USA320Pilot said:
According to new reports, in his weekly recorded message, US Airways’ CEO Bruce Lakefield said costs had "declined substantially" and that more operating savings would come from "synergies" of the merger. For instance, the corporate headquarters will be relocated from Arlington to Tempe starting in October and the move should be completed by the end of the first quarter resulting in about a $30 million annual savings. Last Friday, the airline closed its Pittsburgh reservations center, leaving Winston-Salem as the company's only in-house call center. Of about 800 workers based in Pittsburgh, only 47 are moving to Winston-Salem and most of the rest took buyouts or retired.
Only a single set of costs have "declined substantially" year-over-year -- and that is labor. Fuel was up (as for everyone), US Airways Express capacity purchases were up 11%, aircraft maintenance was up nearly 25%, and US Airways nebulous and customarily huge "other" expense item was up over 10% to $308 million -- over 15% of revenue.
USA320Pilot said:
Looking forward, US Airways said it expects system capacity growth to slow from just under 5% in May and June to less than 1% in the third quarter. It also said it is seeing positive yield trends and as a consequence expects positive system passenger RASM performance year-over-year in the third quarter.
Near-flat system capacity for the third quarter means that mainline capacity will be down by a few percent -- not surprising given the planned returns of leased aircraft. Management should be credited for doing more with less, here, since the increase in mainline ASM's this quarter was achieved in spite of a decrease of 6% in the fleet.
It is worrisome to me that the company will become more and more dependent on high-cost regional flying -- though the Express business did show a positive 1% operating margin in the quarter (mainline was between plus three and four percent).
USA320Pilot said:
The only major airline that posts monthly RASM figures is Continental. According to Lehman Brothers, they expect the following July results:
-- Continental’s July RASM should increase 4 to 6%, thus there should be strong revenue gains.
-- The brokerage firm said, "We continue to expect very strong revenue comparisons during the summer months as we expect current revenue trends to continue against easy comparisons in the prior year period (especially August and September).
-- "We believe the ATA composite will see double digit RASM gains for the quarter," airline analyst Gary Chase said.
The Continental and ATA revenue projections seem to echo comments made by US Airways in its earnings press release and should provide additional revenue with crude oil prices trading at about $62 per barrel.
Continental's RASM for July was up about 5%, but there is absolutely no evidence that US Airways will see a similar improvement in unit revenue. In the second quarter, CAL saw mainline RASM increase 6.3% while system RASM (including ExpressJet) was up 6.0%). In contrast, US Airways' mainline RASM declined 4.8% in the same quarter, while system passenger RASM was down 5.5%.
The message is that the RASM improvements at Continental last quarter were not seen at US Airways. In fact, RASM comparisons at US are likely to remain difficult with DH depressing yields in IAD and DCA, not to mention FL at CLT, WN at PIT for the full quarter (and still growing at PHL), and NK building up at FLL. It is not necessarily a given that US will see the same improvements in yield or RASM as the rest of the industry. Yields are still well above the company's peer group average, making US Airways' route system an attractive target for growing LCC's.
