Chock1:
In my opinion, today’s analysis in the Pittsburgh Post-Gazette accurately described Dave Siegel and his efforts to revive US Airways. The column said Siegel’s strengths as an airline leader seeking to be as efficient as possible while operating in a sluggish economy in which cost reductions are essential. "For Siegel, it's strictly business," the article said. "What Siegel has come to realize is what Southwest Airlines figured out and seized on long ago -- that the airline business … is a commodity business. And the carrier that's able to do it the cheapest, quickest way possible is going to get the business."
What’s interesting about the B6 decision to acquire EMB-190s is that this move is a dramatic departure from the established low cost single fleet business model and analysts have questioned the wisdom of this decision. Why? B6 is going to mitigate its cost advantage and raise its CASM by one cent, which is about 15%. This is a dramatic shift in business strategy that has risks, specifically to profitability.
US Airways' Achilles Heal has always been its unit costs, which are still too high, but now are much more competitive. Siegel will continue to ratchet down the CASM, which is expected to drop another .4 cents in the next 12 months. In addition, costs will further drop with the discussions with Pennsylvania leaders over PIT and PHL hubs, strategic alliance synergies (both domestic and international – whether or not UA survives), IT automation, and the major 2004 "cost take out" program Siegel discussed at Tuesday’s Wall Street Conference.
However, cost reduction is only one area that US is focusing on return the airline to being profitable. Another key element in the on-going US restructuring is for the airline to improve upon its industry leading Yield RPM. According to a recent report released by AVMARK analyst Barbara Beyer, US has the highest "Big 7" Yield. Specifically, the 7 top airlines Yield RPM is:
Airline – Yield RPM
US – 13.05
AA – 11.86
CO – 11.57
WN – 11.54
DL – 11.33
NW – 10.76
UA – 10.54
Source: AVMARK, Inc.
In March 2002 US had slipped from its traditional top spot to about a 93 to 94% revenue disadvantage, but now has a revenue premium. Furthermore, the company is now focusing on major initiatives to boost its revenue advantage (which is necessary to cover its higher than average unit costs) by focusing on big airline revenues, with a more modest route network. This will be accomplished with code sharing, RJs, East Coast focus city/airport dominance (BOS, LGA, & DCA), and its Corporate Travel Department.
For example, the UA alliance is exceeding expectations and US has gained over 10,000 passengers per day from this business relationship. Later this year the LH alliance will begin, which is expected to add $50 million per year to the bottom line and then in Q1 2004 the Star Alliance will commence that will provide another $25 million per year in bottom line profits.
In regard to RJs, US will begin receiving revenue from its EMB-170 product in January 2004, which will have a 70-seat, two-class cabin, mainline type aircraft operated at the lowest industry RJ CASM. Not that this is good for employee pasy and benefits, but these mainline like narrowbody aircraft will have the lowest industry RJ labor expense. When you combine this product with worldwide airline passenger amenities (FFP, Clubs, interline baggage check in, etc.), I agree with Siegel that this product "will change the game and be revolutionary".
Chock1, US still has its work cut out for itself and B6 is a great airline, but I believe US has the tools, timeframe to continue to restructure, and ability to compete with your company or any other low-cost operator and I look forward to the challenge.
Moreover, I agree with PineyBob when he wrote "It's a different airline, a lean mean organization who judging from their reaction to JB is spoiling for a fight."
Therefore, bring it on.
Best regards,
Chip
P.S. By the way, by the time B6 has a meaningful EMB-190 presence, all things being equal, I'll likely be an A330 Captain, (with the US 2007-2009 A330 order), all things being equal, where my pay and benefits will dramatically exceed those of B6 pilots. Therefore, I do not share your comments of "Meantime, I'd get your resume in quickly, cause at the present time we are have over 6,000 pilot applications on file, and growing! Just don't forget to add that you were Dave's Siegel's "organ grinder's monkey"."
