A Turnaround Plan We Could Support?

[BoeingBoy]

Since we "talk" about US Airways all the time, I thought I'd throw out something from another network carrier that is also going through a transformation. First, a little about what their plan is, then a little comparison to see how they're doing versus U.

In the comparison section, I'll use pre-9/11 (2nd quarter 2001) compared to the end of 2003. This will make some of the changes appear relatively small, but reflects a relatively stable period before the effects of 9/11 and allows for exclusion of wide swings in the numbers that occured in the aftermath of 9/11. Also, this excludes weird numbers that occur during bankruptcy. The other carrier, like US Airways, is about a year into it's transformation. For fun, I'll disguise the identity of the other network carrier till the end.

I've tried to decipher the reports to compare mainline numbers as much as I'm able. If anyone is better at deciphering than me, feel free to correct any errors.

THE PLAN

Although unquestionably pleased by its progress, Mr. X said carrier Y is not yet satisfied with its financial results and recognizes that it still has lots of work in front of it. "We've made great progress," Mr. X said, "but we also realize the many challenges that lie ahead." Mr. X pointed to the following progress in each of the tenets of the carrier Y Turnaround Plan:

- Lower Costs To Compete: This is where carrier Y has made its most dramatic progress, underscored by an 11.9 percent decline in unit costs in the fourth quarter, excluding special items and regional affiliates. If not for rising fuel prices, carrier Y's progress would have been even more dramatic, with a year-over-year drop in unit costs of 12.8 percent. To further reduce costs, carrier Y has returned underused gate space, consolidated terminal space, depeaked its City A and City B hub schedules (now adding City C to that list), closed a reservations center, reduced the size of the City D hub, accelerated the retirement of Brand Z aircraft, and improved aircraft utilization across the fleet.

- Pull Together, Win Together: Fostering greater cooperation than ever between the company and employees, carrier Y has adopted an unprecedented level of openness with employee groups and labor unions. Mr. X holds regular Town Hall-style meetings with employees, carrier Y's chief financial officer meets monthly with union leaders to walk them through the company's financial results in the same way he briefs carrier Y's Board, and the Overland Group, a firm expert in bringing union groups and management together, has been engaged to help all parties within carrier Y move to a philosophy of active involvement.

- Build A Financial Foundation For The Future: carrier Y ended the fourth quarter with $3.1 billion in total cash and short-term investments (including $527 million in restricted cash and short- term investments), substantially greater than the $1.8 billion in cash and short-term investments at the close of the first quarter.

Ok, that the plan talking points. Now to the comparisons....

Carrier Y Revenue 2001 = $5,174 million
Carrier Y Revenue 2003 = $3,976 million (down 23%)
US Airways Revenue 2001 = $2,199 million
US Airways Revenue 2003 = $1,741 million (down 21%)

Carrier Y Total Expenses 2001 = $6,343 million
Carrier Y Total Expenses 2003 = $4,689 million (down 26%)
US Airways Total Expenses 2001 = $2,473 million
US Airways Total Expenses 2003 = $1,838 million (down 26%)

Carrier Y Personnel Costs 2001 = $2,126 million
Carrier Y Personnel Costs 2003 = $1,496 million (down 30%)
US Airways Personnel Costs 2001 = $901 million
US Airways Personnel Costs 2003 = $598 million (down 34%)

Carrier Y RASM 2001 = 9.89 cents
Carrier Y RASM 2003 = 8.67 cents (down 12%)
US Airways RASM 2001 = 10.96 cents
US Airways RASM 2003 = 9.77 cents (down 11%)

Carrier Y CASM 2001 = 10.98 cents
Carrier Y CASM 2003 = 10.15 cents (down 8%)
US Airways CASM 2001 = 12.13 cents
US Airways CASM 2003 = 11.70 cents (down 4%)

Now, some thoughts on these numbers. Revenue is down by a slightlyt higher % at carrier Y than at U. While total expenses are down about the same %, U obtained more of the expense reduction from the employees. Likewise, revenue per ASM is down about the same % at both carriers, but carrier Y has reduced cost per ASM twice as much as U in % terms.

Ok, enough suspense - carrier Y is AMR. Going forward, there appear to be major differences brewing. As we all know, U is seeking further labor concessions while AMR is not (at least so far). U is negotiating with the pilots to shift more RJ flying to the affiliates (apparently) while AMR just reached agreement to phase all RJ's with over 51 seats to mainline.

Any and all comments are welcome.

Jim

 

[N230UA]

This is Carty's/Arpey's plan for AA.

AA isn't doing anything too radical though.

In fact, they're just taking a page out of CO's book.

If you read Bethune's "From Worst to First" you'll find these steps to AA's plan pretty much mirrior the steps continental took nearly a decade ago.

 

[mwereplanes]

Carty is available. Do you think Bronner would have the cajones to hire someone who knows how to run an airline to replace someone who doesn't know how to run an airline? Plus, Carty has character. He fell on the sword at AMR so the company could get the concessions and move on. Think Siegel would do that?

C'mon Bronner. Get someone in here that knows what they're doing. Before it's too late.

http://biz.yahoo.com/rb/040207/bizamerican...an_carty_1.html


mr

 

[whatkindoffreshhell]

Here we go again, the ridiculous "fire the CEO, wait for the UCT, why is the market unkind to us, etc etc etc" blatherings.

US doesn't have the time or energy for these follies.

Revenue folks revenue.

Don't you notice that all the action surrounding US these days centers around cutting back, costs, smaller-sizing, debt numbers?

Where is there any talk about growth?

 

[mwereplanes]

Thats the point what. Siegel can't grasp the basic concept you espouse. Inept at running an airline and without any noticable leadership or motivational skills. Don't have time? How long do you think it would take Carty to slap a 3 buck fuel surcharge on each ticket. How long do you think it would take Carty to implement his revenue expertise into our airline? What U doesn't have time for is the same tired BS that Siegel is stuck on. ALPA should make any consession contingent upon the removal of David Siegel. As should all other unions.

That's what I would demand if I were a unionized employee of U.

mr

 

[756pro]

What U doesn't have time for is the same tired BS that Siegel is stuck on. ALPA should make any consession contingent upon the removal of David Siegel. As should all other unions.

That's what I would demand if I were a unionized employee of U.

mr

Yes, refreshing to read words of sanity.

But don't stop there, take all those tall big men with little ideas that Dave surrounds himself with and get them all out of here ASAP.

Labor is to sit across the table from this gaggle of leaders this week and they will all hear the same doom and gloom least we all give away the farm song. This is their broken record of leadership playing itself out yet again and obviously will reap the same results.

If they truly want to run an airline then they truly should share the pain with drastic cuts in their personal take home income with very big cuts. Also, take back the bonuses they gave all those GREAT management personnel the last time, right after we all gave, what a slap in the face that was.

Personally, I believe anyone who wants to give again are disillusioned deserving all the pain Dave and company will hand us all regardless of what occurs.

 

[NAPAUS]

AMEN Planes, AMEN! You are so right on. Motivation, belief and trust are what the employees need to make this turn around. As well as "real", experienced airline mgmt. Carty can do it. Siegel, if u remember was one of the LAST choices for the job. He's failed miserably. Get somebody in there who knows how to"RUN" and airline, not destroy it.
Reality is, changes and "concessions" will have to be made. All the unions should agree on making them contigent upon Siegel,Cohen and Glass departing. There are many MANY qualified airline folks (mgmt) looking for the opportunity to make a name and turn US around. The employees do want to help and make it a GREAT airline and a wonderful place to work. Lets hope Dr B, wakes up and listens. ALPA,AFA,IAM...get on the ball, unify and get those three OUT!!!!!

 

[FM2436]

Carty is available. Do you think Bronner would have the cajones to hire someone who knows how to run an airline to replace someone who doesn't know how to run an airline? Plus, Carty has character. He fell on the sword at AMR so the company could get the concessions and move on. Think Siegel would do that?

C'mon Bronner. Get someone in here that knows what they're doing. Before it's too late.

http://biz.yahoo.com/rb/040207/bizamerican...an_carty_1.html


mr

But isn't Carty a lying theft of employee benefits and salaries just as many on this board claim of Seigel?

Did Don award hugh salary increases for American executives while crying and demanding benefit and salary cuts of American employees?

Didn't the employees of American run Don out of town?

 

[RowUnderDCA]

Wait-a-minute,

you guys are complaining that your managers aren't good enough, so you want to pay them less. But the executive that you say is better is not acceptable because he paid his management team more. And you use evidence that the other carrier that paid its management team more was more successful, because they had better managers. I can't imagine any manager or executive wanting to spend an afternoon with you folks, much less attach a career move to this kind of group think.

My head is swimming.

Man, what to do? I'm committed to making our country fairer to working people, but I have no idea what to do.

Yes, our economy is unjust. Yes, yes, yes. But, I'm at a loss as to how this sort of thinking is going to help... geez, it's going to hurt.

 

[skyflyr69]

Boeing Boy,
(Since we "talk" about US Airways all the time.)
that is problem number one on this board. AMR also keeps there problems "in-house" according to several friends of mine employeed at AMR.
2. they also make an hourly rate LOWER than the groups at U.
So i'd imagine many cuts are in store for your unions.
3. all the talk about getting rid of the MGT. is not going to happen until the BOARD decides, not some union sabre rattleing. <_<

 

[Winglet]

Carty drove AMR into the ground, spent billions for acquisition and integration for a 25% overcapacity, was sloth-like in his response to the economic and 9/11 downturn, and lied to the unions and BODs about sheltered executive pensions.

The ex-AMR CEO doesn't "have" character. He IS a character. He is one of the thousands of scandously overcompensated "fair weather" CEOs that doesn't have the "character" when the going gets tough.

 

[SVQLBA]

Revenue folks revenue.

and

How long do you think it would take Carty to slap a 3 buck fuel surcharge on each ticket. How long do you think it would take Carty to implement his revenue expertise into our airline?

Reality is, the legacy carriers do not have the pricing power (some would call it gouging) that they used to have because a) LCCs give a viable choice in many markets with a very competitive product B) the consumer has more info and more channels (priceline, Expedia) than before and c) customers (corporations and individuals) can't afford $1000 for 7-day advance tickets from CLE-PHL with a Saturday night stay as I was once quoted.

The pricing model has got to change (as well as the product architecture, operations model, distribution strategy, and pretty much everything else). But America West has shown it can be done (OK, in more leisure oriented markets). BA and others in Europe have radically overhauled their fare structure. I would also watch Ted closely. If you look at the web site, their fare structure is very different from mainline UA's. These folks are showing the way.

You don't get more revenue by gouging on ticket prices. SW and JB get higher yields than DL and AA in competing markets because they offer more value and customers know they aren't going to get gouged on the fares. It's the concept of customers paying for "value for money" -- something most revenue mgt/pricing departments at major carriers are clueless about.

Rant off.

svqlba

 

[Andre1980]

Carty drove AMR into the ground, spent billions for acquisition and integration for a 25% overcapacity, was sloth-like in his response to the economic and 9/11 downturn, and lied to the unions and BODs about sheltered executive pensions.

The ex-AMR CEO doesn't "have" character. He IS a character. He is one of the thousands of scandously overcompensated "fair weather" CEOs that doesn't have the "character" when the going gets tough.

Yes I would agree to a certain extent but what Arpey has done is commendable since he in my mind was more aggressive in bringing costs down and at that point AA was still digesting TWA and we all know how expensive mergers are and I thought TWA fleet was almost a perfect fit into AA's and this made things easier. Bottom line Arpey is doing a great job in running AA the world's largest airline and I wish him and all the other managers and employees a good and successful future since there are still hurdles to jump over. Right now AA made a strong operation profit last quater of 103 million and this excludes the sale of assets and on top of that AAs casm of 9.38 is now lower than CO. US Airways can do it but I am really disappointed that the CEO did not try to alter how they operate after it came out of bankruptcy but I don't think it is too late.

And speaking about revenue Us will be limited in the amount of revenue it can collect it cannot just start expanding like crazy with a high cost structure because if they do so especially in this type of enviroment where there is a lot of LCCs in the game it may do more damage than good since you may get full planes but with low revenue and yeilds for its CASM. What U needs to do is to figure out how to operate profitably and lowere the casm for it to expand. Lets face it folks thoes high revenues are not going to come back like before but they will get higher as more travellers return.