US Airways & Spirit

[flybynite]

Speaking only of pilots...Spirit 12 year A320 captain rate $153...12 year A320 f/o rate $91. East 12 year A320 rate $125...12 year A320 f/o rate $85. West 12 year A320 captain rate $138...12 year A320 f/o rate $91.

Jim

I stand corrected.

 

[WorldTraveler]

Renders the comparison worthless?

I see we have our smug arrogant Delta is Jesus hat on today.

I don't care if you're flying a freaking magic carpet or slinging copiers for a living, business is business and Business Models and which one to use is merely another business decision that executives make every day. NK chose a different model. US post merger could have done the same. As could DL post NWA merger. The management teams at the respective airlines made business decisions. Spirit has made the one that is debt free and more profitable then US.

The underlying dynamics are different because the Management teams at BOTH carriers made conscious business decisions based upon what they felt was in the best interests of the shareholders. Frankly I'm tired of the hand wringing "OH, we're a legacy carrier and it's different you can't really compare" EXCUSE ME! Who decided that US was a network carrier? A Pound Puppy? The Duke of Dubuque? Or was it Fearless Leader Doug Parker?

B. Ben Baldanza & Barry Biffle, both former US executives decided to change business model and they are living with their decision and doing quite well. All we get from the Tempe clown posse is excuses. It would be of interest to note both carriers rely of the A/319/320/321 aircraft so if the planes are essentially the same, the ATC, Weather, Fuel Costs, runway length are the same then it must be that one carrier has built a better mouse trap.

the fundamental difference is that US like AA, DL, CO/UA etc all have been around a whole lot longer than NK and have thus accumulated costs which NK won't accumulate for a long time.
Trying to take the argument personal doesn't change the fact that there are fundamental differences between network/legacy carriers and low cost (or perhaps ultra low cost in NK's case).
No one is saying that you can't compare basic statistics but w/o failing to understand the difference between the two basic business models, you are arguing something which can never become reality.
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If you don't think US didn't think about dumping the whole network/legacy business model in favor of a low fare, point to point model, you are seriously mistaken. They considered the option and had hard data to show that the business could not generate the level of revenue US does now using a different business model. They could have shrunk US down to a size to allow a low fare carrier business model to work (and rejected all of the legacy costs that go with it) but the creditors would have lost even more than they did.
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Whether you want to accept it or not, US made the decision that was in the best interest of their stakeholders at the time. NK did the same based on their VERY different set of circumstances.
The two models aren't the same because the circumstances around each decision was different.

 

[psw737]

Speaking only of pilots...Spirit 12 year A320 captain rate $153...12 year A320 f/o rate $91. East 12 year A320 rate $125...12 year A320 f/o rate $85. West 12 year A320 captain rate $138...12 year A320 f/o rate $91.

Jim

If I'm not mistaken, top pay at Spirit DOS+5 which is full maturity is north of $180 for CA and around $105 for FO's.

 

[SparrowHawk]

the fundamental difference is that US like AA, DL, CO/UA etc all have been around a whole lot longer than NK and have thus accumulated costs which NK won't accumulate for a long time.

Again Management made a choice, cting in what they feel was the best interest of the shareholders. No one held a gun to any of the carriers and said "This is the business model you must use" now did they. I don't want to hear that Bull Shite. Management makes decisions, rhey made them and their bottom line reflects that.

Trying to take the argument personal doesn't change the fact that there are fundamental differences between network/legacy carriers and low cost (or perhaps ultra low cost in NK's case).

Well then Sparky try not coming across like the oracle of knowledge. If I knew everything I certainly wouldn't be here now.

No one is saying that you can't compare basic statistics but w/o failing to understand the difference between the two basic business models, you are arguing something which can never become reality.

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What difference? Both pick up people in one city and fly them to another. That's what an airline does. HOW they choose to do so is again the decision of management acting in the best interest of the shareholders and as long as this is a semi-capitalist system that's how it will stay

If you don't think US didn't think about dumping the whole network/legacy business model in favor of a low fare, point to point model, you are seriously mistaken. They considered the option and had hard data to show that the business could not generate the level of revenue US does now using a different business model. They could have shrunk US down to a size to allow a low fare carrier business model to work (and rejected all of the legacy costs that go with it) but the creditors would have lost even more than they did.

Of course you were in these meetings correct? So you can say with complete certainty that your statement is accurate? As to shrinking to make the Low Cost business model work I can't help but notice that the most profitable LCC is growing AND has the highest paid union employees in the industry. I think WN now has more planes then US does which would seem to kick the shrinking argument square in the arse.
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Whether you want to accept it or not, US made the decision that was in the best interest of their stakeholders at the time. NK did the same based on their VERY different set of circumstances.
The two models aren't the same because the circumstances around each decision was different.

Therein is the point isn't it? NK is better managed then US. The profit numbers bear that out on a percentage basis. You can prattle on and and on about Network vs LCC and the differences but the stand alone simple fact is that B. Ben Baldanza & Barry Biffle are better leaders and managers then Doug Parker and Scott Kirby and the balance sheets prove it. The pilot dispute proves it. The P & L's prove it. The amount of debt held proves it. The projected growth proves it. Is that enough?

Face it, NK is better at running AND growing NK then US is at running US

 

[BoeingBoy]

When US filed for BK II, the plan was to get the cost structure down to where US could compete with the low-cost carriers. As I recall, there wasn't a lot of detail given about whether the business model would change or not, since it was all about CASM. Each work group had a target cost per ASM (the pilot's was 3+ cents/asm), a yardstick that put the onus on the employees since the CASM includes the inefficiencies of the hub/spoke legacy carrier business model as compared to the low-cost business model.

At one point around the end of 2004, Lakefield supposedly told the MEC that they had explored becoming a low-cost carrier by changing the business model but that there wasn't enough cash left to last through the transition period. That transition would necessarily involve shrinking as the fleet was simplified, getting rid of airplane types through BK faster than more of the desired typed could be acquired/delivered/paid for.

WT has a grating tendency to talk about whichever side of the P&L statement best suits his argument. Yes, a hub/spoke legacy business model generally produces more revenue than a low-cost business model - US with 340-350 airplanes produces about the same revenue as WN does with 600+ airplanes. But that's only half the story - $1 trillion/year in revenue doesn't produce a profit if expenses are $1.1 trillion/year. That hub/spoke legacy business model also has higher expenses than a low-cost model. So WN has been profitable for 38 or so straight years while US hasn't strung together more than 2-3 sequential profitable years in over two decades.

Jim

 

[whatkindoffreshhell]

Same comparison (between airlines) could've been back in the 1990's using Southwest and USAir (or any unionized major carrier for that matter).

None of you would've jumped to go work for Herb. You would scoff at that business model (many of you still do) as outrageous!

Instead of working towards the future you devote yourselves to protecting your current status.

USAir could be great again.

But if your pilots still cannot agree after all these years and management is content with that situation.....

 

[SparrowHawk]

Same comparison (between airlines) could've been back in the 1990's using Southwest and USAir (or any unionized major carrier for that matter).

None of you would've jumped to go work for Herb. You would scoff at that business model (many of you still do) as outrageous!

Instead of working towards the future you devote yourselves to protecting your current status.

USAir could be great again.

But if your pilots still cannot agree after all these years and management is content with that situation.....

Well said

 

[WorldTraveler]

At one point around the end of 2004, Lakefield supposedly told the MEC that they had explored becoming a low-cost carrier by changing the business model but that there wasn't enough cash left to last through the transition period. That transition would necessarily involve shrinking as the fleet was simplified, getting rid of airplane types through BK faster than more of the desired typed could be acquired/delivered/paid for.

Yes, a hub/spoke legacy business model generally produces more revenue than a low-cost business model - US with 340-350 airplanes produces about the same revenue as WN does with 600+ airplanes. But that's only half the story - $1 trillion/year in revenue doesn't produce a profit if expenses are $1.1 trillion/year. That hub/spoke legacy business model also has higher expenses than a low-cost model. So WN has been profitable for 38 or so straight years while US hasn't strung together more than 2-3 sequential profitable years in over two decades.

Jim

Thank you Jim for confirming exactly what I said which is that US investigated moving to an LFC model and decided they could not get the costs out fast enough or get the revenue they now receive (then received) comparable to their high cost model.
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Theoretically, a network carrier could choose to try to slowly adapt to a low fare model... that is exactly what the airline within an airline model was built around. But none of those worked, in part because the airline within an airline model also can't fully separate itself from the costs of the parent airline.
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I focus on which side of the P&L statement provides the answers to the question being asked.
WN's costs really are not that much lower than the average of the network carriers at this point. WN does carry a whole lot less connecting passengers which means their operation is more efficient at generating revenue.
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The network carriers are focusing on developing higher volume routes while walking away from connecting small cities to the world which is what they have done for decades. As the difference between fare levels in small cities and larger citiies shrinks and the cost of operating small jets increases, it makes less sense to chase small city revenue.
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The slot deal is specifically designed to increase DL and US' presence in large, high value markets.
You will see signficant improvements in DL and US' revenue performance relative to its peers within a year after the slot transfer is completed.

 

[SparrowHawk]

And Spirit will double in size, be more profitable and some posters will continue to Duck, Dodge & Deflect out of loyalty to their FF Program.

 

[BoeingBoy]

Thank you Jim for confirming...

I don't know for a fact that US did look at changing business models, which is why I said "supposedly".

exactly what I said which is that US investigated moving to an LFC model and decided they could not get the costs out fast enough or get the revenue they now receive (then received) comparable to their high cost model.

The revenue again. The low-cost business model produces less revenue than the legacy model for comparable sized carriers. So if - IF - US did indeed consider changing the business model the idea wasn't rejected because it would have less reveue than it would have as a legacy model carrier. It was strictly the time required to make the transition versus the cash to keep operating while making the transition. Since US was already burning through cash, it was a relative easy calculation to make.

Theoretically, a network carrier could choose to try to slowly adapt to a low fare model... that is exactly what the airline within an airline model was built around. But none of those worked, in part because the airline within an airline model also can't fully separate itself from the costs of the parent airline.

While it may be theoretically possible it requires a big enough cash cushion to make the change. None - NONE - of the "airline within an airline" experiments were attempts to morph into a low cost business model carrier. They were all attempts to have a competitor to the low-cost competition while maintaining the legacy business model for the majority of operations. It was the proverbial finger in the dike - hold low cost competition off while mostly retaining the legacy model.

WN's costs really are not that much lower than the average of the network carriers at this point.

Now you are dreaming. WN's costs are lower (though not by much) than US' - the smallest of the legacy carriers by far. The other legacies - AA, DL and UA - have costs about double WN's, and are about the same size (plus/minus depending on the yardstick and specific legacy).

What you seem to see as a weakness of the low-cost model - lower revenue - is really it's strength when combined with it's lower costs (yes, revenue AND cost are important). The traditional low-cost carrier hasn't traditionally priced their product by what the traffic will bear like the legacies. Neither have they tried to be all things to all people, like the legacies. They price their product to cover costs and produce a reasonable profit, or attempt that as best as they can given the constant uncertainties they face. That allows them to charge reasonable fares, which produces traffic that allows them to grow.

Jim

 

[WorldTraveler]

.except, Jim, the hard data shows that there are indeed network carriers that have unit costs very close to some of the low fare carriers including the granddaddy of them all, WN.

From the 3rd quarter earnings report for each carrier, here are the non-fuel/non special item mainline CASMs: (since there is noise w/ low fuel hedges and profit sharing etc)

AA 9.05
DL 7.35
UA 8.15
US 8.06
WN 7.5

Did you pick up, Jim, that DL has a LOWER CASM than WN and even US' CASM is only 7.4% higher than WN's?
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Yes, I know DL and UA operate much longer haul operations driven by their Pacific operations so we COULD stage length adjust the costs in order to make a fair comparison, but to quote the Sparrow, each company has made choices which affect its operations and finances and DL and UA have costs which better match the revenues which they can generate, as measured by the profit margin for DL and UA, which are higher than the rest of the industry, including WN.
Do take note of WN's operating profit margin compared with DL and UA and even US and tell me who whether WN or the network carriers have better matched their costs to their revenue generating ability.
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And please also note that DL, not US, is the lowest cost network carrier - and still manage to pay their people wages at or above the network industry average.
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Even with US' 7.4% CASM disadvantage, they were able to force WN to slash the size of their PHL operation.
And it might also explain why the long-rumored WN assault on ATL has not only not developed but instead has actually resulted in WN's decision to continue to pull down FL markets from ATL, even though FL is a lower cost operator than WN.
It might also explain why WN has not been competitively successful in taking any significant market share from DL in any market and why DL is on track to become the largest US airline with respect to domestic revenue (mainline domestic plus regional) even though UA/CO is larger overall, and that is before the LGA slot transfer is put in place which will increase DL's domestic revenues even further.
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You see, being able to win in the domestic market place more than in any other region is about being able to match or beat your competitors' costs.
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You see when we started this thread, I tried to give US a pass in having to stand up against a well run low fare carrier but you wanted to make generalizations about the industry which necessarily required not only addressing the network/low fare carrier comparison but also US within the network carrier segment. And the comparison shows that US mgmt is not doing as good of a job at generating revenue or profits as some of its network carrier peers despite paying its people much less.
Now, wouldn't we like to just roll this thread back and leave it that SOME low fare carriers have done a very good job of adapting to the current environment and building a busines model that works for them and leave the generalizations about low fare carriers and all network carriers out of the discussion? Indeed, some network carriers have adapted quite well but as a group the low fare carriers have had an advantage. but that advantage is not only shrinking but in some circles, some network carriers are competing quite successfully with low fare carriers.

Just a tip also. You should recognize by now that if you try to take a discussion personal, it only incentivizes me to prove that I am right. When it comes to discussions on the business of aviation, I speak what is true. I'm not an authority over other aspects of the airline industry and don't try to be but I do know the business of the airline industry.
Keep it cordial and we can debate whatever you want cordially.

 

[SparrowHawk]

The point of the OP (me) was/is trying to make is that on balance Spirit, whose executive team is made up of mostly former US Airways execs that got booted by the Tempe Clown Posse post merger are doing a better job of managing and growing their airline!

I've yet to see someone refute that contention although there have been more then a few long winded posts that deal with 18 million other issues. As Spirit grows and moves into more competitive markets you'll likely see some margin erosion and the question remains if the market will continue to accept their minimalist Ryan Air approach here in the US and Latin America,

All the CASM, RASM, SPASM stuff is very nice and even Stevie Wonder can see that US & NK are totally different businesses but that's not my point.

The question is/was to does a vetter job in their respective niche? To me, it's the "Killer B's" aka B. Ben Baldanza & Barry Biffle.

 

[BoeingBoy]

.except, Jim, the hard data shows that there are indeed network carriers that have unit costs very close to some of the low fare carriers including the granddaddy of them all, WN.

That is basically true, but you said cost, not unit cost (a big difference), and the average of the network carriers - not specific lower cost network carriers. But with unit costs a small difference becomes big when multiplied by the number of ASM's even an airline like US generates. Take hypothetical carriers, one with unit costs of 10 cents and the other 10.25 cents - only a 2.5% difference. At 10 billion ASM's/year, that becomes a $250 million difference in operating expense. US, the smallest legacy, produces ~70 billion ASM's/year, so that $0.0025 difference is worth $1.75 billion/year in extra operating expenses. Not exactly small change...

Jim

 

[WorldTraveler]

thank you, Gentlemen.
I agree with Sparrow's original assertion that there are some interesting comparisons between US and NK - and the fact that former US people are leading NK shows that perhaps it wasn't as much about the people as the culture and the rest of the people they worked with/under.
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But I also assert that NK as a young, low fare carrier has some structural advantages that are a result of being a low fare carrier w/o some of the legacy structure that US and other legacy carriers have, although it is true that BK gave airlines the opportunity to wipe out most of those legacy disadvantages.
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US and other network carriers have held onto the hub and spoke system because, as Jim notes, the model generally provides higher returns that solely low fare carrier models given the same number of assets - but those increased revenues come with operationally complexity.
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And then we got into a discussion that there are indeed exceptions to the generalities which means that some carriers in both business models have adapted better than others - not entirely surprising - and success by a player in one category can mean doing something better than a player in another category even if the other category generally does things better.
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if the comparison comes down to simply US vs NK on a standalone basis, then most would agree that NK chose a niche of the industry in which they could succeed and built a unique business model from the US consumer perspective that is working relatively well for the company.
Jim,
of course revenue and costs are scaled by the size of the enterprise...that is why the revenue and cost per ASM metric is used - since no two airlines are exactly the same size. Not a perfect metric but it is the basis of comparison in the airline industry just as sales per square foot is for the retail industry.

 

[flypg]

I don't know for a fact that US did look at changing business models, which is why I said "supposedly".



The revenue again. The low-cost business model produces less revenue than the legacy model for comparable sized carriers. So if - IF - US did indeed consider changing the business model the idea wasn't rejected because it would have less reveue than it would have as a legacy model carrier. It was strictly the time required to make the transition versus the cash to keep operating while making the transition. Since US was already burning through cash, it was a relative easy calculation to make.



While it may be theoretically possible it requires a big enough cash cushion to make the change. None - NONE - of the "airline within an airline" experiments were attempts to morph into a low cost business model carrier. They were all attempts to have a competitor to the low-cost competition while maintaining the legacy business model for the majority of operations. It was the proverbial finger in the dike - hold low cost competition off while mostly retaining the legacy model.





Just a tip also. You should recognize by now that if you try to take a discussion personal, it only incentivizes me to prove that I am right. When it comes to discussions on the business of aviation, I speak what is true. I'm not an authority over other aspects of the airline industry and don't try to be but I do know the business of the airline industry.
Keep it cordial and we can debate whatever you want cordially.

The Whole Truth always comes out.



Now you are dreaming. WN's costs are lower (though not by much) than US' - the smallest of the legacy carriers by far. The other legacies - AA, DL and UA - have costs about double WN's, and are about the same size (plus/minus depending on the yardstick and specific legacy).

What you seem to see as a weakness of the low-cost model - lower revenue - is really it's strength when combined with it's lower costs (yes, revenue AND cost are important). The traditional low-cost carrier hasn't traditionally priced their product by what the traffic will bear like the legacies. Neither have they tried to be all things to all people, like the legacies. They price their product to cover costs and produce a reasonable profit, or attempt that as best as they can given the constant uncertainties they face. That allows them to charge reasonable fares, which produces traffic that allows them to grow.

Jim

Just a tip also. You should recognize by now that if you try to take a discussion personal, it only incentivizes me to prove that I am right. When it comes to discussions on the business of aviation, I speak what is true. I'm not an authority over other aspects of the airline industry and don't try to be but I do know the business of the airline industry.
Keep it cordial and we can debate whatever you want cordially.

The Whole Truth always comes out.