Us Airways Strategic Analysis

[ClueByFour]

RowUnderDCA:

It appears there was Moderator action against ClueByFour (again).

Regards,

USA320Pilot

[post="265845"][/post]​

Care to ask a moderator for the number of edits you've faced versus the number I've faced?

Or cornfield trips?

 

[usfliboi]

You know I seriously cant help but think if we had done what wolf wanted us to do, where would be be. In general the things that have hapened were things wolf either wanted or was in the process of doing. The same outcome but a stronger airline. Sad but so true.

 

[sfb]

beat the consensus for a loss of $218 million ($4.22), estimated from a survey conducted by Thomson Financial.

That particular phrase is an exact copy of writing in the Washington Post article and, as such, should be placed in quotes; otherwise, you are guilty of plagiarism.

-- The mainline cost per available seat mile (CASM), excluding fuel and unusual items, of 8.46 cents for the first quarter 2004 was a 15.6 percent decrease over the same period in 2004.

What were the numbers INCLUDING fuel; after all, one would imagine that CASM including fuel would also be a key financial statistic (unless UAIRQ management has figured out a way to get free Jet-A). In the interest of completeness, I will supply them here from the company's news release: Mainline CASM was 10.89 cents, a decrease of 6.8%, while system CASM was 11.62 cents, down 6.2% year over-year.

-- On March 31 the company reported it had total cash position of $1.28 billion and restricted cash was $766 million. Unrestricted cash increased in March by $108.5 million to $514 million.

The company reported $513 million, NOT $514 million.

-- Year-over-year total cash dropped from $1.64 to $1.28 billion or $360 million and unrestricted cash dropped from $978 million to $766 million or $212 million.

Wrong. RESTRICTED CASH went from $660 million to $766 million. Unrestricted cash fell from $978 million to $513 million year-over-year. Yes, restricted cash went up -- probably because certain creditors and credit card issuers don't want to be left holding the bag if US Airways Group were to liquidate.

First quarter selected network carrier and LCC RASM, CASM, and RASM/CASM Difference Comparison

Airline RASM CASM RASM/CASM DIFFERENCE
America West 8.48 7.68 +.80
Southwest 8.22 7.70 +.52
JetBlue 7.24 6.74 +.50
AirTran 8.32 8.90 -.58
American 8.96 9.80 -.84
US Airways 9.91 10.8 -.89
Continental 8.98 10.56 -1.58
Northwest 8.94 10.97 -2.03
Delta 9.63 12.16 -2.58

Note (1) – RASM & CASM equal revenue and costs per available seat mile in cents.

Note (2) – United Airlines has not yet reported its first quarter results.

Source: Airline Reports

If you're going to put together a chart like this, you have to compare apples to apples or it is just blatantly inaccurate. For US Airways, you use the mainline total RASM and CASM, while for Continental, you use only passenger RASM. Continental's total RASM was 10.18 cents -- for a difference of 0.38 cents -- ahead of AirTran. America West's operating numbers include mark-to-market gains for hedging in future quarters. Delta's operating numbers for 1Q2005 included a number of one-time items; excluding those items gives a CASM of 10.75 cents. While American doesn't supply these numbers in its earnings report, system RASM was around 10.38 cents for AMR; they actually posted an operating profit in the quarter.

US Airways is now focusing on further reducing its costs that are too high. According to Bruce Lakefield, “(the company is) intensely focused on managing our costs and looking for ways to improve the efficiency of our operation,â€￾ because modest increases in ticket prices have not been enough to offset record high fuel prices.

Not to mention that "modest increases in ticket prices" still haven't reversed the catastrophic double-digit decline in yields year-over-year. How are they doing with reducing the expenditure associated with passengers arriving without their bags? Is the company providing a product for which customers are willing to pay?

All of these employees have been replaced by vendors or productivity improvements, but are either still on the payroll with 15 weeks severance pay, they have lump sum payments due, or are awaiting separation. These one-time expenses will actually raise employee costs in the near-term with both furloughed/severed and vendor employee costs now being incurred. In a few months, this expense will begin to moderate and by the end of the year the company will begin to see dramatic savings in this area.

False. All these "one-time expenses" are being accounted for outside of the company's normal operating expenses (read the P&L and the notes again). To quote the quarterly earnings release:

    (a) During the first quarter of 2005, US Airways Group recognized $89
        million in Other Income (Expense) incurred as a direct result of its
        Chapter 11 filing. This income includes $207 million in gains related
        to the curtailment of US Airways' defined benefit plans and other
        postretirement medical benefits, $2 million in interest on accumulated
        cash offset by $95 million of severance including benefits, $15
        million in professional fees, $8 million in damage and deficiency
        claims on rejected aircraft and $2 million of aircraft order
        penalties.

Those items showed up in "Reorganization items, net" and were not included in the normal calculations of operating expense.

-- Overall, the return of eleven 2005 B737 aircraft in May aircraft will result in a net reduction of only 14 flights systemwide compared to the February 2005 schedule, and the discontinuation of service to two destinations, as most service will be replaced with regional jets or by increased utilization of the mainline existing fleet. Even with the May 2005 capacity adjustments, systemwide available seat miles (ASMs) are expected to increase between 4 and 6 percent year-over-year.

How do you anticipate that replacing mainline service with regional jets will impact system CASM?

-- US Airways is currently in discussion with its other affiliate carriers to lower their “fee for serviceâ€￾ contracts, but no final deals have been announced. The other affiliate carriers include Mesa, Trans States, Air Midwest, and Colgan.

Neither Air Midwest nor Colgan operates under fee-for-service contracts; their turboprop service is at-risk and they share revenue with US Airways. Mesa has dramatically reduced Air Midwest's flying in the past few years, while Colgan could always go back to being a Continental Connection carrier.

However, the good news is that energy prices are moderating lead by a steep drop in crude oil prices.

On Friday Crude Oil Futures traded as low as $49.20 per barrel down $2.57 or about 5 percent and then closed down $2.05 at $49.72 per barrel for the June contract. This is the first closing price below $50 per barrel in about two months.

I guess if you say that oil prices will be going down "soon" often enough it will eventually be true? And there still seems to be very little moderation in worldwide demand for crude, which is a good part of why prices remain at their current levels.

 

[whlinder]

Excellent post sfb.

Mesa has dramatically reduced Air Midwest's flying in the past few years, while Colgan could always go back to being a Continental Connection carrier.

[post="265937"][/post]​

Colgan has already gone back to CO, they are flying routes out of IAH.

And Mesa recently signed a lease to send 10 Air Midwest 1900Ds to Big Sky.

 

[FM2436]

I would think a rapid liquidation of Independence Air would have a positive affect on US Airways?

http://biz.yahoo.com/deal/050502/flyiinnosedive.html?.v=2

"Potential external sources of liquidity and/or [debtor-in-possession] financing are difficult to identify, and a return to its regional roots appears unlikely," Baker wrote, calling a shutdown of Independence "more likely" than the failure of in-state rival US Airways Group Inc., which is operating out of bankruptcy protection for the second time since 2002.

 

[funguy2]

Meanwhile, US Airways simultaneously issued a curious press release with a different take and said the two companies were holding discussions about a “strategic transaction.â€￾

Perhaps US Airways management is trying to give the impression that they are still in control of their fate. US Airways management has a history of spinning things like this, and Bronner has a history of setting things straight... Or at least telling it like it is...

By the way... Why would Bronner's version seem to agree more with America West's press release, and less with US Airways' press release?

The newspaper said, TPG still owns a controlling interest in America West and is seen as a key player in any merger. The extent of its role is unclear. Rick Schifter, managing partner of TPG, wouldn't comment at an airline conference in Phoenix this week. But his overall comments on industry consolidation seemed to suggest that the airline is lukewarm on any further investments at this point.

If by, "the airline is lukewarm on any further investments at this point," the Arizona Republic is refering to TPG, well then somebody needs to tell them that TPG is not an airline.

If by, "the airline..." they are referring to America West, well, that is patently false, as AWA was a suitor in the ATA bankrupcy a few months back and is now a suitor in the US Airways BK... Not exactly "lukewarm." This particular part of the article leaves me with some questions on the reporter.

 

[funguy2]

To ensure the network survives US Airways has...

Hmmm... interesting wording here... To ensure the network survives... Not to ensure that the company survives.

Sounds like USA320Pilot may have capitulated that US Airways will not be the surviving entity.

 

[ZMAN777]

US Airways Strategic Analysis - April 30, 2005

Key selected financial results include:

-- The mainline cost per available seat mile (CASM), excluding fuel and unusual items, of 8.46 cents for the first quarter 2004 was a 15.6 percent decrease over the same period in 2004.

First quarter selected network carrier and LCC RASM, CASM, and RASM/CASM Difference Comparison

Airline RASM CASM RASM/CASM DIFFERENCE
America West 8.48 7.68 +.80
Southwest 8.22 7.70 +.52
JetBlue 7.24 6.74 +.50
AirTran 8.32 8.90 -.58
American 8.96 9.80 -.84
US Airways 9.91 10.8 -.89
Continental 8.98 10.56 -1.58
Northwest 8.94 10.97 -2.03
Delta 9.63 12.16 -2.58

[post="265817"][/post]​

FWIW,

UAL is scheduled to report earnings this week. Preliminary info I've gotten says CASM minus fuel will be at the 7.71 figure. Adding on a nominal fee for fuel I think we'll see UAL total CASM around the 9.16 figure. We'll see.

Cheers,

Z B)