Mr. Obdurate {Weiss}, Are you comparing ALL the "Legacy" carriers combined to Southwest, or what ? You're not making sense...If what you say is true, Southwest would be making HUGE profits instead of small profits [due to their ability to hedge fuel].mweiss said:
New Casm?
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jack mama
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funguy,
3 problems i see with the numbers: unable to factor in the the increased cost due to outsourcing everything, rasm will likely continue to decline with pressure from DAL, LUV and GOFares, and from what i can tell you've assumed everyone elses CASM will stay the same, even though DAL and CAL have announce major cuts. Its a race to the bottom, and even through all this, UAIR is just middle of the pack....
I want to be positive, but I just don't see a profit in the future...can't every one just raise fares by $1. It would be interesting to see someone calculate the losses for the industry per year and the amount the average fare would have to be raised to offset the difference. I wonder if the number is small or large???
3 problems i see with the numbers: unable to factor in the the increased cost due to outsourcing everything, rasm will likely continue to decline with pressure from DAL, LUV and GOFares, and from what i can tell you've assumed everyone elses CASM will stay the same, even though DAL and CAL have announce major cuts. Its a race to the bottom, and even through all this, UAIR is just middle of the pack....
I want to be positive, but I just don't see a profit in the future...can't every one just raise fares by $1. It would be interesting to see someone calculate the losses for the industry per year and the amount the average fare would have to be raised to offset the difference. I wonder if the number is small or large???
jack mama said:
A ballpark guess is about $10 per passenger. Given about 700 million passengers, that would equal about $7 billion, just about enough for each airline to be profitable.
But that's a little too simplistic to apply to the real world.
Besides, if airlines could raise fares by even a buck, they would have already done so. Overcapacity is causing the low fares. Remove some of that capacity, and fares will rise. When there's a world-wide oil glut, it falls to $10-$12/bbl. When demand catches up, we find $50/bbl oil.
Same thing with fares.
jack mama said:
Jack:
WILL there be an increase in costs to outsource certain
functions? If the baseline cost to perform a function
with US personnel is $9.00 per hour, plus the cost
of medical benefits and retirement, and the outsourced
vendor offers to do the job for $9.00 per hour, and
absorbs the cost of the medical, retirement, and
vacation benfit (if they are offered at the vendor), then it
stands to reason that the outsourced vendor will cost
less than a company employee.
The cost savings can then be returned to the bottom
line, which in the end, produces a profit versus a
deficit. This is where things have come to. The
company can hire an outside vendor to do the job
much less expensively than they can do it themselves.
All of the liabilities of having a company paid
employee can be shifted to the vendor, and more
often than not, the vendor can provide the service
for a lower cost.
For this reason, with close to 50% of the employees
being outsourced, US Airways should have the tools
to make a profit in 2005.
BoeingBoy
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SpinDoc said:
Depends on how you define "an increase in costs", or maybe more correctly what base you use to determine if costs increase or decrease.
Take maintenance, which funguy used in one of his calculations....
If you go from the pre-agreement cost level (with the mechanics staffed to do the heavy checks) the company believes there'll be a cost reduction from outsourcing.
But if you go from the post-agreement cost level (after staffing has been reduced), the outsourcing cost is an addition to the new future base of in house costs.
The question is whether total maintenance cost is reduced (in-house plus outsourced) going forward, and if so by how much.
Jim
I'm saying you can pick any legacy carrier you want...compared to WN, the legacy carrier loses money even if fuel were free for them.insp89 said:
Why? Last quarter, they would have had a small profit even if they bought on the spot market. The hedging just made it much better for them. What makes you think that they'd do better with the higher fares and corresponding lower quantity demanded?
...Weiss, show me your figures to back up your statement that the so called legacy carriers [ pick one ] would still lose money even if they received their fuel for free..B.S.mweiss said:
If fuel costs do not drop in the fore-seeable future, [and even if fuel would drop ] Southwest's stranglehold on the industry will diminish as their continued fuel hedging will cost them more, thus the beginning of leveling the playing field.
Usairways has no more excuses when it comes to labor costs. Now it's time for management to get off their butts and fix the operational side. [Which should of been done years ago]. I do believe management has dragged their feet on fixing the operational side for the simple reason of building a "Doom & Gloom " case for more labor concessions..
BoeingBoy
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insp89 said:
Michael can speak for himself, but I'm hoping he made a little mistake here since that's patently false. With the exception of DAL, I believe every airline would have made money if fuel were free. Even DAL, if you take out the $1.8 billion in one-time non-cash charges, would have seen positive results.
Perhaps he was thinking "fuel costs equal to WN's" but wrote "free"....
Jim
Jim's close. I did misspeak, but not in the way he thought. What I meant to say is that the legacy carriers would be less profitable than WN even if they could get free fuel...which would mean that WN would still be setting the fare bar. The point is that the hedges are exacerbating the yield erosion problem, but are not the fundamental cause.
In any case, I'm not going to dispute insp89's comment that the remaining issues are operational. It's obviously true. In fact, it was true before this round of concessions. Nonetheless, it appears that the current management philosophy is to remake the airline in the image of HP. It's not necessarily a bad idea; HP is the only airline to survive a serious head-to-head against WN. It's just not especially innovative. Then again, when one's back is against the wall, perhaps "innovative" isn't the thing to be.
In any case, I'm not going to dispute insp89's comment that the remaining issues are operational. It's obviously true. In fact, it was true before this round of concessions. Nonetheless, it appears that the current management philosophy is to remake the airline in the image of HP. It's not necessarily a bad idea; HP is the only airline to survive a serious head-to-head against WN. It's just not especially innovative. Then again, when one's back is against the wall, perhaps "innovative" isn't the thing to be.
jack mama:
You raise all valid points.
I did discuss (breiefly) the RASM picture. I really don't know how it will change Q4 to Q1, so I chose not to guess and merely presented a "if it all stays the same" scenario. We all know this is unlikely due to moves by LUV, DAL, and now jetBlue at BOS.
I did assume CASM stagnent for the other carriers, and you are right, they will change too. Its just too much work for me to make predictions for all the airlines. Maybe I'll try later for a few other carriers... maybe. But seriously, analysts work 40+ hour weeks doing that.
As for the outsourcing question... I did attempt to address that. I included $44mil/quarter in outsourced MX, based on what we've read here about the company attempting to outsource some of that function. But you are right, I have no data on outsourcing station work to UAL at UAL hubs (if that is to happen), or MX, or res functions, or whatever.
After reviewing my own assumptions, one assumption, which may be bad, is a 3.5% reduction in ASMs based on the 10 departing A319's being 3.5% of the fleet. It occurred to me that the A319's have fewer seats than most other mainline types (maybe all) and they, unlike to 757s and the 767/330 fleets are less likely to fly all night. Thus, maybe I should have reduced ASM's by a smaller factor. This would create more ASM's over the same costs, thus slightly reducing CASM a little more.
Of course, I never claimed this to be any more than a "guestimate"... So please feel free to interpret. If anyone can add any additional hard numbers, pass them along, we can add them in.
I am willing to keep an open mind and get to the truth... Or at least the best guess of what the future holds.
You raise all valid points.
I did discuss (breiefly) the RASM picture. I really don't know how it will change Q4 to Q1, so I chose not to guess and merely presented a "if it all stays the same" scenario. We all know this is unlikely due to moves by LUV, DAL, and now jetBlue at BOS.
I did assume CASM stagnent for the other carriers, and you are right, they will change too. Its just too much work for me to make predictions for all the airlines. Maybe I'll try later for a few other carriers... maybe. But seriously, analysts work 40+ hour weeks doing that.
As for the outsourcing question... I did attempt to address that. I included $44mil/quarter in outsourced MX, based on what we've read here about the company attempting to outsource some of that function. But you are right, I have no data on outsourcing station work to UAL at UAL hubs (if that is to happen), or MX, or res functions, or whatever.
After reviewing my own assumptions, one assumption, which may be bad, is a 3.5% reduction in ASMs based on the 10 departing A319's being 3.5% of the fleet. It occurred to me that the A319's have fewer seats than most other mainline types (maybe all) and they, unlike to 757s and the 767/330 fleets are less likely to fly all night. Thus, maybe I should have reduced ASM's by a smaller factor. This would create more ASM's over the same costs, thus slightly reducing CASM a little more.
Of course, I never claimed this to be any more than a "guestimate"... So please feel free to interpret. If anyone can add any additional hard numbers, pass them along, we can add them in.
I am willing to keep an open mind and get to the truth... Or at least the best guess of what the future holds.
BoeingBoy
Veteran
- Nov 9, 2003
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funguy,
Just FYI, the 319 is the smallest capacity mainline aircraft at 120 seats. The 737-300 is next with 126. Then the 320, the -400, and the 321.
When it comes to A/C utilization, there is utilization and then there is utilization. Block hour utilization is well and good, but ground time contained in block time produces no ASM's - only flight time does that.
And there is where the 319/320 may be at a further disadvantage in ASM production, even though the average block time per day is higher than the 737. For example, the shuttle operates in some of the more delay prone (waiting in line, holding) airports, particularly LGA. Likewise, it operates to places like LAX and SFO where the 737 doesn't. Maybe one day I'll combine some BTS databases to compare ASM production per day.
And as an aside, that's one of the places where PHL hurts the operation. Last numbers I looked at, it was still running about 8 minutes of taxi time above CLT/PIT - an extra 8 minutes of block time that isn't producing ASM's.
Jim
Just FYI, the 319 is the smallest capacity mainline aircraft at 120 seats. The 737-300 is next with 126. Then the 320, the -400, and the 321.
When it comes to A/C utilization, there is utilization and then there is utilization. Block hour utilization is well and good, but ground time contained in block time produces no ASM's - only flight time does that.
And there is where the 319/320 may be at a further disadvantage in ASM production, even though the average block time per day is higher than the 737. For example, the shuttle operates in some of the more delay prone (waiting in line, holding) airports, particularly LGA. Likewise, it operates to places like LAX and SFO where the 737 doesn't. Maybe one day I'll combine some BTS databases to compare ASM production per day.
And as an aside, that's one of the places where PHL hurts the operation. Last numbers I looked at, it was still running about 8 minutes of taxi time above CLT/PIT - an extra 8 minutes of block time that isn't producing ASM's.
Jim
jack mama said:
Great question. I wish I had a guess. As far as I can tell, the "best case" scenario I've laid out suggests that break-even (close to no profit or no loss) is the best possible result in the next couple of quarters.
Of course, there are just too many variables, on which I really have little or no information, to make a guess as to when. Revenue, RASM, competitive response, fuel costs, and even potential instability in the middle east or another terrorist attack in the US or Western Europe or general economic conditions, could all have some impact on when and if... So I would hesitate to guess, because my crystal ball just isn't that clear.
Of course, every day of losses, or more accurately cash burn, makes a profitable quarter more and more important because the conversion from Chapter 11 to Chapter 7 will occur when US Airways runs out of cash (and credit from which to borrow cash). TWA lost money every year for 10 years and still hung in because it had incredible cash resources. It had facilities and route authorities to sell, aircraft to mortgage, employee concessions to be attained, etc. In short, TWA did an excellent job at managing its cash to try and outlive the karibu agreement with Ichan. It nearly did. US Airways cash management has not been as stellar, since US Airways has less assets to leverage and probably tougher economic conditions to live with (caused by the growth of LCC's rather than the economy as a whole).
