Us Airways Analysis

[mweiss]

funguy2,

First of all, while the costs are lower than CO, it's not going to take much effort on CO's part to beat US. We're talking about a few tenths of a cent CASM.

In answer to your three questions:
1. Not through schedule changes alone, but if they're implemented as part of a larger picture, perhaps.

2. Probably. You're exactly right about the RASM/CASM question.

3. I'm not convinced that DL's new fare structure has much to do with US. If it did, they'd have been much more selective in implementation. Having said that, it certainly does have a significant impact on US's RASM opportunity.

 

[RowUnderDCA]

Now, SEE, it does matter what happens next. Current facts aren't determinative. WILL U do what it says it will do? WILL U do more or less? WILL U do it well? WILL U be lucky? This is speculation and judgment. And I agree with everything Ive heard, but I lean to MWeiss on DL's strategy. I have speculated for a long time that U put cost savings BEFORE fare rationalization because they feared that other legacies would bleed U to death by undercutting the rationalized fare structure, because they would perceive a weekness that could kill U before destroying the other legacies. I agree if DL were intending simplifares to kill U they would then undercut you more strategically. That might be there plan, but Ive got to think that that plan (if in existence) would be under review now that U might have more staying power.

Still U needs lots of luck.

 

[sfb]

As US Airways continues to make progress in cutting costs designed to transform the carrier to a competitive and profitable business enterprise. The end-result is to be the first airline to convert the company to a LCC/network hybrid carrier, with a CASM less than Southwest Airlines and AirTran Airways that can obtain a RASM premium.

Even if David Bronner says in an interview that US Airways' CASM is going to be lower than Southwest's, that doesn't make it true! He also thought that RSA's $240 million was a good investment two years ago, and UAIR landed right back in the bankruptcy courts fewer than 18 months after emerging from the first reorganization. US Airways' mainline CASM for the fourth quarter, excluding fuel, was a whopping 41% higher than Southwest's -- and the Q4 numbers reflect most of the pilot pay reductions as well as emergency pay cuts for most of the quarter. Right now, it looks like US will be fortunate to be competitive with the other legacies as far as CASM goes.

The February schedule will see increased utilization to create 224 additional departures and 22 new routes. This is the equivalent of adding 25 aircraft to the network without writing a check, with mainline utilization increasing from 10.5 to 11.5 hours per aircraft per day.

The increased utilization will permit more point-to-point flying that supports expansion of Caribbean, Latin American, and Mexican flying from the company’s new international gateway at Fort Lauderdale- Hollywood International airport starting next week. New domestic service from the Southeast Florida gateway includes nine new domestic destinations including Boston, Hartford, Newark, Baltimore, Orlando (RJ), Key West (RJ), New York (LaGuardia), Providence, and San Juan. Fort Lauderdale will see new service to seven international markets with new service to Cancun, Guatemala City, San Salvador, San Jose, Panama City, Kingston, and Santo Domingo.

City Nov 04 Feb 05
Boston 108 110
Charlotte 512 567
Washington 186 190
Fort Lauderdale 27 44
New York 204 204
Philadelphia 461 493
Pittsburgh 229 239
System 3287 3456

This all sounds good, but in reality, much of the increase in service frequency is coming from RJ's, not mainline. For example, the much-touted "transformation" of the PHL hub adds 7% more flights according to your figures above, but the increase in mainline is far less, at 3% (224 in Jan., 231 after Feb. 12). PIT, if memory serves, actually drops from 69 to 62 daily mainline departures.

If part of the expansion comes from third-party fee-for-departure operations, you can bet that US Airways is paying for every single additional flight. Similarly, part of the expansion is enabled by the recent deliveries of E170's and CR7's to MDA and PSA respectively, which does not equate to additional utilization at all.

I see very little "mainline point-to-point" service in the new schedule. Many of the flights from BOS, LGA, BDL, EWR, etc. to FLL feed the flights to Central America and the Caribbean. There is clearly a bank structure planned for the FLL operation.

US Airways is expected to announce 2004 and fourth quarter financial results on Monday, January 31. The company is expected to post a loss, which could be about $200 million for the quarter. In my opinion, the airline will make other announcements simultaneously with the earnings report to soften the blow and maintain customer confidence. For example, the company could announce who will be the airlines exit financing investor that could be RSA that then takes the company private.

Well, the loss ended up being $236 million, which actually beat the average of the analyst estimates (by about $20 million). And no other announcements "to soften the blow." It is getting to be high time for the source of the company's exit financing to be announced if indeed the loan of reorganization is to be filed in about 2 weeks.