Moving Goal Posts?

[BoeingBoy]

I'm sure everyone remembers the webcast and Siegel saying that we are a 10 cent per ASM carrier and need to get to 6 cents per ASM to be competitive.

On my last trip I read the US Airways Update and noticed this quote by Lakefield:

"US Airways’ cost per available seat mile is 13 cents, while the low-cost carriers is at 7 cents."

Jim

 

[USFlyer]

I think Siegel used to quote CASM *excluding* fuel. The 13 cent CASM, as I recall, includes fuel.

 

[BoeingBoy]

1st quarter mainline was 11.68 cents CASM including fuel, no figure was given for consolidated CASM.

Maybe the 13 cents is anticipated 2nd quarter CASM. Maybe it's consolidated instead of just mainline (though it seems low to be this).

Jim

 

[mweiss]

13 was the average CASM for CY2003. I've been restricting my analyses to annual aggregates because it's hard to separate out the seasonal fluctuation noise from the long-term signal. When comparing a quarter year-over-year in that situation, do you go by percentage change? Absolute numbers? How would one extrapolate the Q1 results to a projection of Q3 based solely on seasonal fluctuations?

 

[BoeingBoy]

mweiss,

Without looking it up, I'll take your word that the reported 2003 CASM was 13 cents ( though it sounds high since the post-bankruptcy reported numbers were lower than that I think).

Jim

 

[BoeingBoy]

Ok, I looked it up. According to the annual report, the 2003 mainline CASM was 11.36 cents.

Jim

 

[mweiss]

I wasn't intending to quote reported. I apologize if I gave the wrong impression in that regard. I was basing it on total reported operating cost divided by reported available seat miles.

Now that it's clear that there's a discrepancy between the two, it appears that I'm including some extra stuff. According to the 10K, here's what I included in "total operating cost":

[numbers are in millions]
Personnel: $2,662
Fuel: $830
Express Capacity Purchases: $645
A/C rent: $431
Other rent & landing fees: $429
Selling expenses: $407
A/C maintenance: $402
D&A: $232
Asset Impairments: $34
Government Compensation: ($214) [this is a credit]
Other operating expense: $1,239

Total operating expense: $7,097

Total ASM: 51,564,717,500 (not in millions)

Based on their reported 11.36c, that would mean taking everything in the above cost list except for "other operating expense." Their reported RASM excludes freight; I included freight in my calculations.

The hard part here is making an apples-to-apples comparison. If I use WN's method, I get the 13c CASM. If I use US's method, WN's numbers no longer match their annual reports, because of the exclusion of freight from revenue and "other" from cost. So I guess it all depends on what sort of metrics one is using when referring to these numbers.

 

[funguy2]

mweiss:

I have noticed things like this before... How the numbers can be 'manipulated' in order to tell the story one wants to tell, especially when trying to compare companies. I applaud you for taking the time to find the apples-to-apples comparisons.

 

[BoeingBoy]

mweiss,

It appears you are using mainline ASM's (51,494,000,000 is the figure I get from the 10K) instead of system ASM's (58,017,000,000). Since you're including "capacity purchases", which is the express operation (W/O'ed & affiliate), this should give you a better figure for the whole operation.

Also, and I haven't done the math to check, it may be possible that some of the "other" catagory isn't used to figure CASM by the company. For example, the sale of HotWire is listed as one of the "other" items, but may not really be an "operating" item in the strictest sense.

Jim

 

[mweiss]

Jim,

Funny you mention that about the ASM number. I thought that might be the problem at first, but then I noticed that the numbers match up perfectly if I exclude the Express ASMs but keep the Express Capacity Purchase. Something's mighty funny in the state of Denmark, it would seem.

Or, perhaps it just coincidentally worked out (a remarkable coincidence, matching to four significant digits) but really should have included Express ASMs, and kept a (unspecified) part of Other.

 

[LaBradford22]

mweiss,

What's probably going on is that USAir pays its Express partners a fixed fee (either on a per departure or per ASM basis, or something like that) for capacity. All of the revenue generated by these partners' flights (both onboard and upline/downline) is included in USAir's revenue (and hence, USAir's RASM). The only cost USAir incurs in the transaction that generated this revenue was the fixed fee in the capacity purchase, so that cost is included in CASM.

I'll admit it is a bit tricky that the Express ASMs are excluded. They are probably required to exclude these, since they are flown under a different code.

If the whole Express operation was simply excluded from all calcs, reported CASM would be lower but so would RASM. Presumably, Express has more of a positive impact on RASM than a negative impact on CASM (otherwise one would assume USAir would not have the Express arrangement in place, but then again, it is USAir, so who knows).

 

[sfb]

I wasn't intending to quote reported. I apologize if I gave the wrong impression in that regard. I was basing it on total reported operating cost divided by reported available seat miles.

Now that it's clear that there's a discrepancy between the two, it appears that I'm including some extra stuff. According to the 10K, here's what I included in "total operating cost":

[numbers are in millions]
Personnel: $2,662
Fuel: $830
Express Capacity Purchases: $645
A/C rent: $431
Other rent & landing fees: $429
Selling expenses: $407
A/C maintenance: $402
D&A: $232
Asset Impairments: $34
Government Compensation: ($214) [this is a credit]
Other operating expense: $1,239

Total operating expense: $7,097

Total ASM: 51,564,717,500 (not in millions)

Based on their reported 11.36c, that would mean taking everything in the above cost list except for "other operating expense." Their reported RASM excludes freight; I included freight in my calculations.

The hard part here is making an apples-to-apples comparison. If I use WN's method, I get the 13c CASM. If I use US's method, WN's numbers no longer match their annual reports, because of the exclusion of freight from revenue and "other" from cost. So I guess it all depends on what sort of metrics one is using when referring to these numbers.

Actually, there's not a discrepancy between the two; you just have to pick the right set of numbers from all the numbers the company publishes and also make the correct inclusions/exclusions (and it took me a couple of tries to get it all right!).

To arrive at the company's FY2003 mainline CASM of 11.36 cents (including fuel and unusual items), start with the company's statement of operations (the Excel spreadsheet). Take the cost numbers for US Airways, Inc. (not Group) as detailed in the tab marked "AIR PG1." In this sheet, total the nine-month cost numbers for the successor company ending Dec. 31 and the predecessor company ending March 31, but exclude "US Airways Express capacity purchases." This will give a total "mainline" cost of $5.861 billion ($7.006 billion - $1.145 billion in express capacity purchases); divide by 51.583 billion mainline ASM's to give a mainline CASM of 11.36 cents. This is actually seen in the tab marked "AIR PG3" (alluded to by the "Note 3" missing from the AIR PG2 spreadsheet), which also reconciles some of the non-GAAP numbers (like CASM excluding fuel & unusual items) reported by the company.

Reading page 3 for Airways, Inc. is also interesting in that one can see that the company "made" $69 million on the Express business in 2003 (note that this doesn't take into account the overhead costs that mainline incurs for operating the Express business). Also note, however, that this segment was modestly unprofitable in 1Q2004 with a loss of $9 million (identical to last year), unsurprising given that the first quarter is historically weak.

From the company's financials, one can see that labor costs have come down by about 13% per ASM from the first quarter of 2001 -- from 5.09 cents to 4.44 cents. The company's non-labor, non-fuel CASM in 1Q01 was, by my calculation, 6.00 cents. The 1Q04 non-labor, non-fuel CASM was 5.58 cents -- a drop of 7 percent from 2001.