Us Airways Planning Major Overhaul Of Flts

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US Airways Is Planning a Major Overhaul of Its Flights
By MICHELINE MAYNARD

Published: July 28, 2004

Jim Graham/Bloomberg News

US Airways plans a major overhaul of the way it flies, concentrating on direct flights to and from major airports on the East Coast and dismantling its hub in Pittsburgh, executives said yesterday. It will also wade into the highly competitive New York-to-Florida market, they said.

NYT Article

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US Airways Is Planning a Major Overhaul of Its Flights
By MICHELINE MAYNARD

Published: July 28, 2004

US Airways plans a major overhaul of the way it flies, concentrating on direct flights to and from major airports on the East Coast and dismantling its hub in Pittsburgh, executives said yesterday. It will also wade into the highly competitive New York-to-Florida market, they said.

The moves, which are meant to defend US Airways' share of traffic in its most valuable markets, will take effect in the autumn.

But the airline warned that the plan, and the company's solvency, depended on cutting $800 million a year from employee wages and benefits. It is pushing its unions to accept the cuts before Sept. 30.

Otherwise, according to Bruce R. Lakefield, the chief executive of US Airways, the airline may be unable to fulfill obligations to its aircraft lenders, would run the risk of defaulting on its federally guaranteed loans, and would be in danger of falling back into Chapter 11 bankruptcy.

The transformation plan "can only happen if we confront the difficult issues and make the difficult choices," Mr. Lakefield said in a recorded message to employees. "We don't want others making those choices for us."

Yesterday, US Airways also reported a $34 million profit for the second quarter. The airline, which had the highest operating costs, mile for mile, among major airlines in 2003, said it had brought them down closer to those of its peers. It earned $13 million in the quarter last year.

While any black ink at all is generally heartening news for the airline industry, Mr. Lakefield said US Airways' latest performance was not good enough. The second quarter of the year is normally its best, and the airline depends on it to get through the rest of the year.

Unless workers grant the concessions, he said, the airline would post significant losses in the second half, when air travel falls off steeply after the strong summer season and does not pick up again until Thanksgiving.

"These results should not fool anyone into thinking that our problems are behind us," Mr. Lakefield said. "Unfortunately, our greatest problems lie ahead."

In September, US Airways must comply with financial covenants in its loan package from the Air Transportation Stabilization Board, the centerpiece of the $1 billion refinancing plan that allowed the airline to emerge from bankruptcy last year. Aircraft financing deals with General Electric, Bombardier and Embraer are also due to expire then, the airline's chief financial officer, David M. Davis, said. If the airline has too little cash to comply with the terms of its loan guarantees, it will have to renegotiate the aircraft financing deals on less favorable terms, Mr. Davis said.

Still, Mr. Lakefield looked beyond the immediate challenges to outline where he wants to take the airline, which he has led since David N. Siegel resigned as chief executive in April.

The airline will shift away from the hub-and-spoke route system it has used for a decade, which blankets the eastern half of the country with flights meant to carry passengers to and from connections at its hub airports. Instead, Mr. Lakefield told analysts that the airline would emphasize direct flights to and from airports in Boston, New York, Washington and Philadelphia, its busiest destination, using aircraft freed up by the elimination of most connecting flights through Pittsburgh.

The move is in part a defensive measure against new low-fare competition. Southwest Airlines began flights to Philadelphia in May, and a start-up, Independence Air, began flying from Dulles International near Washington in June, competing with US Airways' big operation at Reagan National about 30 miles away.

In Pittsburgh, where US Airways has already eliminated a third of its flights, the schedule will be adjusted to primarily serve local demand, it said yesterday, hinting that more cuts are in store. Pittsburgh airport officials have said that they expect US Airways to cut back and that they are meeting with other airlines, including low-fare carriers, about picking up some of the service that US Airways plans to drop. Starting in September, US Airways said it would strengthen schedules from New York to Florida, another area increasingly dominated by low-fare carriers.

JetBlue Airways, which now flies between Kennedy Airport and Fort Lauderdale, Fla., plans to add flights from La Guardia in September, bringing its total to 21 flights a day. Delta Air Lines' new low-fare brand, Song, also flies to Florida from New York. And American Airlines, a unit of AMR, said yesterday that it would offer round trips between New York and Orlando, Tampa and West Palm Beach for as little as $98.

But US Airways, which is already offering $98 round-trip flights on some Florida routes, sees more potential in the market, and hopes to exploit it using its existing operations at La Guardia.

Just a few months ago, US Airways tried to sell its gates there, along with its East Coast shuttle and other assets, to raise cash.

Some analysts said they thought that move was mainly intended to push the unions into talks on a third round of wage and benefit cuts, following the two the airline negotiated while in bankruptcy. Since then, US Airways has begun discussions with its pilots, flight attendants and other workers, though the machinists' union has resisted new talks. Yesterday, the airline said it was no longer trying to sell the assets.

Rivals said they were not surprised at US Airways' moves. "When you're doing something that isn't working, you have to try something else," said David F. Ulmer, vice president for planning at JetBlue.

Mr. Ulmer noted that US Airways served the big East Coast cities for years before its low-fare competitors came along, and briefly tried offering cheap flights within Florida under a failed venture called MetroJet. "They've been there and done that," he said. Even so, he said, "the lowest-cost producer will always have the advantage," and JetBlue's costs are still well below those of US Airways.

A new round of concessions from the unions would probably put US Airways in good shape to take on the low-fare carriers, said William T. Warlick, the analyst for Fitch Investors Service. But the competition will fight back hard, he said: "They're well prepared and ready to get into a market share game, if that's what US Airways wants."