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Today's Alpa Meeting With Lakefield
- Thread starter USA320Pilot
- Start date
BoeingBoy
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- Nov 9, 2003
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- #47
mweiss,
All true, but you've got to remember that the quote came from a time when WN hadn't even announced what cities they would serve from PHL, and then looked at even older BTS data. So Unisys was only able to work with what they had at that time.
I have no idea what our yields vis a vis WN out of PHL in identical markets. I could be mistaken, but unless you want to go back to before we abandoned BWI, we haven't competed directly with WN in any non-stop market to make a valid comparison.
Jim
[Edit} I meant we haven't competed since BWI till now.
All true, but you've got to remember that the quote came from a time when WN hadn't even announced what cities they would serve from PHL, and then looked at even older BTS data. So Unisys was only able to work with what they had at that time.
I have no idea what our yields vis a vis WN out of PHL in identical markets. I could be mistaken, but unless you want to go back to before we abandoned BWI, we haven't competed directly with WN in any non-stop market to make a valid comparison.
Jim
[Edit} I meant we haven't competed since BWI till now.
burghlaw1
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- May 13, 2003
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BoeingBoy said:
Boeing Boy,
Please explain how 15% increased utilization = almost $700 million in savings. It seems to me that (1) you are using your equipment more efficiently, but with the same cost; and (2) you are, potentially, increasing revenue by making more seats available. However, there is also increased cost in manpower and jet fuel (although with new contracts in place the manpower cost might be at least a wash). I still don't see where expenses are being cut.
Burghlaw1
BoeingBoy
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burghlaw1,
Perhaps that was some bad semantics on my part - obviously you don't spend less if you fly the airplanes more, if for no other reason than fuel and crew costs go up.
What I meant is that increased utilization produces additional ASM's at a much lower unit cost than the "baseline" or pre-increased utilization ASM's. This brings the average CASM down (I've roughly figured about 1 cent) and results in the cost of the total ASM's being less than it would have been without the extra utilization.
For example (and I know that it's not exactly 15%):
Increased utilization could allow you to "produce" as many ASM's in 12 months as would have taken 14 months without the extra utilization. During that 12 months, total costs are slightly higher than they would have been without the extra utilization. However, total costs for those 12 months of higher utilization are significantly lower than total costs of the 14 months needed to produce the same ASM's at lower utilization - hence a "savings".
It basically comes down to a definition of "savings". Does it mean not spending as much money in total or does it mean not spending as much money per ASM and thus producing some number of ASM's for less than it would have cost otherwise.
I view it as I view the various experts' comments that we need to "lower costs" to compete with the likes of WN. They really don't mean we need to have lower total costs than WN - we alread do and are not competitive. They mean we need to lower unit costs (CASM), because that is what will make us competitive with WN.
I firmly believe that there are two possible ways to reduce unit costs. We can be cheap and try to do everything with the lowest cost components - as few employees as absolutely possible at the lowest wage attainable with as much outsourced to the lowest bidder as possible. Or we can be efficient - which sometimes means spending a little more to produce a big result in lower unit costs.
There is an interesting dichotemy at work here. Employee concessions reduce total costs, but as flying expands the effect on unit costs decreases as those dollar savings are spread over more and more ASM's. Conversely, increasing efficiency (like higher a/c utilization) has a bigger and bigger effect as more and more ASM's are produced.
Jim
Perhaps that was some bad semantics on my part - obviously you don't spend less if you fly the airplanes more, if for no other reason than fuel and crew costs go up.
What I meant is that increased utilization produces additional ASM's at a much lower unit cost than the "baseline" or pre-increased utilization ASM's. This brings the average CASM down (I've roughly figured about 1 cent) and results in the cost of the total ASM's being less than it would have been without the extra utilization.
For example (and I know that it's not exactly 15%):
Increased utilization could allow you to "produce" as many ASM's in 12 months as would have taken 14 months without the extra utilization. During that 12 months, total costs are slightly higher than they would have been without the extra utilization. However, total costs for those 12 months of higher utilization are significantly lower than total costs of the 14 months needed to produce the same ASM's at lower utilization - hence a "savings".
It basically comes down to a definition of "savings". Does it mean not spending as much money in total or does it mean not spending as much money per ASM and thus producing some number of ASM's for less than it would have cost otherwise.
I view it as I view the various experts' comments that we need to "lower costs" to compete with the likes of WN. They really don't mean we need to have lower total costs than WN - we alread do and are not competitive. They mean we need to lower unit costs (CASM), because that is what will make us competitive with WN.
I firmly believe that there are two possible ways to reduce unit costs. We can be cheap and try to do everything with the lowest cost components - as few employees as absolutely possible at the lowest wage attainable with as much outsourced to the lowest bidder as possible. Or we can be efficient - which sometimes means spending a little more to produce a big result in lower unit costs.
There is an interesting dichotemy at work here. Employee concessions reduce total costs, but as flying expands the effect on unit costs decreases as those dollar savings are spread over more and more ASM's. Conversely, increasing efficiency (like higher a/c utilization) has a bigger and bigger effect as more and more ASM's are produced.
Jim
OP
USA320Pilot
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- May 18, 2003
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- #51
I agree with BoeingBoy's comments on efficiency, productivity, and increased aircraft utilization. The single most important factor in the success of the TP is increased utilization with the current headcount.
Everybody is frustrated that increased ASM's have not happened sooner, but I believe they cannot happen unless labor is on board with the new business plan.
Separately, it has come to my attention that the dramatic increase in flying, provided the airline avoids bankruptcy, will occur in February in time for the President's Day holiday and peak travel season. The intent is to not add 15% more capacity during the slow travel months and to have the TP fully in place for next year's busy travel season. The increased flying will start as if a “light bulb†was just turned on.
But, the wild card here is bankruptcy avoidance and new labor agreements in place by September 30, to avoid a September 12 bankruptcy filing.
Regards,
USA320Pilot
Respectfully,
USA320Pilot
Everybody is frustrated that increased ASM's have not happened sooner, but I believe they cannot happen unless labor is on board with the new business plan.
Separately, it has come to my attention that the dramatic increase in flying, provided the airline avoids bankruptcy, will occur in February in time for the President's Day holiday and peak travel season. The intent is to not add 15% more capacity during the slow travel months and to have the TP fully in place for next year's busy travel season. The increased flying will start as if a “light bulb†was just turned on.
But, the wild card here is bankruptcy avoidance and new labor agreements in place by September 30, to avoid a September 12 bankruptcy filing.
Regards,
USA320Pilot
Respectfully,
USA320Pilot
BoeingBoy
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"The single most important factor in the success of the TP is increased utilization with the current headcount."
We've been around and around on this point, so it's probably useless but....
If the success of the TP hinges on increasing utilization "with the same headcound", then the plan won't work. Why? Because if the less than 0.1 cent CASM difference between increasing utilization with or without recalling flight crews is the straw that breaks the TP camel's back, the plan has too little margin for error (like fuel price increases, severe wx, fare sales, etc) to work.
I've said it before - management is hung up on trying to do everything the cheapest way instead of the most efficient way, and the two are not necessarily the same. Until that changes, this company will keep walking past dollars to pick up pennies. And that is a recipe for failure.
Jim
[Edit] The increased utilization is a perfect example. By insisting on doing the extra flying without recalling personnel, we have missed the opportunity to reduce CASM by about 1 cent during this year's busy travel season. What would the second quarter profit have been if management had tried to be efficient rather than cheap?
We've been around and around on this point, so it's probably useless but....
If the success of the TP hinges on increasing utilization "with the same headcound", then the plan won't work. Why? Because if the less than 0.1 cent CASM difference between increasing utilization with or without recalling flight crews is the straw that breaks the TP camel's back, the plan has too little margin for error (like fuel price increases, severe wx, fare sales, etc) to work.
I've said it before - management is hung up on trying to do everything the cheapest way instead of the most efficient way, and the two are not necessarily the same. Until that changes, this company will keep walking past dollars to pick up pennies. And that is a recipe for failure.
Jim
[Edit] The increased utilization is a perfect example. By insisting on doing the extra flying without recalling personnel, we have missed the opportunity to reduce CASM by about 1 cent during this year's busy travel season. What would the second quarter profit have been if management had tried to be efficient rather than cheap?
USA320Pilot said:
Why does labor matter? Why can't they utilize their aircraft more efficiently now? Perhaps they don't think that they can sell the additional ASMs profitably. But then they should still increase utilization and shrink the fleet. ALPA should be happy to waive the 279 restriction if the number of flight hours doesn't shrink.
Or is there something else going on here?
The one big assumption that you make, Jim, is that yields won't be damaged by the increased capacity resulting from the increase in utilization. Unfortunately, we don't really know the elasticity of demand, so it's hard to tell what the net impact would be of the increase in utilization. The decrease in CASM is only half of the equation.
cavalier said:
Amen Brother...
... And, a voluntary non-Ch.7 liquidation had a better chance at returning some value to shareholders rather than a court supervised liquidation. Corporate bankruptcy lawyers are not cheap, and often suck the money out of a liquidating business.
USA320Pilot said:
And yet somehow PIT survived the exact same situation when the steel mills close. Nobody is saying that US Airways will not be noticed when removed from the system. Nobody is saying that certain communities won't be more affected than others... But the argument is:
1. The overall aviation system will be healthier
2. US Airways valuable assets can be put to profitable use by other airlines
3. Other airlines will establish service on the parts of US Airways that were profitable.
What we are seeing is that the market has decided that US Airways' services are no longer necessary. Its hubs are redundant to the rest of the aviation system (and even somewhat to each other). Its service to smaller communities, once a necessity, is now less important because of vastly improved roads since the 1950's and low-fare airlines which encourage folks to drive to a larger regional airport (i.e. RDU, SDF, PHL, BDL) and use their local airport less (i.e. Rocky Mount, Lexington, Reading, New Haven). US Airways is fighting had been fighting this market decision for the last several years... Had it been adapting, US Airways would not be in this predicament. In the meantime, other carriers stepped into the opportunities US Airways missed, and now US Airways has no clear niche in the industry.
mweiss has a good point... Utilization increases generally cause yields to decline, as I noted as well...
Boeing Boy is correct as well... CASM has 2 components: variable costs and fixed costs... Fixed costs are things that don't change with capacity... like CCY costs, airport leases (in the short term) and aircraft leases (in the short term). Variable costs are costs that change with capacity... For example, if we fly more, we buy more fuel, if we fly less, we buy less fuel.
Regarless of any changes to labor rates or fuel costs, adding capacity allows the fixed costs to be spread over more ASM's, thus reducing CASM. The reduction in variable costs, due to labor, only help the situation.
I think what USA320Pilot has been trying to say, however is that the company believes that spreading the fixed costs over more ASM's to reduce CASM isn't enough to make the company profitable. Furthermore, there is the short term problem that it will be difficult to increase ASM's while closing a hub. Lastly, you need to consider the declining yield and RASM that come with utilization flying (although, overall this is probably offset by increasing RASM of point-to-point traffic instead of connecting traffic).
I understand why the company is going down the road it is going... But the reality is that we are hear because of years and years of missteps... I'll bet a lot of folks would give-back the "parity-plus-one" contract if it meant they were working for a company with a long-term future and a DB pension plan. However, previous UAIR management thought they could conquer the world, or sell the farm, before those bad decisions came back to haunt the company... Neither has happened.
Boeing Boy is correct as well... CASM has 2 components: variable costs and fixed costs... Fixed costs are things that don't change with capacity... like CCY costs, airport leases (in the short term) and aircraft leases (in the short term). Variable costs are costs that change with capacity... For example, if we fly more, we buy more fuel, if we fly less, we buy less fuel.
Regarless of any changes to labor rates or fuel costs, adding capacity allows the fixed costs to be spread over more ASM's, thus reducing CASM. The reduction in variable costs, due to labor, only help the situation.
I think what USA320Pilot has been trying to say, however is that the company believes that spreading the fixed costs over more ASM's to reduce CASM isn't enough to make the company profitable. Furthermore, there is the short term problem that it will be difficult to increase ASM's while closing a hub. Lastly, you need to consider the declining yield and RASM that come with utilization flying (although, overall this is probably offset by increasing RASM of point-to-point traffic instead of connecting traffic).
I understand why the company is going down the road it is going... But the reality is that we are hear because of years and years of missteps... I'll bet a lot of folks would give-back the "parity-plus-one" contract if it meant they were working for a company with a long-term future and a DB pension plan. However, previous UAIR management thought they could conquer the world, or sell the farm, before those bad decisions came back to haunt the company... Neither has happened.
