticket prices down for the remainder of the year. The company said it believes it will be until 2005 until revenue recovers.

 Blaylock & Partners airline analyst Ray Neidl commented “it’s amazing to finance 90 percent of the RJ order in this environment.â€

 In regard to alliances, Siegel told the analysts the Star Alliance has shifted from a revenue to a cost synergy alliance. Star is working on creating a “seamless experience†with automation, where “other alliances have not accomplished this,†Siegel said. The Lufthansa bilateral alliance will begin in the fall where each airline is expecting about an additional $50 million per year in revenue. The Lufthansa MOU will “bring more money – more quickly,†Siegel noted. US Airways must complete its Star Alliance initiatives by December 31 and the company expects to join Star in the first quarter of 2004. The United alliance has grown to provide US Airways with about 84,000 additional bookings per week, which represents about 10 percent of the company’s traffic. (Note – US Airways recently announced the alliance has provided the company with about 100,000 additional weekly bookings, during the busy summer travel period).

 Over time, management expects to grow transatlantic operations, principally from Philadelphia, and the Lufthansa agreement should have “greater opportunities due to Philadelphia.†As RJs arrive the company expects to re-deploy mainline aircraft into long-haul markets. Mainline capacity will remain flat in 2003 and 2004, but there will be some route reallocations with seasonal growth opportunities into the Caribbean, Central America, and Europe. There will be significant RJ ASM growth.

 Year-over-year stage length grew 8 to 10 percent due to the asset reallocation that has lowered CASM. Going forward the company is targeting a 9 percent CASM reduction year-over-year.

 The Inflight Café buy on board product is available on 324 flights, which represents 25.4 percent of all daily mainline departures.

 US Airways had its highest internet booking penetration of 22.6 percent.

 Siegel was asked about the August 28 announcement that Atlantic Coast Airlines (ACA) would either keep it current agreement in place or break ties with United. Siegel said he was skeptical of the plan and there is nothing low-cost about the RJ operator. "I'm onfident that ACA will turn itself into a low-fare airline, but there's never been anything low-cost about them," he said.

 US Airways is in the “early stages of its restructuring†and there will be a major 2004 “cost take out programâ€, Siegel said.

Following the call the news media reported Standard & Poor's airline analyst Philip Baggaley noted US Airways' progress in cost cutting. Baggaley said the carrier had the second-best pretax cost margins of the major hub-and-spoke airlines this quarter. Last year, US Airways ranked among the worst, he said. Neidl said he wasn't surprised with the results, considering that the airline recently emerged from bankruptcy and faced "a tough revenue and economic environment." But, noting that without the $214 million grant from the Transportation Security Administration the company would have lost money, he added: "I guess I hoped that they would have done a little better.''

Regards,

Chip

 

[LGA Fleet Service]

With all due respect, I believe you do not have a clue on what is going on here.

Pot, meet Kettle...

 

[TheLarkAscending]

I have had a number of conversations in person, on the phone, and via email with Dave Siegel regarding US Airways business plan. In fact, he has flown on my jump seat three times and we have talked at CCY.

Dave has made this comment on countless occasions and he is a master at using comments to manage expectations.

Capt. Munn:

Did it ever occur to you that you may be one of those persons being manipulated? That due to your ever-present, self-appointed expertise and extremely high visibility on this bulletin board that you may be the one that is being tossed around with double-speak? That perhaps one of your secret sources is using comments to manage Your expectations? After all, as you've said several times within this forum, you're only an employee of US, why would CCY reveal and trust you with the ultimate business plans?

For illustration purposes, let's call them trial balloons - you're the balloon, they're the helium and they inflate you with all sorts of strange disinformation and then they release you to rush around breaking all those noteworthy speculations here first .... and perhaps through your supercilious posts, fraught with secret sources, you, unknowingly fulfill their expectations every single time?

I believe that is commonly defined as a pawn: one that can be used to further the purposes of another.

 

[Ukridge]

I must say Lark that this is the facet of these discussions that has always fascinated me. Although the technical repartee is interesting to follow, the folowing comment of Chip's is worty of exegisis.

" Furthermore, what a better way to disguise your real intentions to your competition than to throw public curve balls? I recently told Dave that he is a master of third-party comments and he laughed and agreed with my comment. Why? Because he knows I can usually figure out when he is manipulating his audience, which could be AGAA, Leo Mullin, or Gordon Bethune."

First is the braod implication that the shop boy is now dining at the factory owner's home. The bonhomie is downright touching. I am particulary appreciative of the turgid prose Chip employs as he states that "he laughed and agreed with my comments." Was this a deep guffaw or a polite chuckle? The scintilating rejoinder was probably too much for us to follow. One can imagine Chip and Dave in the salons of Paris - perhaps in the presence of the ghost of Getrude Stein.
More importantly however, is that Chip applauds these masterly arts of the verbal rapier to Mr. Siegel in his ability to throw the public "curve balls." The skills go so far as to even deceive Messrs Mullin and Bethune! Of course Chip would NEVER admit that Mr. Tilton and his staff may employ the same arts of verbal trickery and the floating of trial ballons - that they would 'test the waters' of Wall Street and the banking houses. Is it inconceivable that other leaders would employ the same skills or does Mr. Siegel have the market cornered on this ability?
Usually the last person to know that he or she is being 'used' is the victim himself. With the corporate rules (SEC?) that come into play, I would seriously doubt that the CEO of a corporation would be releasing important information to the shop boy. If this were not the case would not the authorities have an interest in what information Mr. Siegel so regularly dispenses to Chip per telephone?
I am always suspicious of a peasant in the Royal's Box at Ascot. (This of cours a reference to the famous horse race)

 

[Bear96]

Of course Chip would NEVER admit that Mr. Tilton and his staff may employ the same arts of verbal trickery and the floating of trial ballons - that they would 'test the waters' of Wall Street and the banking houses. Is it inconceivable that other leaders would employ the same skills or does Mr. Siegel have the market cornered on this ability?

Bingo.

Just want to make sure Chip didn't miss that VERY apt point.

 

[novaqt]

Chip:

Did it ever occur to you that Dave is humoring you since you fly a multi-million dollar aircraft and it is better to double talk you than to upset you with the thought that you might be flying a super RJ in the future? Why on earth would a CEO give you the inside skinny and not any other worker bee? If you are that powerful why don't you set up a golf game with yourself, Dave, Cosmo and 767jetz? We would all like a private line directly to the top.

 

[737nCH11]

Chip,

I'm still not sure of your reasoning regarding Siegle's comments. You find it acceptable that he is misleading the competition, yet you find it hard to fathom that UAL won't lay their cards on the table for all to see.

Also, you have not convinced me that UAL will have to sell assets to exit CH11. Why will they? With the exception of having the BK cloud hanging over their head, I believe that the company is back on track.

Not having an equity investor at this point doesn't worry me in the least. As I have said before, CEO Tilton wants to have control of the company's destiny. The company doesn't want some renegade who shoots from the hip coming in and taking over (I'm sure upper-management job security has something to do with it also ). I saw an article in which several investors were griping that they had been turned away by UAL, so when you say that they don't have an equity investor lined up you are distorting things somewhat.

ALPA's fragmentation policy was negotiated around UAL's old low cost carrier plan. Remember that this called for forming a separate company under the UAL umbrella. If this had occurred it would have been easy to sell off the operation at some point in the future. As it stands now, the LCC is so tightly connected to UAL that I consider the fragmentation argument a moot point.

UKridge has a point about your chummy relationship with U upper management. Aren't some of the things these guys are telling you covered by confidentiality agreements? Do they want you spilling all of their secrets on the internet? Hell, I went to a luncheon where the guest speaker was the head of UAL's LCC operation, and I won't post that info on here at the risk of doing UAL a disservice.

Regards,

737