Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
US Legacy Post-Ch11 Strategies  
User currently offlineChicagoFlyer From United States of America, joined Jan 2006, 274 posts, RR: 0
Posted (7 years 5 months 5 days 2 hours ago) and read 2166 times:

I wanted to start this topic for a long time... so bear with me! With 3 major US carriers (or 4 in you include US Airways, but it's a somewhat different case) exiting bankruptcy in recent past, what are the differences in their LONG-TERM strategies during and after Chapter 11, and between each other?

I view Chapter 11 as some kind of butcher's shop. It's not pretty. You take a big machete and hack costs wherever you can: labor, aircraft leases, facilities, general debt etc etc. The other parties affected fight the airline as much as they can, so naturally management spends more time in court than actually running the business--survival is paramount. The corollary of this is that there's less time available to think and implement long-term strategies, and there's also very little $$$ available to make long-term investments. Every airline has made use of essentially same Ch11 tools, so it's not the focus of the post.

The pertinent question is: what long-term strategies have the airlines pursued and how being out of bankruptcy affects their ability to do so??

I am starting a brief rundown -- please make your additions!

UA:
In Ch11:
- Reallocating fleet to international (although not to the same extent as DL)
- Domestic market segmentation (Ted and PS)
- Increase regional capacity and improve the regional product (Explus)
Post-Ch11
- No aircraft orders in the near future
- Grow capacity through higher fleet utilization, accepting worse performance
- Upgrade international premium cabin
Future?
- Cash hoard -> fleet replacement or return to shareholders?
- Winglets?

DL:
In Ch11:
- Reallocating fleet to international, especially 'thinner' European markets
- Kill off Song
- Sell off regional subsidiaries (ASA) (pre-ch11 announcement, but essentially same time)
- Pull down Dallas hub (pre-Ch11 announcement) and build up JFK
- Order CRJ-900s for mainline and retire 732s

Post-Ch11
- Return to LAX
- Take a modest number of new aircraft deliveries (737, 777)

Future
- Focus on Asia?
- More significant widebody orders?

NW:
In Ch11:
- Acquire regional subsidiary (Mesaba)
- Create Compass
- 757 Winglets and transatlantic expansion
- Continue taking A330s

Post-Ch11
- Sell off some mortgaged aircraft

Future
- 787s galore! (ordered pre-Ch11)
- Need for DC-9 replacement
- Likely to face a major low-cost competitor in one of the hubs

My conclusion is that

* All airlines focus more on international service, but NW and DL go for "thinner" routes with 757s.
* They have completely different domestic regional strategies.
* United had the most dramatic transformation in Ch 11 but is the most conservative in post-Ch11 world.
* NW will be on the hook for the most expenses in the near future due to 787 costs and DC-9 replacement.
* In general, plane orders and other capital investments post-bankruptcy have not spiked as could be expected.

PS Ch11-related events have caused a lot of pain, and it has been reflected in the discussions on this forum. It would be really appreciated if the posters kept to the topic of strategy rather than vented off that pain. Please no posts with content "management are thieves" or "I hate this airline" etc.

15 replies: All unread, jump to last
 
User currently offlineDelta787 From United States of America, joined May 2006, 321 posts, RR: 0
Reply 1, posted (7 years 5 months 5 days 1 hour ago) and read 2097 times:

This is a neat comparison. Its interesting to see the different strategies employed by the airlines that have gone into bankruptcy.


Fly Delta!
User currently offlineAlitalia744 From United States of America, joined Mar 2000, 4762 posts, RR: 44
Reply 2, posted (7 years 5 months 5 days 1 hour ago) and read 2084 times:

Quoting ChicagoFlyer (Thread starter):
* United had the most dramatic transformation in Ch 11 but is the most conservative in post-Ch11 world.

I dont' know how accurate that statement is....



Some see lines, others see between the lines.
User currently onlinePSU.DTW.SCE From United States of America, joined Jan 2002, 7767 posts, RR: 27
Reply 3, posted (7 years 5 months 5 days ago) and read 2048 times:

Quoting ChicagoFlyer (Thread starter):
Future
- 787s galore! (ordered pre-Ch11)
- Need for DC-9 replacement
- Likely to face a major low-cost competitor in one of the hubs

DTW already faces a respectable amount of LCC competition (NK, WN, FL, F9, HP/US). I wouldn't expect any significant increases out of any of them from DTW, as between all of them they have all of the leisure routes and most major markets covered. They will probably see B6 at some point, but even then, they would only really duplicate LCC service into markets that already are served and fares lowered accordingly

MSP - okay sure, but the opportunties for WN & B6 aren't as big as everyone claims for them to be, as many of the routes also already have an LCC presence.

Quoting ChicagoFlyer (Thread starter):
* NW will be on the hook for the most expenses in the near future due to 787 costs and DC-9 replacement.

In that regard, yes we all know about the DC-9's, but NW pretty much has their entire widebody fleet renewal in place or on order. DL & UA on the other hand still have a lot of uncertainty around what they will do with the 767 fleets, along with their narrowbodies (737's at UA, MD-80's at DL). They all have exposure in that regard.


User currently offlineMaverickM11 From United States of America, joined Apr 2000, 17821 posts, RR: 46
Reply 4, posted (7 years 5 months 5 days ago) and read 2030 times:

Quoting ChicagoFlyer (Thread starter):
* United had the most dramatic transformation in Ch 11 but is the most conservative in post-Ch11 world.



Quoting ChicagoFlyer (Thread starter):
Please no posts with content "management are thieves"

I'm not going to say that, but I am going to say that UA's management seems the least competent, given their stay in bankruptcy that was long in duration and short on productivity, and the fact that Ted is just plain stupidity redux. I think of all the carriers that went through bankruptcy, UA has the most items "to-do" now post bankruptcy. They have the assets and routes to have a really great product, and I think they've totally squandered the opportunity beyond some window dressing.



E pur si muove -Galileo
User currently offlineDL767captain From United States of America, joined Mar 2007, 2539 posts, RR: 0
Reply 5, posted (7 years 5 months 5 days ago) and read 2008 times:

It seems to me that airlines like DL also have issues on fleet renewal, they have a ton of 737-800's on order so that will help with the MD-80 replacement, as for the 767 replacement if they want to use 787's for replacement they could possibly go to NW because there is no way NW needs that many and since they belong to sky team it would make sense and DL could also lease some of them, but we will see because they will probably need to make a decision soon

User currently offlineSteeler83 From United States of America, joined Feb 2006, 9268 posts, RR: 21
Reply 6, posted (7 years 5 months 4 days 20 hours ago) and read 1937 times:

Quoting ChicagoFlyer (Thread starter):
With 3 major US carriers (or 4 in you include US Airways,

Yeah, I would say you can count US in this bunch. I still do!  Smile

Let's see, didn't they shrink their fleet down by a couple hundred aircraft or so? I know they removed their DC9s, MD80s, 732s and the like before going into bk protection. Oh yeah, and we all know what else they removed during this time also...

Then, they built up CLT and PHL, including an international gateway at PHL. I wonder how long before US operates 500 flights out of PHL, or if that number will ever get that high...

Quoting ChicagoFlyer (Thread starter):
Order CRJ-900s for mainline and retire 732s

What are their seating arrangements for their CRJ-900s? I know that Skywest flies the CR9 out of SLC for DL express and their CR9s are configured with 70 seats...



Do not bring stranger girt into your room. The stranger girt is dangerous, it will hurt your life.
User currently offlineByrdluvs747 From United States of America, joined Jul 2004, 2462 posts, RR: 1
Reply 7, posted (7 years 5 months 4 days 20 hours ago) and read 1916 times:

I would add the following....

UA:

Future:
-Find merger partner.



The 747: The hands who designed it were guided by god.
User currently offlineChicagoFlyer From United States of America, joined Jan 2006, 274 posts, RR: 0
Reply 8, posted (7 years 5 months 4 days 18 hours ago) and read 1881 times:

Quoting Steeler83 (Reply 6):
Quoting ChicagoFlyer (Thread starter):
With 3 major US carriers (or 4 in you include US Airways,

Yeah, I would say you can count US in this bunch. I still do! Smile

I think I have subconsciously been counting US because....

Quoting Steeler83 (Reply 6):
Quoting ChicagoFlyer (Thread starter):
Order CRJ-900s for mainline and retire 732s

What are their seating arrangements for their CRJ-900s? I know that Skywest flies the CR9 out of SLC for DL express and their CR9s are configured with 70 seats...

This shows my confusion--it is US that has 90-seaters in the mainline, and DL has them operated by Skywest and Pinnacle. OOPS! My mistake.


User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 9, posted (7 years 5 months 4 days 17 hours ago) and read 1861 times:

Quoting Alitalia744 (Reply 2):
Quoting ChicagoFlyer (Thread starter):
* United had the most dramatic transformation in Ch 11 but is the most conservative in post-Ch11 world.

I dont' know how accurate that statement is....

UA is regarded by a number of analysts as having had the least successful stint in BK despite being one of the first to go in and having stayed there the longest.

UA is now focused on selling out since it is obvious to many analysts that they cannot compete successfully against other carriers - even AA which has not been through BK - on a long term basis due to their lack of access to the capital markets (that is the reason they are not ordering aircraft). They agreed in their plan of reorg not to buy aircraft because they needed to pay off their creditors/now stockholders first.

You also have to look at balance sheet strength and cost advantages. DL and NW did a better job in cleaning up their balance sheets; costs are harder to measure because you can spin the numbers many ways but it is safe to say that UA's costs are not low enough.

DL and NW clearly benefitted from going later in the cycle. They kept investing in their product during and after BK... DL by far the most.

You also must consider the employee aspect of BK. DL had its employees rally behind it in BK to fend off the US takeover attempt while US, NW, and UA employees regularly post on boards like this that they look forward to new management. DL returned far more to its employees as part of its exit through bonuses/stock/ and profit sharing than other carriers have. NW is the only airline that has not terminated any pension plans.

I would also argue that alot of the fleet replacement that people fear needs to happen will occur when consolidation sweeps through the industry during the next downturn. There were significant overtures made during BK so that it is pretty obvious who wants to be an acquirer and who wants to be acquired - along w/ potential matchups by each.

NW, UA, and US are more likely to be acquired that be the acquirer while AA, CO, and DL are setting themselves up as acquirers.


User currently offlineDelta787 From United States of America, joined May 2006, 321 posts, RR: 0
Reply 10, posted (7 years 5 months 4 days 17 hours ago) and read 1839 times:

Quoting Steeler83 (Reply 6):
What are their seating arrangements for their CRJ-900s? I know that Skywest flies the CR9 out of SLC for DL express and their CR9s are configured with 70 seats...

It depends on which Delta Connection airline is flying the CR9. Comair's are supposed to be operated with 76 seats and I think Freedom's and Pinnacle's will also be operated with that amount.



Fly Delta!
User currently offlineAlexPorter From , joined Dec 1969, posts, RR:
Reply 11, posted (7 years 5 months 4 days 16 hours ago) and read 1814 times:

Quoting ChicagoFlyer (Reply 8):
This shows my confusion--it is US that has 90-seaters in the mainline, and DL has them operated by Skywest and Pinnacle. OOPS! My mistake.

Still wrong. US and DL both have them as regional (US operated by Mesa, DL operated by Skywest at the moment). US has them all-economy, and DL has a premium cabin up front. The only regional jet operated as mainline by any legacy carrier in the U.S. is the E190 with a premium cabin operated by US Airways as mainline. Also, NW now has some CRJ-900s operated by Mesaba, also with a premium cabin.


User currently offlineChicagoFlyer From United States of America, joined Jan 2006, 274 posts, RR: 0
Reply 12, posted (7 years 5 months 4 days 14 hours ago) and read 1782 times:

Quoting WorldTraveler (Reply 9):
UA is regarded by a number of analysts as having had the least successful stint in BK



Quoting WorldTraveler (Reply 9):
it is obvious to many analysts that they cannot compete successfully against other carriers



Quoting WorldTraveler (Reply 9):
their lack of access to the capital markets

While I appreciate the respectful tone of your reply I think there should be more meat on these statements and they should be made with references. I have to disagree with all of them--UA is highly rated by analysts compared to the peer group (normally conservative Bear Stearns called for $80+ price target just today!), and they had no problems going to capital markets and refinancing their debts at lower rates. Incidentally, given that the earnings seasons is upon us, we may be treated to actual analyst opinion rather than generic "many say" references once the Q2 results are announced.

However, I do not disagree with:

Quoting WorldTraveler (Reply 9):
DL and NW did a better job in cleaning up their balance sheets



Quoting WorldTraveler (Reply 9):
DL and NW clearly benefitted from going later in the cycle.



Quoting WorldTraveler (Reply 9):
You also must consider the employee aspect of BK.



Quoting WorldTraveler (Reply 9):
UA's costs are not low enough.

The least successful recent Ch11 filing was clearly USAir #1 since they were back in bankruptcy court pretty soon. However, the attempts to restructure then were a learning experience which was used by UA in Ch11, and the ones that followed. Compared to peers, United had by far the worst of it at the time of the filing--huge costs, world-record losses, nothing good about monetizing on the balance sheet, and down business cycle. Their stay in Chapter 11 would be the most painful for a simple reason that the situation at the time of the filing was worse. The employees and creditors had to endure a lot of pain in order for the company to emerge as viable (let alone best-in-class) entity. It is such in the current state, and it is a competitive airline...

...but I have severe concerns about UA in the long term once the cycle turns. They have more to do on the cost, and at the same time it would be good to have more employee happiness (and in the ideal world these are not conflicting goals--if the company is safely profitable, employees are happy, and if they are happy, they can be more productive leading to lower costs--but in the airline industry we are not talking ideal world). I am also confused by the lack of pronounced long-term strategy, which was something I wanted to hear about from others on this board. Somehow I think there must be more to it than plan A: "more of the same"; plan B: "merge" but I don't see/hear anything.

In any case I stand by my statement that UA had the biggest transformation in Chapter 11. Financially speaking, it is almost a miracle that the airline exists given where it was in 2002 and 2003.

Now, more about strategy....


User currently offlineSteeler83 From United States of America, joined Feb 2006, 9268 posts, RR: 21
Reply 13, posted (7 years 5 months 3 days 20 hours ago) and read 1706 times:

Quoting ChicagoFlyer (Reply 12):
The least successful recent Ch11 filing was clearly USAir #1 since they were back in bankruptcy court pretty soon.

What did they even do their first time into bk??? Their second time in, which was from mid 2003 (roughly) ultil mid 2005. It was during this time that they began to scale back PIT and build up PHL and CLT, and then they closed the hub. PIT is better off now without the hub, but it also sucks because PIT is having a hard time attracting any international service. Many people on here think that US will still not stand to see any other carrier launch routes to LGW or FRA, but I don't see US doing that. I know they lack the aircraft, but really... Where will US use the aircraft once they come online? They are going to continue to expand PHL with international service, while PIT continues to be shafted. I don't think the other international airlines would even consider either. LH said no... BA said no... and BMI is all wrapped up with trying to launch some half-@$$ LHR-JFK route. I am now thinking that the timeline for European flights returning to PIT to be some time in the 5-10 year period... and now, back off of this tangent...

Quoting ChicagoFlyer (Reply 12):
They have more to do on the cost, and at the same time it would be good to have more employee happiness (and in the ideal world these are not conflicting goals--if the company is safely profitable, employees are happy, and if they are happy, they can be more productive leading to lower costs--but in the airline industry we are not talking ideal world). I am also confused by the lack of pronounced long-term strategy, which was something I wanted to hear about from others on this board. Somehow I think there must be more to it than plan A: "more of the same"; plan B: "merge" but I don't see/hear anything.

So in short it seems like you're saying that for the short term, UA is more competitive, but in the long term, they will still have to cut costs. I am not sure of what the solution would be. When I see operating costs, I think of aircraft type, age, engine type, etc... I believe that they recently added A319s and A320s to their narrow-body fleet, and for what. They have 737s in their fleet IIRC. Are the Airbus aircraft going to replace the 737s ultimately in the long run? It looks like they're going to stick with Boeing for long-haul...

I am sure there are other, larger fish for UA to fry besides aircraft anyway. That is probably the least of their problems...



Do not bring stranger girt into your room. The stranger girt is dangerous, it will hurt your life.
User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 14, posted (7 years 5 months 3 days 18 hours ago) and read 1681 times:

Chicago Flyer,
you and I haven't chatted much but all you have to do is go back and read any number of articles and you will find plenty of evidence that UA was regarded coming out of BK that they didn't do as good of a job as analysts wanted. I don't keep articles online for 2 years or even 18 months but UA didn't do what they should have done. the fact that you say they have work to do - which UA mgmt admits - tells me they are not comfortable w/ where they are. NW and DL mgmt aren't saying that. There are metrics that detail balance sheet strength. I'd suggest you consult them to see that UA is indeed in less sound shape than NW or DL.

Quoting Steeler83 (Reply 13):
When I see operating costs, I think of aircraft type, age, engine type, etc...



Quoting Steeler83 (Reply 13):
That is probably the least of their problems...

aircraft operating costs are a small part of the picture and actually relatively constant from carrier to carrier. the big difference comes w/ employee costs, esp. in the area of productivity. UA for years has lagged other carriers in productivity.


User currently offlineNzrich From New Zealand, joined Dec 2005, 1524 posts, RR: 1
Reply 15, posted (7 years 5 months 2 days 14 hours ago) and read 1576 times:

Quoting ChicagoFlyer (Reply 12):
The least successful recent Ch11 filing was clearly USAir #1 since they were back in bankruptcy court pretty soon. However, the attempts to restructure then were a learning experience which was used by UA in Ch11, and the ones that followed

Well to honest i think US did pretty well .. Take a look at it now profit wise ..
All exc reorganisation and one off items 2nd quarter 2007
AA 317 mil
US 315 mil
DL 274 mil
UA 260 mil
CO 228 mil
NW ?

For its size its done very well considering US was the airline most expected to be liquidated .. Its turned around and become basically the most profitable of all the hub and spoke carriers .. When you take into size and profit ..

If thats the least successful of all the CH11 airlines well i would love to know what formular you use then ..As in the end it all comes down to profit as investors want a return on their investments ..



"Pride of the pacific"
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
New/updated Economy Seats For US Legacy Airlines posted Sat Dec 30 2006 03:03:39 by 1337Delta764
Boeing Sees US Legacy 787 Campaigns For 07/08 posted Wed Dec 6 2006 16:13:44 by NYC777
DL Post Ch11 posted Tue Jun 6 2006 06:05:41 by Uadc8contrail
$50 Fare Inc By US Legacy Carriers... posted Sat Apr 8 2006 00:03:12 by AirRyan
UA Possible Merger Target Post CH11...with CAL? posted Tue Dec 13 2005 21:17:47 by UAL777UK
Sum Up The Future Of US Legacy Carriers posted Sun Sep 18 2005 02:43:35 by Afrikaskyes
727 Operations By US Legacy Carriers posted Tue Jun 14 2005 22:08:21 by Wheelsatc
Drastic Changes To US Legacy Business Models? posted Fri May 6 2005 17:26:33 by UA744Flagship
United - Only US Legacy To Improve Service In '04 posted Tue Apr 5 2005 20:48:06 by FriendlySkies
US Legacy Carriers: Ending The 'limbo' posted Sun Nov 14 2004 23:15:07 by Ozglobal