US is in no danger anytime soon of having a 8.5 or even 6.0 CASM, and even if they did, it would still spell disaster for the carrier. Bronner and Siegel are delusional if they think that low CASM is the only way to the promised land of profits. Here's why:
First off, US' 2003 Q3
CASM was 0.11. That would mean that US has to cut costs another 29% or so. Siegel and Bronner will most likely look to work rules and pay changes, and when you have labor that is demoralized and angry, you can't go back to the well again. And, if you do, what are the odds of a swamped US Gate Agent smiling when he/she realizes that they get 20%-30% less for that smile than they did a year ago? And, what if that lack of smile is presented to a FF
elite customer who is already angry about being in an airport? Sounds like a good way to preserve the quality of the product, which is already pathetic.
Second, labor can't do it all. US has an expensive infrastructure -- lots of gates at some of the premier airports in the Northeast, where the LCCs are either going into secondary airports or serving nearby cities. Granted, when you serve a prime destination and your competition goes elsewhere, you can charge a premium. The problem is that the cost will always be more than the premium US can charge, especially if people still continue to not mind driving a couple of hours to save money. Illustrated: It costs US say 30% more to be at DCA
, but they can only charge 25% more than WN
could on a market from BWI
, since people are willing to drive out to BWI
for the flight. That means that the US model on that route is upside-down. So, US has to abandon the premier airports or jack up the fares, both of which are incompatible with US' business strategy.
Third, COGS: US depends on corporate sales more than other carriers. They still pay commissions or give companies spiffs for travel contracts. In 2003 Q3
, the selling costs for US were almost 6% in terms of revenue. For WN
and other LCCs, that's commonly under 1%. US is in a catch-22... they can't cut this cost because it's needed to feed their addiction to corporate customers.
Fourth, fuel and stage length: It costs fuel to take off and land. US traditionally has had relatively short stage lengths, which make them less 'efficient' when it comes to fuel, and makes fuel price management even more important. US is not hedged for fuel prices as well as it should be. As a result, again in Q3
, US and WN
spent about the same on fuel, but WN
was able to fly 22% more RPMs on that gas. This cost won't change unless US dramatically changes its route structure, gets some serious hedging in place (which will be hard considering their credit), or comes up with a way to fly on one engine.
Fifth, labor productivity. US' reliance on hub-and-spoke (especially with hubs so close together) makes people inherently less productive. It's feast or famine... totally swamped or standing around. If you stagger that hub 'pulse', similar to what AA
is trying with their rolling hub concept, you have a more consistent demand for work that is matched with your capacity. You can do more with the same or fewer people, and you can maximize the amount of time that your planes are in the air and making money. US is not warm to the rolling hub concept.
So... in conclusion - Bronner and Siegel can chase the CASM CASM CASM dream all they want. And, if US ever gets to 8.5 (which won't happen anyway), they'll still be in trouble because they'll be even more upside-down than they are today.
US and Siegel, who were roundly congratulated for their Chapter 11 stint, are the gleaming example of what NOT to do in bankruptcy. All they did was rearrange the chairs on the deck of the Titanic. They didn't take the court-protection opportunity and have a hard look at the way they do business with an eye on the future... they piddled the time away and went back to the same game they lost before.