watewate
Posts: 2216
Joined: Sun Nov 12, 2000 6:00 am

What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 3:43 am

We all know US Air is not in the best of shape, but what is the real problem behind its dismal state? Could a competent group of management (i.e. Bethund and friends) have made a difference. The more I hear Wolfe's pleas to have the merger approved, the more it sounds like he wants to cash in (with his multi-million dollar option) at the expense of US's employees.
Let's face it, Wolfe has done nothing good for US and its employees. He missed the alliance frenzy, was late in modernizing its fleet, made the smart decision to go head to head with WN at BWI, missed the RJ boat...should I go on?
The way I see it, Wolfe has done nothing but harm at US Air. With large O&D airport in PHL and nicely located hub airports in PIT and CLT, US shouldn't be struggling as badly if Wolfe made the right calls even once in a blue-moon.
And why is it that Wolfe hasn't managed to bring down the costs at US? I always hear of extraordinarly high costs at US, but I can't see how this will lead to US's demise as Wolfe makes it out to be. Sure, there are added costs associated with operating large, delay prone, cogested airports in the East coast, but I don't hear CO and DL complaining.
Is it too late for US to turn around and see the black? With RJ expansion, membership into an alliance, increased west-coast ops and realigning the roles of its three main hubs, I think US can survive on its own. And yes, Wolfe has got to go.

Q. What is US's problem?
A. Wolfe
 
AirwaysDC9
Posts: 199
Joined: Tue May 25, 1999 11:30 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 3:52 am

His name is Stephen Wolf (no "e") and he's not the problem, he's the solution.

There have been many threads on this message board regarding the reasons for US Airways' high cost structure.
 
UPS Pilot
Posts: 829
Joined: Tue May 18, 1999 1:17 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 4:32 am

That is a tough call. I don't feel Wolf is the problem. Talking to U.S. Airways pilots some want the merger to go thru and others don't. I feel that it won't even though I do have U.S.Airways stock and the $60 per share United was offering would be nice.

I do feel though the growing pains are tough. The new fleet purchases were needed. The additional European routes are good. The problem is the lack of a western United States network for U.S. Airways along with no flights to Asia. They need a stronger global presence to survive. The merger would work well to fit this need but then you have the typical bickering about senority, and other human resource issues involved with mergers. Morale on both sides would probably be affected in a merger. I feel United now won't pay the $60. per share offering now.

As far as U.S. Airways missing the boat on alliances well that may have been a good thing since these alliances are starting to fall by the wayside. The regional jet thing is wrong. U.S. Airways Express contractors do have RJ's. I have flown on many of them out of Philly and Pittsburgh as well as CLT and BWI.

Once fuel prices start to fall and the economy starts to perk back up U.S. Airways should look into some L.R. aircraft and possibly expand out west and into Asia. The JFK- NRT route would be nice or a PHL- LAX- CLK route.
JMO  Smile
 
RoastedNutz
Posts: 195
Joined: Mon Feb 19, 2001 12:18 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 5:38 am

If US has such high costs, maybe they should start scaling back, especially now that the economy is supposedly going down the crapper at any minute.
 
Ryefly
Posts: 1324
Joined: Wed Jun 21, 2000 7:56 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 5:57 am

I'm not sure if Wolf is the big problem either. US Air like many other airlines grew very fast by buying other airlines out. Usually these growing pains can have a negative effect over time with the airline and it eventually goes bankrupt. However once Wolf joined on the airline took on a different image. Plans to modernize its fleet, purchasing the shuttle and becoming a heavy contender on the trans-altantic market has helped US Airways in achieving its goal as the carrier of choice. With only 1/4 of the Airbus fleet online and a portion of its terminals renovated it's a slow process, especially for an airline that like fast changes. By the time they get everything complete it will still lack behind its competitors global status. So the quick fix is to merge with one. If that doesn't work then they will go with plan B. Build up further over the Atlantic and stengthen it's grip on the east coast and continue to build up its transcontinental service. This is already begining to happen with or without the merger. CLT for example is begining a $1billion expansion already approved which will more then double the ammount of gates to around 130 or so. PHL is also doing major expansions. Its too early to plan going over the Pacific right now unless they were to buy out a smaller carrier like America West or Alaska so they could feed more domestic traffic west.

I aggree some things should have done earlier but its begining to get organized. It just takes time which Wolf is running out of. I expect he will retire even if the merger is a no go.
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 6:11 am

As AirwaysDC9 said, we've had many threads on US Airways' cost structure, and his diagnosis is mostly correct. The airline's short-hop structure, combined from several high-cost pre-deregulation regionals, saddled US with costs it couldn't recover without more substantial transcon and transoceanic flying.

I'd say Edwin "sit on his ass and fiddle while US Air burns" Colodny was more the problem than Wolf. He didn't have it in him to tell the unions in the early '90s, concessionary contracts are needed NOW to save this airline. Colodny must have prayed a novena to get British Air to pour cash down the black hole of US's cost structre and save it in 1992.

Fleet rationalization would have come much sooner if Colodny had had some damn guts. One can debate if that shaping-up would have led to an earlier proposal to merge, or to a national-network viable US Air. But in any event, Colodny blew it big time.

And in any event, US Airways has never implemented near the transcon or tranoceanic system its network can support. Why isn't there a US BDL-LAX flight, for example, with that huge US frequent-flyer base in the BDL area? Why no San Jose service? Why so few 767's and no 330's on transcon?

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 7:07 am

That is one thing that Jim and I will agree on: Colodny was a buffoon when it came to managerial skill. He's the reason that US is where it is today.

Here are the problems:
- High cost structures: These aren't as easy to solve as just buying fewer paperclips and removing an olive per martini. US' cost structures are still the highest in the industry (I believe), and while they've come down, they're nowhere near where they need to be.

- Too big or too small: US is too big to be considered a regional - their footprint demands that they play with the big boys, yet their national network is puny.

- Few options for 'right'-sizing: Right-sizing can be considered either shrinking to be a regional or growing to be a national. They can't shrink and be profitable because of their cost structures (and it's a fundamental business fallacy that shrinking to profitability works), and they can't grow much, because they don't have the infrastructure for it. So they're stuck in the purgatory of air carriers.

- Low-fare competition: Southwest, AirTran, and jetBlue are most certainly impacting US. MetroJet is a complete joke. US has no way to compete. Southwest has already invaded Baltimore, Hartford, and Boston. They're setting their sites for sure on triangulating Philadelphia and New York City. AirTran is growing in Pittsburgh and already has some point-to-point routes from Philadelphia. jetBlue and Southwest are splitting upstate New York.

- Shrinking high-yield markets: As an effect of the low-fare invasion, US has fewer and fewer high-yield markets to prop up the balance sheet. That's why the 'years away from demise' argument doesn't hold water. Yes, this year they have cash, but next year when jetBlue/Southwest/AirTran/Spirit etc., strengthen in the market next year, the losses will accelerate and US will be in serious trouble much, much sooner than if everything was linear.

- Lack of alliances: US can't depend on a partner to handle the Int'l traffic for them. When you compare 'easy-to-get-to' destinations from PIT/PHL/CLT/BOS on US to the same type of destinations from ORD/IAD/JFK/BOS/EWR/PHL/etc. in Star or CVG/JFK/BOS/ATL on SkyTeam, it's clear that the alliance carriers have more to offer here.

- Mediocre FF program: Dividend Miles lacks the allure of Mileage Plus, AAdvantage, or SkyMiles, mostly because of the lack of partners and alliances. You can't use Dividend Miles, as far as I know, to get to Honolulu (except through the AAdvantage tie-up, which will end soon). Granted, we may not choose an airline based on this, but the cash-cow high-yield, frequest business traveller will.

- Threat of other shuttle services: Even if US-UA doesn't go through and the UA-AA shuttle arrangement doesn't happen, AA will have enough slots at DCA and LGA to start up a shuttle service in their own right. That would lure those cash-cow customers away from US even more, since enough trips on the Shuttle, and you can go to Hawaii.

These are today's problems. How did we get here?
- Colodny's woeful mismanagement of an airline
- Poor intergration of the predecessor airlines
- Failure to capitalize on routes and strengths of predecessor airlines, especially PSA
- Failure to recognize the low-fare threat years earlier, despite seeing it coming like a freight train (UA Shuttle is a perfect example of what US should have seen as a sign)
- Corporate culture that breeds inefficiency

So, that's where we are. US is at the point where they cannot stay in the same state that they're in. It's sort of like an atom being unstable... it MUST change in some way. No matter what they do, though, they're saddled with high-costs for the long-term and decreasing yields on many of their routes. Do the math. That's not a great business plan for the future.
 
cba
Posts: 4228
Joined: Sat Jul 15, 2000 2:02 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 7:23 am

Seems to me that the only way to fix their ongoing problem is to cut costs in their cost structure. Easier said than done though.
 
silverfox
Posts: 1034
Joined: Thu Mar 15, 2001 8:39 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 7:28 am

Heeeeellllpppppp!!!!!!!

I dont like all this talk at the moment, at present i am finalising a SFO-BWI-MCO-YUL-DWI trip on the Air pass. bloody good value at 339 GBP. if this merger goes ahead before Sept. What happens to pre booked tickets???
 
aatripleseven
Posts: 296
Joined: Sun Jun 04, 2000 9:20 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 7:46 am

As pointed out by Flashmeister, there are many reasons why USAir is beginning to "sputter."

The recent invasion of low-fare carriers into USAir's territory is in response US's poor management. For years they dominated the mid-atlantic and northeast markets charging high fares and coupling it with mediocre service. US had a substantial presence on the west coast following their purchase of PSA. Bad decisions and neglect, however, dismantled their strength west of the Mississippi and handed Southwest the lucrative California market. Southwest, now bigger and stronger, headed east to Baltimore in 1993 and continues to make strides deep in US territory. As we all know, jetBlue is also profiting off of US's misfortunes.

US needs to better understand the demands of its markets and customers. Low employee morale and inconsistency are a recipe for disaster.
 
US Air/TWA Fan
Posts: 124
Joined: Fri Mar 09, 2001 4:47 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 8:17 am

US Airways can become a major competitor and is taking steps to do so. Reguardless of what Wolf says, US Airways can survive on its own. Wolf is both a positive and a negative for the company.

The good:

-The Airbus fleet renewal. This will save millions in training, maintainence, servicing, scheduling, fuel, and more. DC-9-30, 737-200, and MD-80s will be gone whithin a couple years (I dunno about MetroJets' 73S though). Long term retirements may occur in the F-100, B733, and B734 fleets. In years time the fleet will be an efficient A319/320/321/330/752/762 bunch.
-Building International trans-Atlantic flights.
-Increasing Carribean prescence.
-Modernizing PHL and CLT.
-New regional jet routes and service.

The bad:

-The merger hurts employee moral/confidence in leadership.
-The slow response to the new low fare carriers' invasion of the northeast.
-Inability to attract major international airlines for code shares/alliances.
-Lack of major routes to the west coast. US needs more...why not PDX, for example?
-Lack of major service enhancement initiatives domestically. US's service is improved, but it can be better.

Some suggestions:

-Continue building trans-Atlantic traffic.
-Continue Airbus fleet renewal.
-Order the A318 to compete better with lower density short haul or trans-Continental routes (like Reno, Salt Lake City, etc.)
-Start service to Honolulu, HI (probably from CLT or PHL).
-Shift some flights from BWI to PHL.
-Build up the three hubs: PIT, CLT, PHL.
-Consider adding a fourth hub, for better trans-continetal traffic, such as Kansas City, MO; Colorado Springs, St. Louis (depends on what AA does to STL), and more.
-Start trans-Pacific routes (possibly).
-Possibly discontinue Metrojet.
-Increase service enhancements.
-Increase profit...easier said than done.
-
 
Guest

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 9:57 am

Interesting stuff, especially from Flashmeister, AAtripleseven, and DCA-ROCguy.

I think USA is truly in trouble. Yeah, Wolf is painting things more dire than he needs to in hopes of cashing out, but there is alot of truth to the concerns he illustrated to Congress with his maps of SWA expansion, etc. But, the bottom line is, as AAtripleseven noted, USA created the environment within which this expansion is thriving.

USA's route system is a bit undersized, but adding more destinations is not necessarily the answer. Take SJC or PDX. How much would it cost for USA to add a base for a limited number of daily flights to add spokes to a couple hubs? Would the facility and employee costs be recovered in sellable fares, or would price competition force USA to subsidize their new services to both of these new destinations? A few years down the road, would USA be able to expand these new destinations into profitable ventures? I doubt it...

There was a recent article about SWA expansion that noted SWA does not add a new city unless it meets certain criteria. One criteria was something like the ability to schedule eight daily departures, to ensure sufficient productivity from all the new employees SWA would hire at the new city. If USA applied this logic, they would need to schedule 2-3 flights per day to CLT, PIT, PHL and BOS from new cities like PDX and SJC. And both of these new cities have SWA, so USA would have pressure to offer competitive fares. Given these factors, as well as the established presence of other BigAir, I don't see how USA can make it with expansion to the western US.

In the long run, Wolf is correct: USA is in its last years.
 
747-451
Posts: 2327
Joined: Wed Oct 04, 2000 5:50 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 1:17 pm

US Air is dead and about to be merged. Why bother...
 
747buff
Posts: 676
Joined: Thu Jan 11, 2001 3:05 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 1:41 pm

According to my airline fleet list books, USAirways named a 767 the "Edwin I. Colodny". So will Continental eventually christen a plane "Francisco A. Lorenzo"?  Yeah sure
At Eastern, we earn our wings every day!
 
Mitchell Gant
Posts: 233
Joined: Sun Aug 20, 2000 12:38 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 1:48 pm

No, but CO does have a 777 named "Robert F. Six". Too bad US doesn't have a DC-9 named "Seth Schofield", the man truly behind the mess at USAir.
 
tsully
Posts: 680
Joined: Tue Mar 20, 2001 5:02 pm

S*T*E*P*H*E*N *** W*O*L*F*E

Wed Apr 18, 2001 1:51 pm

WOLFE is any Airline's problem...
That's why we got rid of him at UAL.
tsully
I love America. I guess that makes me Bush's poodle, but I'd rather be a dog in New York City than a prince in Riyadh.
 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 1:59 pm

The problem, USAir/TWAFan, with some of your suggestions is that the routes you propose would be very low-yield.

HNL routes for most airlines are hardly cash cows. They're FF incentives. Icing on the cake, but not moneymakers on their own.

As far as service to PDX or SLC, it's already too late. Both are WN markets. US would have to price very low to be successful there, which would decrease yields.

See how this works? Where should they start flights out west? PHL-EUG? Hardly...
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 2:12 pm

Great post up below my first one, Aaron. That's one of the best summaries of US's problems I've ever seen.

I'm still not convinced that low-fare competition is going to gut US Airways in less than five or eight years, though. As long as Southwest continues to practice their "go to one airport in a region and make everybody else drive" strategy, US Airways will have high-yield traffic at many cities.

For instance, US has not trimmed its schedule at any of the four major Upstate New York cities despite Southwest's presence at Buffalo for six months now, and despite WN being at Albany for almost a year. Whenever I'm at ROC I see healthy crowds waiting for US flights, and those folks ain't paying low fares.

The numbers of US's last few quarters show that seat capacity has grown and *traffic has grown ahead of seat capacity.* I'm just pointing out the numbers--you'd think they'd be way down at cities where WN has invaded. Except at Baltimore, the most recent timetable does not show a decrease in US capacity at medium-size Northeastern markets that have Southwest.

If Southwest decides to seize market share by entering ROC and SYR (instead of just creaming our pax the easy way to BUF and ALB), then US might suffer the gutting you mention. But it's not happening even with WN there, according to the most recent US timetable. A mystery I can't explain, but there it is.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
desertjets
Posts: 7574
Joined: Fri Feb 18, 2000 3:12 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 2:28 pm

I am not completely familiar with the issues at USAir, but I am going to throw my ideas around and tell me if I am close.

One of the issues I have picked up on is that USAirways has still not to this day really fully integrated labor from the Piedmont and PSA mergers. And this is what really is contributing a large portion of the overall high costs. In order for USAirways to be successful again would require major revision of current contracts and work rules to get them in line with the rest of the industry.

Secondly, which has already been discussed, is that USAirways still lacks a presence as a national carrier. I cannot still understand how they could over the course of 5-8 years completely dismantle the entire PSA system. Arguably there were routes and equipment not worth keeping. But to buy a west coast presence and completely abandon it, only to have Southwest come in and fill the void! (this same arguement goes for AA and AirCal, though they seemed not to have done it again with Reno).

Now for the Monday quarterbacking. USAirways needs to concentrate on their 3 main hubs, PHL, PIT, and CLT. And keep operations at high yield O&D airports. It would be corporate suicide to give up those highly coveted DCA and LGA slots (though this seems to be what would happen if the merger goes). Metrojet could probably be done away with. I don't think trying to battle Southwest is the right thing to do. Yields are too low anyways, and some of the routes do not make sense. Then USA needs to rationalize their regional network. Either sell-off the wholly owneds or bring them altogether under one banner (a. la. COEX or Eagle). And then they need to get more RJs. I belive only Mesa and maybe TSA are flying them for USExpress. Lastly USA needs to continue its expansion across the atlantic, but they need to be more aggresive, sort of like Continental. Certainly Philadelphia is a large enough O&D market with enough connection pax to fill a 762 to secondary European cities.

I find it hard to believe that USAirways is on its deathbed. What is needed is smart management who want to make it a strong independent carrier, not groom it for purchase.
Stop drop and roll will not save you in hell. --- seen on a church marque in rural Virginia
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 2:30 pm

LSJef writes: <>

This isn't true, LSJef. Neither PIT, CLT nor PHL have Southwest. None of them are likely to soon; Uncle Herb rarely challenges major airlines at their hubs. He picked BWI because US was abandoning it and he knew they would concentrate their resources on the Big Three hubs rather than defend BWI fully.

Also, most of the cities that feed PIT, CLT, and PHL on the East coast do not have Southwest. There is a *lot* of strength at these hubs to support cross-country traffic. Especially with O'Hare the way it is, US could pick up a lot of transcon traffic in the East. I'd transfer thru PIT or CLT any day before I'd go to O'Hare. This is a big marketing advantage US does not exploit. I wonder why? Hmmmm...

US could easily be filling A330s to LAX, SFO, and maybe even SEA. They could be filling 762's to SAN. And they could certainly fill 752's if they wanted to SJC, SNA, OAK, and PDX. They could also ramp up at PHX. Again, US's Big Three hubs and most of their feeder cities *do not have Southwest.* And even at some cities that do, WN isn't going to run non-stop service all the way to LAX. As I mentioned above, BDL-LAX should have been a gimme for US. Whatever the limits of US's frequent-flyer program, their flight schedules at mid-size Northeastern cities suggest a lot of travelers are hooked on it.

This has been a major management mistake by both Colodny and Wolf.

And no, US does not have just three years to go. They have at least five to danger, eight to ten before bankruptcy. The only serious threat comes if Southwest were to enter PHL, PIT and CLT; stop making so many cities driver to their neighbors and seize market share at *all* medium-size cities in the East. Then US might be in trouble sooner. That's the big question mark, but I don't see WN expanding that rapidly that soon. US has time.

Jim

Need a new airline paint scheme? Better call Saul! (Bass that is)
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 2:40 pm

Side note about Baltimore: If US shuts down MetroJet, they will again have vast vacant space in Concourse D. Which US will probably try to sit on, as they sat on it from 1993 until MetroJet's founding in 1998 to keep it out of Southwest's hands.

I'm not sure of the wording of the lease agreements, but if they leave all that space vacant, Maryland should aggressively seek to get it back. Groundbreaking has started on the new terminal expansion to the northeast of the mini-A concourse that UA uses, so maybe Maryland is just doing an end-run around US. But it seems to me Maryland has a good opportunity to wrest gate capacity that could be put to good use. BWI is an excellent airport in a swelling two-metro area market.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
ont 737
Posts: 606
Joined: Fri Mar 23, 2001 10:19 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 2:55 pm

I must agree about how US Airway's route structure is hurting them. I'm from California and have never flown on US and probably never will. I think that most travelers who live west of the Mississippi are saying the same thing. Their fairs are high and unless I want to fly somewhere east of PIT I can pretty much count on back tracking when I fly on them. Also their hubs are pretty close together so they compete with eachother for connecting traffic. The one thing good about their hubs (PHL, PIT, CLT) is that they just dominate them. (In that I mean the US share of the market) Maybe is they have a codeshare with a west coast airline people out here may be more likely to fly them.  Confused
 
AirwaysDC9
Posts: 199
Joined: Tue May 25, 1999 11:30 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 9:44 pm

Just a word about Market Share.

Lets just say for a moment that the merger tanks and Mr. Wolf decides that he's going to expand US Airways and make it a true nationwide carrier. Aside from the expense of buying new aircraft, ground equipment, hiring thousands of employees, expanding infrastructure and information technology to new stations...all of which cost big bucks...he also has the burden "stealing" market share from airlines that have long since been established on the west coast.

No, it is not impossible....but it ain't gonna be easy folks. Go up to anybody in Oregon and they'll say, "US Who???"

As for Jim's "5 years to danger 8-10 to trouble" timeline...I think that is dangerous speculation. Jim hasnt seen the books and neither have I. We dont know cashflow rates. We dont know how the upcoming parity reviews on numerous contracts are going to effect costs. We dont know what the 5 or 10 year forcast for low fare competition in the northeast is. We dont know the ultimate impact on RJs on the air traffic system and how that will be dealt with. Bottom line we dont know what will happen to YIELDS and COSTS in US Airways core markets...

But here is a pretty basic guess....Southwest, Jetblue, AirTran etc...continue their expansion in the northeast. High yield travelers seeking better FF benefits are lured away from US Airways by competitors RJ's = YIELDS GO DOWN.

Contracts at Delta, UAL, NWA etc raise the bar on the "PARITY CONTRACTS" that Steve Wolf gambled on at US Airways.... Airbus fleet rationalization will continue to actually RAISE costs until more fleet types are parked... = COSTS GO UP.

If YIELDS GO DOWN...and COSTS GO UP....who are we to say that it will be 5 years or 10 years to trouble? Fact is, 5 years ago would we have had any incling of the massive increase in low fare competition on the east? 5 years ago would we have any idea about the massive popularity of regional jets? Why should we presume that we know what will happen 5 years from now?

The only thing we DO know is that unless US Airways can solve the problems that Aaron, Jim, and myself have mentioned at SOMETIME in the future...the near future in my opinion, US Airways will be in a lot of trouble...and Steven Wolf's ONLY obligation is a feduciary responsibility to the shareholders....not to the employees....not to the customers....not to the cities he serves...but only to the shareholders.

That means, ladies and gentlemen, that if Mr. Wolf feels he can get $60 a share by melting down the airplanes, turning them into Coca-Cola cans and selling them at 7-11...thats what is going to happen.

 
Tan Flyr
Posts: 1576
Joined: Sat Aug 19, 2000 11:07 pm

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 10:44 pm

Well, I have enjoyed reading this interesting discussion for the last 15 min. Decided to add my 2 cents worth....Airwaysdc9, you make a correct point, Wolf's responsibility is to the shareholders. If he can melt aircraft into Coors cans and make a profit, he will. For better or worse, his style in life has been to put carriers into positions to be sold. Flying Tigers was first I believe, the Republic, UAL(to employees), and now US.

The few times I HAVE to fly US when I am in the east, I do. However, they have a lot of problems that have been mentioned already.

IF the UA/US deal fails, and I think it will, look for Wolfie to sell it off piece by piece.

Capitalism at work, maybe for the eventual benefit of shareholders and consumers in those markets. Maybe more competition will eventually result? Lets hope so!
 
Guest

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 11:07 pm

DCA-ROCguy:

I continue to agree with you about SWA's conspicuous absence at major hubs, which includes USA's hubs. Just to clarify, though...my point was to note a key limitation of the hub system, that each "spoke" airport must be able to support limited flights to only the hubs. Given USA's limited hubs and the existing competition already serving PDX and SJC, I simply cannot see USA forging profitable new services to these cities without first taking a loss for 3+ years. And I doubt USA can afford to take that loss...
 
User avatar
RayChuang
Posts: 8007
Joined: Sat Jun 24, 2000 7:43 am

RE: What Is US Air's *R*E*A*L* Problem?

Wed Apr 18, 2001 11:48 pm

I think (as everyone guessed correctly here) that the big problem with US is the fact their route structure is too East-loaded.

I mean, look at airlines like AA, CO, DL and UA. Why are they more successful? Mostly because they either have a strong western USA presence (in the case of AA and UA), a strong feeder setup for hub operations in the central USA (AA at DFW and ORD, CO at IAH, and UA at DEN and ORD) or have lucrative transcontinental routes such as SFO-JFK and LAX-JFK (AA, DL and UA).

What US really needs to seriously consider (if their merger with UA fails) is to seriously look at getting a hub somewhere in the Midwest. US should look at using Kansas City's MCI as a hub, for starters.
 
AirwaysDC9
Posts: 199
Joined: Tue May 25, 1999 11:30 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 1:09 am

"Getting a hub" Ray Chuang?
Tell me...how do you steal market share from established carriers.

It just isnt as easy as building a new terminal at Kansas City, buying more airplanes, and flying new routes.

Its not that simple.
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 1:20 am

LSJef, it doesn't seem to me that US would have that much difficulty taking market share on transcon from the East. PIT and CLT are not congested airports, and that's a huge marketing advantage US ought to press. All those non-WN markets in the East still need access to the West Coast. If US hit the airwaves hard about the advantages of connecting through PIT or CLT over ORD or ATL, they'd pick up high-margin or 'high-yield' market share.

Newsweek says that business travelers now build an extra day into many trips, especially transcons, to allow for delays at ORD, ATL etc. If US aggressively promoted the fact that that isn't necessary when you travel thru PIT or CLT, they could peel off market share.

Plenty of people in fare-gouged East coast markets still need to fly cross-country. US should chase them aggressively. And watch the A330's and 767's fill up to LAX, SFO, etc.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
Guest

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 1:35 am

DCA-ROCguy:

Your point is well made, and I agree with you that USA has some opportunities. But, whatever service USA provides out of places like PDX and SJC would likely be limited to say 2-3 trips/day to both CLT and PIT. That's 4-6 total departures per day at these spoke facilities, which means lots of unused employee capacity, thus low productivity, and high costs. And, if PIT and CLT are being used as hubs, the PDX/SJC passengers are making a stop at these hubs enroute to their real destination...and could just as easily be flying SWA through MCI, or BigAir through an established mid-continent hub.

When Wolf spoke before Congress with his SWA market penetration charts, he did make USA's predicament quite clear: USA is stuck in the middle between BigAir and LowFareAir, and has no where to go.
 
US Air/TWA Fan
Posts: 124
Joined: Fri Mar 09, 2001 4:47 pm

RE: US Air's *R*E*A*L* Problem? (FlashMeister))

Thu Apr 19, 2001 3:58 am

I know some of these would be low yield flights. That is why an effiecient A319 or A318 would be perfect for reclaiming US Airway's trans-Con West coast service. You don't want to necessarily put a 767 or 757 to PDX or SLC, but a 319 could probably do it.

Why not fly a daily flight to PIT, PHL, or/and CLT? NONE are Southwest cities. Most pax. perfer non-stop flights. So, most travelers would probably rather fly US to PIT/PHL/CLT that fly with several stops like Southwest. There is currently NO non-stop service between these city pairs.

Yes, I agree that HNL flights are mostly FF benifits; however, US is the only major airline not to serve HNL. Only AWA and SWA do not. If ATA can make a profit flying from JFK-HNL (an L-1011), with little connection traffic, why couldn't US fly a more efficient and smaller B767-200 from one of its connecting hubs?
 
Guest

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 6:26 am

DCA-ROC argues - "Plenty of people in fare-gouged East coast markets still need to fly cross-country. US should chase them aggressively. And watch the A330's and 767's fill up to LAX, SFO, etc."

Several problems with this plan. First of all, at LAX, US operates out of Terminal 1. Last I checked, Terminal 1 does not have any wide-body gates. In fact, US doesn't even have enough room at its gates for its A321's. When parked at the terminal, they tend to use two gates, the one they are assigned to and the one they block.

Where do you propose, then, that US find room for all of those A330's and 767's that they plan on flying to LAX? The only carrier with excess space at LAX is American, and I just don't see them agreeing to lease their excess gates at Terminal 3, so that US could start up competitive transcon service.

As for marketing, one has to wonder how US would succeed where Delta has failed. For years, Delta did not enter the transcon market, because UA and AA had a monopoly not only on the number of frequencies, but on the corporate contracts in the east-west markets (i.e., LAX/JFK, SFO/JFK, LAX/BOS, SFO/BOX, LAX/IAD, SFO/IAD). Unlike US, Delta did have the facilities at LAX. It it even had a greater market presence in NY than United did after it transferred its international ops. to Dulles in the early 90's. Still, Delta stayed put. In the last five years, Delta has reversed track and has added a number of transcon routes, but nowhere near the number of frequencies of either American or United. Based on Delta's example, one would have to wonder how fast US could grow in the transcon market.
 
ont 737
Posts: 606
Joined: Fri Mar 23, 2001 10:19 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 7:21 am

Many poeple on this forum have mentioned that US should build a hub somewhere in mid-America. I think that it is a good idea as well, but the problem is where? There is no good place for them to establish one. American Airlines was looking everywhere to establish another mid-america hub because they are maxed out at ORD and DFW. So they decided to buy TWA and get their STL hub because there was no where else. I heard MCI mentioned, but that would be a real risk. No one has been able to have a successful hub there(TWA, Eastern). Now Vangaurd has a hub there, Midwest Express is building up operations, and Southwest is the dominant carrier with 80 flights a day. And we all know how US does when it is against WN.  Smile/happy/getting dizzy
 
Guest

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 9:16 am

US has several things to do for them to lower costs:

1. Give back the gates at BWI. They can have some, but not all that they have now. They can stop paying the leases, and thusly, lower their costs. BWi would probably love to get them. And they wouldn't be competing very much with WN. I know for a fact that it wouldn't impact on their ops very much. My dad has never gone down to BWI when he was flying for business(even though he hates US). The only people who would go there are leisure, and they don't matter as much as the business traveler.

2. Get rid of Metrojet. It will let them get rid of many items, thusly saving them money. The 732s will go back to their lessors if leased, or be bought by someone(There are a lot of buyers in the world, you know).

3. Sell the F100s, 732s, D93s, and M80s immediately. AA would probably buy the F100s, and it would allow US to get rid of a lot of spare parts.

4. Streamline maintenance and aircraft. Put the remaining 733/734s into a hub, the A320 family aircraft into another, and a mix into the third. The 757/67 will be at all three, and the A330 at PHL and PIT. That way, only a minimum of spare parts will be needed at the maintenance facilities. This would include having maintenance facilities only at their three hubs, with maybe one in Florida, and one in LAX/SFO.

5. Streamline their wholly-owned express operation. Merge them together, and sell the Dornier 328s(I believe that they have more DHC-8s than 328s.) to another airline, and use them as a franchise.

So what do you think?
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 9:18 am

US Airways can park wide-bodies at LAX Terminal 1. I've flown a US 767 from that very terminal. Just last August I saw a US 767 at LAX. They most definitely can fly widebodies to T1.

Again, O'Hare promises to be a snarled mess this summer. And Atlanta's new runway won't open for several years. If O'Hare and Atlanta were running smoothly, US probably would have a very tough time grabbing transcon market share from UA, AA, and DL. But they can and should capitalize on the fact that these airlines' hub airports are especially delay-prone.

Getting corporate contracts is called marketing. US should pitch the advantages of CLT and PIT to major employers in the East.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
ContinentalEWR
Posts: 3619
Joined: Wed May 24, 2000 2:50 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 11:13 am

CLT, PIT, and to a lesser extent, PHL are great alternatives to ORD, ATL, EWR, LGA, etc...but
US Airways is an also-ran, with lousy service,
the absence of a strong corporate clientele out
side of its hub areas, an anemic East-West
route structure and one that is heavily concentrated
on the saturated East Coast, where landing fees are
high and operating costs even higher, poor judgement
in dealing with costs, too many aircraft types in its
fleet, and zero room for growth. This sorry carrier,
which I have coped with for years but really look to
avoid when possible, will be picked apart by its rivals
after the DOJ blocks the UA/US merger.

Look for UA to pick up DC-area flights and assets,
some of the A319/A320 fleet, CO will perhaps get
the Northeast Shuttle (if AA doesn't get its hands
on it first), the CLT hub will be picked apart, PIT
will also be downsized, the European routes will
go to the highest bidder, and the Boston-area
assets to AA.

US Airways is the next TWA.

ContinentalEWR
 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 11:47 am

I don't know if US has all that lousy of service when compared with the other majors... they've been 'normal' when I've flown them.

I don't think, however, that a single A319 transcon to PDX/SJC/SLC etc., would help. You're not going to get the volume that you otherwise could with 757s or 767s. US would still be a western also-ran...

As for HNL, the difference between ATA and US is that ATA doesn't have a FF program to jam their L10's with freebie pax. Everyone on that plane is paying money to be there, something that isn't otherwise true with AA/DL/US/NW/CO. Add to that ATA's successful Hawaiian vacations operation, and you're flying planes that are making money. US would be flying Dividend Miles customers to HNL for free and getting little in return, and they don't have enough high-yield routes to subsidize the service.

ContinentalEWR is right about US' future if the merger fails, in all but one regard: I think that the DoJ would have problems with either CO or AA getting US' shuttle operations: CO owns EWR and would then own a big chunk of LGA, BOS, DCA. AA would already have the slots to do this, and this would make them too big at those airports, too.

UA would probably snatch up the shuttle operations and establish routes in their own right to LGA, DCA, BOS... or, wouldn't this be interesting: Neeleman goes to the well and gets some money to buy the shuttle. jetBlue could really make some serious moves if he could pull that off...
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Thu Apr 19, 2001 1:18 pm

US Airways service has consistently been good on my many,many trips with them the past ten years. The planes are clean and roomy, the food good on transcon flights (in both coach and first class, as I found out by being bumped up :+) ), and their personnel courteous and knowledgeable.

That's a really interesting possibility, Aaron, about JetBlue. A shuttle fleet would presumably be confined to its three airports (DCA-LGA-BOS) so delays there couldnt' ripple throughout the JetBlue system. He'd probably dedicate a few DCA slots to JFK flights too, to feed the mainline JetBlue system. US Airways Shuttle 320's are configured much like JetBlue's, so the comfort would probably be similar, or better due to leather seats (which the US Shuttle 320 I flew lacked).

With JetBlue's low cost structure, he could offer the whole shuttle whizbang--magazines and coffee at gates, etc--and still charge a lower fare than US or DL charge today. DL would probably hit back hard, though, and that's something Neeleman may want to avoid until the mainline JEtBlue system is bigger and less vulnerable. But then again DOJ would be watching like a hawk, and if DL tried to predatory price JetBlue on that high-profile route they'd probably get smacked with hefty fines. So it could go either way, I suppose.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Sun Apr 22, 2001 8:25 am

AirwaysDC9: The only thing we DO know is that unless US Airways can solve the problems that Aaron, Jim, and myself have mentioned at SOMETIME in the future...the near future in my opinion, US Airways will be in a lot of trouble...and Steven Wolf's ONLY obligation is a feduciary responsibility to the shareholders....not to the employees....not to the customers....not to the cities he serves...but only to the shareholders.

Jim: Speaking of fiduciary responsibility to shareholders: Wolf and Jim Goodwin should not be defrauding United Airlines shareholders by entering into a deal to sell US for $60 a share. Everyone knows US isn't worth anywhere close to that. Jim Goodwin wants to cover his ass regarding incompetent management and buy market share to destroy competition. Steve Wolf wants to win the "prep US for sale" game he's been playing.

Neither of which justifies an inflated price for a high-cost carrier, the only result of which will be to burden UA with debt that it won't be able to service without massive and yes unjust hikes in airfares. The public is not a cow to milk--all that money just to enrich execs and preserve existing employee seniority. NO thanks. I have much better uses for my hard-earned money.

Airways DC9: That means, ladies and gentlemen, that if Mr. Wolf feels he can get $60 a share by melting down the airplanes, turning them into Coca-Cola cans and selling them at 7-11...thats what is going to happen.

Jim: Then that is EXACTLY what Wolf should do. Start downsizing, sell off airplanes to Coca-Cola if he wants to, and let airlines with more reasonable cost structures come into the Northeast and take over. And there won't even be any disruption at PIT and CLT since those are such excellent markets to support domestic hubs, that someone will build up as US downsizes.

US Airways is NOT worth saving in its high-cost, hodgepodge-fleet form. It should be downsized and allowed to die a natural death over the next eight years. Unless Wolf wants to actually try shape US up to compete (Eg get Western hub going to offset NE operational costs) to which he has not shown inclination.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: What Is US Air's *R*E*A*L* Problem?

Sun Apr 22, 2001 12:08 pm

Jim, I can see where you're coming from by saying that the market should determine the fate of US, but be careful here.

There was another airline that was sold off piece by piece and allowed to die a slow death. They're currently buying polishing machines and lots of new "A" keys for their keyboards to make sure they work.

If US goes under, which it will at some point, it's not just going to go away. There will be a white knight, and it could be UA. At that point, you'd get THE EXACT SAME MERGER as you get now, sans the $60/share price.

You'd get the same footprint, the same services, the same market dynamics, which I think are good and you think are bad.

Thinking that jetBlue or WN will be the new White Knight here is pointless. It will be a major.

Just another point to prove that 'Big Air' as you call it is here to stay. Consolidation IS HAPPENING and it can't be stopped.

Aaron
 
tupolev154b2
Posts: 1269
Joined: Mon Jun 26, 2000 9:01 am

RE: What Is US Air's *R*E*A*L* Problem?

Sun Apr 22, 2001 1:39 pm

If U.S. were to sell the rest of its DC-9, MD-80, Fokker and 737 fleet, their capacity would be greatly reduced. What you must ask is whether the profits gained from their current capacity offset the costs of such a diverse fleet.

Isn't U.S. already beginning to shift operations away from PIT and to PHL? How profitable is CLT for them?
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Sun Apr 22, 2001 2:16 pm

Consolidation is indeed going to happen, but not this year and not in the form the airlines want this year. US will be gradually downsized, and other airlines--major or otherwise, as I noted--will pick up their routes. US isn't shutting down all at once like TW would have. There's time to have a smooth transition.

If UA were to buy part of a smaller, downsized US a few years down the line, at a lower share price, that might well be a different story. Buyouts burden the buyer with heavy debt, that must be serviced with interest. Buyouts don't produce anything, especially when buyer is badly overcharged for the item bought. Why should air travelers pay for an inflated $60-per-share buyout of US? They shouldn't.

You're correct that the buyers of US's assets will probably be majors. With their lower costs, any of the other five oligopoly carriers could make hefty money at PIT, PHL, DCA and CLT on the same rapine fares US charges now. This is too much profit to pass up, and majors would almost certainly be the buyers. Best scenario would be that different carriers buy chunks of US big enough, that each could take over one of the hub operations. Say UA gets CLT, NW gets PHL, and AA gets PIT, and CO gets DCA. Or something like that.

Since I hadn't mentioned anything about WN or AirTran being "white knights" I'm not sure where you get that idea. AirTran would like to have a hub at PIT, I think, but simply buying a chunk of US would be way above a comfortable debt load for them.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
Guest

RE: What Is US Air's *R*E*A*L* Problem?

Mon Apr 23, 2001 8:22 am

DCA-ROCguy: in your last post you said, "Best scenario would be that different carriers buy chunks of US big enough, that each could take over one of the hub operations. Say UA gets CLT, NW gets PHL, and AA gets PIT, and CO gets DCA. Or something like that."

I may be taking this out of context and thus failing to understand you but, from your other posts, I've had the impression you are not a big fan of the monopolistic effects of BigAir hubbing. So, by the above, do you mean "best case" period, or "best case" assuming USA's route structure will spoil out to the majors? Just curious...

As far as the transition to post-USA, fast is better for BigAir, and slow is better for the fare-paying public (funny how the airlines and passengers always end up on opposite ends of the stick). As I see it, the success of JetBlue and SWA's NE expansion is closely tied to USA's problems; i.e., these two airlines are having great success not at USA's expense but because of USA's mismanagement and poor service delivery. In a few more years, if all of USA were given free to UAL, they may be too late to regain lost marketshare from competitors who establish themselves in the interim.
 
Republic
Posts: 541
Joined: Thu Dec 27, 2012 12:39 am

RE: What Is US Air's *R*E*A*L* Problem?

Mon Apr 23, 2001 12:48 pm

Bethune agrees. Wolfe.




US Airways at Mercy of Merger Deal
Management Is Gloomy About Airline's Fate Without United Deal, but Its Competitors Disagree


By Keith L. Alexander and Frank Swoboda
Washington Post Staff Writers
Monday, April 23, 2001; Page E01



For almost a year, the management of US Airways Group Inc. has focused on completing a complex merger with United Airlines Inc., a deal that was supposed to be the biggest since the industry was deregulated in 1978.

Now a new question has arisen: What happens to the Arlington-based company if the deal doesn't go through?

On Wednesday, United executives said that because of questions from the Justice Department's antitrust division, they would miss another target date for completing the deal. Now they don't expect it to close until after June 30. It's the fourth time they've changed that date.

The managers of US Airways say it can't survive as a stand-alone airline. But some industry analysts, union leaders and competitors disagree. They say the airline can fix itself by controlling costs, eliminating unprofitable routes and generally tending to the business of running an airline rather than merging one.

Both US Airways and United seem to be suffering. When the merger was announced 11 months ago, the economy was stronger. Earnings and stock prices at both airlines have declined and competing carriers such as Southwest Airlines Co. and AirTran Airways have expanded into their markets. Fuel prices are about 12 percent higher than they were last year and labor costs are nearly 15 percent higher than in 1999.

"Both airlines might be better served concentrating on improving their own operations rather than trying to force this deal through," ING Barings analyst Ray Neidl said.

Last week, United reported a first-quarter loss of $313 million, compared with a $99 million loss in the same period a year ago. The Chicago-based carrier also said it expects to report a loss for the second quarter instead of the profit that analysts expected. United said it will lose money for the full year if current trends of higher fuel and labor costs continue. The price of United's stock has fallen more than 30 percent since the US Airways deal was announced.

Things are grim at US Airways, too. Like other airlines, it has been hurt by a major drop-off in high-paying business travelers. The Arlington company lost $171 million in the first quarter, compared with a $115 million loss a year earlier. It said that it expects the second quarter, usually its best period because of summer vacationers, to be only slightly profitable. The price of the company's stock has fallen 20 percent since the day before the merger was announced.

The $12 billion deal raised questions among Justice Department officials from the beginning. The plan is for United to pay $4.3 billion in cash for US Airways and then spin off the airline's Reagan National Airport operations to a new airline, DC Air, to be headed by Black Entertainment Television founder Robert L. Johnson. United would then sell 20 percent of US Airways to American Airlines Inc. and American would own 49 percent of DC Air. Consumer groups, competing airlines and several members of Congress have said the deal would be anti-competitive since it would give United and American a 50 percent share of the nation's air travelers.

Combining these two airlines today, some analysts say, could be catastrophic for the companies, especially for United's parent UAL Corp.

"You have two broken airlines right now that are financially struggling. In the long run, if there's a merger, UAL will go Chapter 11 in three to five years," said CIBC World Markets airline analyst Sal Colak.

Neidl said predicting a bankruptcy filing might be a little extreme. But, he said, United is "putting themselves in harm's way if there's a recession."

Until recently, US Airways has been showing strength. Although it lost $269 million last year, that was the company's first loss since 1994. From 1995 through 1999, when the economy was at its strongest, US Airways was profitable, earnings hitting a high of $1.02 billion in 1997. Before 1995, the airline regularly lost money.

"When the economy is strong they make money. They have to find ways to make money when the economy isn't as strong," Goldman Sachs analyst Glenn Engel said.

US Airways Chairman Stephen Wolf said his company, the nation's sixth-largest airline, can't compete for long against larger carriers such as United and American Airlines or discount carriers such as Southwest, AirTran and Jet Blue. In the past year, discount carriers, including Southwest and Delta Express, have increased service on US Airways routes by 29 percent.

US Airways executives compare their company's plight with that of Trans World Airlines Inc., which was struggling before its recent merger with American. But there are major differences between the two situations. Before its merger, TWA had lost about $100 million a year for 12 years. It also had three stints in bankruptcy protection.

Analysts say it could be at least 10 years before US Airways is in nearly as much trouble as TWA was, especially since the airline has about $1.3 billion in cash.

Still, US Airways has the highest costs in the industry and remains the only major carrier not partnered with an international airline. "They're not doomed. But clearly US Airways has some strategic challenges out there," Engel said.

In testimony to a congressional subcommittee last month, Wolf said that if the merger doesn't go through, management would "have to size the airline down."

Wolf said there isn't room for an airline the size of US Airways in today's competitive environment. "We do not have the financial wherewithal to grow to become a network carrier and no airline has ever shrunk its way to profitability," he said through a spokesman last week.

Other airline executives, such as Gordon M. Bethune of Continental Airlines Inc., strongly disagree. When Bethune took over as chief executive of Continental in 1994, the company had twice been in bankruptcy, had not had a profitable year since 1978 and had only $50 million in cash.

"We were in a hundred times worse shape," Bethune said. Continental, the nation's fifth-largest airline, has made money every year since 1995 and was one of only two major carriers to earn a profit in this year's first quarter.

"They need management in there that realizes and understands that part of being a good manager is running an airline, not doing a deal," Bethune said. "They have deal guys in there running that airline."

Bethune said US Airways is "rich" in assets: It has dedicated employees, busy shuttle operations and control of sought-after gates and slots at New York's LaGuardia and Boston's Logan International airports.

If US Airways were willing to sell, Bethune said, he would be happy to buy the shuttle operations and the slots. But if US Airways had different management, he said, the airline could survive on its own without selling any of its assets.

"It's a sham transaction. They're pleading death, but they're not dying. And the losers ultimately will be the shareholders, employees and the communities they serve," Bethune said.

Union leaders at the Association of Flight Attendants and the International Association of Machinists said they see no reason US Airways could not survive in its present form if the merger with United fell through.

"I think in our view, US Airways can survive and it can be a viable carrier," said Robert Roach, national vice president in charge of transportation for the machinists. "It certainly is nowhere near the situation at TWA." His union represents the majority of union employees at TWA.

"I believe US Airways can compete in all arenas," Roach said. But, he said, US Airways management "will have to begin to run the airline" for that to happen.

US Airways needs to focus on reducing its money-losing short routes and expand on longer routes, said Neidl, the ING Barings analyst. The company has reduced its costs to 12.78 cents per available seat mile from 13.43 cents a year ago. However, that still is the highest in the industry.

Many industry insiders wonder what the collapse of the United deal would mean for Wolf's future.

"Wolf is a pretty tough character, but I don't know if his strength lies in taking airlines which are financially weak and struggling and making them survivable on their own. That's not his primary strength," said Darryl Jenkins, head of George Washington University's Aviation Institute.

Wolf only wants to talk about working with the Justice Department and getting the deal done. "I am singularly focused on getting this merger accomplished," he said.

But even if the merger doesn't go through, it won't be a total loss, at least for US Airways senior management. Wolf, chief executive Rakesh Gangwal and general counsel Lawrence Nagin would receive a total of nearly $20 million in severance pay, supplemental benefits and vesting stock options just for setting up the deal.



© 2001 The Washington Post Company



 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: What Is US Air's *R*E*A*L* Problem?

Mon Apr 23, 2001 12:54 pm

The big assumption that you make, Jim, is that US will be carved up, and I don't think that's what's going to happen, at least not right away.

If the US-UA merger dies, I think we'll see another go-around with another carrier. Someone could get US now for $45 or less/share, and we'd be talking about the same thing - control of the Northeast and how it's all going to be gloom and doom under a merged carrier (which it ISN'T).

I believe the financial outlook that Wolf & Co. are presenting. Things are not good in Crystal City. Estimates of a 10 year lifespan for US are overblown. They're not shutting down tomorrow, but the danger is here today.

TWA showed us that the danger zone isn't when cash reserves reach a certain level, it's when cash flow gets enough negative momentum. US is in the danger zone RIGHT NOW. US is bleeding, WN and jetBlue are opening the wounds wider, and there's only a limited supply of blood.

I doubt seriously that there would be enough time left at US to successfully sell things off piece by piece. Maybe the shuttle goes first, but discussing the sale of the rest of US is like rearranging deck chairs on the Titanic.

'BigAir' is here, is growing, and is opening up new spots for new entrants. Remember, guys, this is one element of the corporate cycle of life.

Aaron
 
DCA-ROCguy
Posts: 3893
Joined: Fri Apr 21, 2000 5:03 am

RE: What Is US Air's *R*E*A*L* Problem?

Mon Apr 23, 2001 2:13 pm

I don't believe the financial outlook Wolf & Co. are presenting. As the article notes, they are "deal guys." They couldn't care less about trying to make US Airways competitive; they're trying to prep the airline for sale and that's *it.* Wolf lies through his teeth when he says low fare competition in the last year is up 29 percent. Read the timetables for yourself. It ain't so. It sure as hell ain't so in Rochester or Syracuse, or even WN-blessed Albany for that matter. The article is correct: it's 10 years before US dies of its overblown costs.

JetBlue's 35-daily flight operation at JFK, AirTran's 130-daily flight operation at ATL, and WN's 120-daily flight operation at BWI do NOT seriously threaten US. And they won't for a few years, because these airlines are growing at a prudent pace. (Even JetBlue has slowed down due to soft economy). They can't be everywhere at once. The lesson of People Express' failure is very clear in the minds of these carriers' executives.

US has hundreds of mainline flights daily apiece at PIT, CLT, and PHL. They have almost 100 a day each at DCA and LGA, and just under 100 (and dropping, as they phase out MetroJet) at BWI. Plus a healthy chunk of regional-affiliate traffic at all those places. Low fare competition in the NOrtheast is *nowhere near* the size Wolf says it is. US has lots of profitable assets that can hold it for awhile.

LSJEF: I was saying that it would be better for no one airline to get US whole. US must be allowed to 1) either make a serious effort to compete; or 2) downsize to the point that they can be broken up, or become small enough that one airline buying them wouldn't "throw the industry out of balance." They need to shrink from 7 percent of USA airline traffic today, to less than 3-4 percent (like TWA), IMO, for that to happen.

It would be best if low-fare carriers moved into US's fortress airports and set up hubs, but that's unlikely to happen. Nor is it likely that any low-fare carrier would buy a chunk of US in a carve-up. Southwest has hinted several times in the past year that they might, but I doubt it. US's workforce likely wouldn't adjust well to WN's work ethic. And none of the low-fare carriers would likely want that much debt.

As Aaron says, if there is a carve-up of US at some point, it will likely be other Oligopoly carriers who buy the pieces. IMO, this would prevent any one carrier from becoming so big that it "throws the industry out of balance" and triggers a rush to consolidation. The industry is in no shape to consolidate right now, and consolidation would cause operational as well as airfare hell.

If US soldiers on for awhile weak, then the low-fare carriers can grow in the Northeast. But if UA were to get hold of them now, and the industry consolidated, "new opportunities" for low-fare carriers would be crushed by the predatory might of a SuperBig Three. Fortunately, this transaction is getting less attractive to UA with each passing day. They may well decide it's not worth their while, esp if DOJ burdens it heavily enough.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
jmc1975
Posts: 2897
Joined: Mon Sep 18, 2000 10:57 am

RE: What Is US Air's *R*E*A*L* Problem?

Mon Apr 23, 2001 4:46 pm

As an airline analyst, I see that USAirways can definately survive on its own if it takes several preacutionary steps. There is such great potential for high-yield traffic at BWI, since DCA is slot-restricted and it's proximity to the beltway. There is also a considerable O&D traffic potential at BWI. To throw it away completely would be a waste as it could support a limited mainline and express operation. Several steps need to be taken immediately to help streamline USAirways and return it to be a viable carrier and it doesn't necessarily mean it has to get much larger to be profitable.

1. Dump Metrojet.

2. Sell all DC9-30s, MD-80s, and B737-200s.

3. Begin service to SJC, ONT, PDX, AUS, SLC and resume a daily flight to MEX.

4. Relinquish the following mainline cities to USAirways Express operations exclusively: Akron/Canton,OH; Asheville, NC; Binghamton, NY; Charleston, WV; Chattanooga, TN; Elmira/Corning,NY; Fayetteville, NC; Grand Rapids, MI; Huntsville, AL; Ithaca, NY; Lexington, KY; Roanoke, VA; South Bend, IN; Toledo, OH; Tri-Cities, TN; White Plains, NY; Wilkes-Barre/Scranton, PA, Wilmington, NC




.......

Who is online

Users browsing this forum: 11725Flyer, 817Dreamliiner, adamh8297, Baidu [Spider], BobPatterson, BoeingGuy, DC2002, flydia, Google [Bot], ikolkyo, jbmitt, jbs2886, JU068, kmz, MSPcody, pdx, Raventech, Revelation, SFOtoORD, SJOFlyer, Turbofanfan and 266 guests