Management Actions:
US Airways’ plan to radically transform the company into a LCC/legacy carrier hybrid airline is an enormous task, but as MEC Chairman Bill Pollock indicated it’s likely the last chance to return the company to sustained profitability.
The brash plan involves changing the route structure, schedule, distribution channels, and the products the company offers the customer. It is normal for all of the company’s stakeholders to be frustrated with the pace of change, but much is going on behind-the-scenes to truly transform the carrier. However, without a competitive cost structure across-the-board, to the levels of Southwest, JetBlue, and AirTran, the “Transformation Plan†will fail.
For those of us who suggest the company is not moving fast enough nor has no intent of changing the airline, consider the following:
US Airways joined the most prestigious alliance in the world, the Star alliance.
The company has created the United, GoCaribbean, and Bahamasair alliances.
Lufthansa and US Airways have joined forces to create increased cargo revenue.
MidAtlantic Airlines was successfully created. The new airline is aggressively growing providing US Airways with a very competitive EMB-170 product and provided airline employees with the first ever J4J opportunity.
PSA has successfully integrated CRJ aircraft into its operation and will lower its CASM with more CRJ-700s introduced to the fleet.
LOA 91 was ratified to provide the company with increased RJ flexibility.
US Airways is improving automation by implementing boarding pass readers in 18 airports and continues to improve IT with the addition of Kiosks.
The airline is de-peaking the PHL hub with improved operations and procedures.
Piedmont and Allegheny Airlines were merged to provide increased efficiency and cost reductions. The two pilot groups have agreed on a combined seniority list and pilots can now bid to MDA, creating a flow through.
Later this year the new Philadelphia baggage system will become operational, which will result in less PAWOBS and increased savings.
Pittsburgh will become a “focus city†with flights transferred to Boston, New York, Philadelphia, and Washington to provide lower cost and better revenue point-to-point opportunities. This November the schedule will be reduced and in February it is expected the city have a further decline in flights in the money-losing city.
The company has begun the consolidation of flight crew ground school and simulator training with the closure of three Pittsburgh facilities and moving these functions to vacant space in Charlotte.
The GoFares simplified fare structure has been incrementally implemented in Philadelphia, Washington, and New York. This is a glimpse of the new, permanent fares that will have a no Saturday-night stay requirement and never more than $499 for a one-way coach class fare.
The company has begun a mainline expansion program with applications on file with the DOT for 24 Washington National slots and new service to Honduras, Nicaragua, and Panama. In addition, new domestic mainline point-to-point service as been announced between LaGuardia and Ft. Lauderdale and Washington and five Northeast cities.
The company is lowering unit costs by not conducting Pittsburgh airport automated baggage system maintenance and de-icing. In addition, this will be done in Philadelphia too.
The company is revamping the website to attract more online customers to increase the distribution of e-tickets, which will lower distribution costs.
Some of the most important changes that will lower unit costs require labor participation, or the “Transformation Plan†will fail. These changes are:
1. Increased aircraft utilization: Currently US Airways is staffed for normal operations per the current contracts, but the single most important cost reduction item is to increase aircraft utilization. This will improve productivity of employees both in the air and ground and a 15% increase in block hours should lower CASM by one cent. Expect major schedule announcements soon, which will dramatically increase aircraft utilization around President’s Day.
2. Further de-peaking of hub schedules and adding two additional banks in Charlotte. This also will improve employee productivity and lead to fewer misconnected passengers, lost bags, and flight delays.
3. Lower simpler fares. US Airways has begun the GoFares program in key market where the competition is dramatically depressed yield. In particular in Philadelphia where Southwest is growing, In Washington in response to Independence Air’s emergence, and in LaGuardia in response to JetBlue’s new service. LCC’s are expected to increase their dramatic growth, which will further pressure revenue, thus it’s becoming increasing important for the company to have it’s lower, rationalized fare structure in place soon to preserve traffic. With a less complex fare structure in place, reservations talk time could be reduced by 40% from 5 to 3 minutes, improving productivity and customer service. Moreover, the Sales Department will have fewer complex contracts to manage, there will be lower selling costs, fewer passenger complaints, and a better customer booking experience.
There are reports that the company will announce major changes soon, which could include Ft. Lauderdale becoming a Caribbean/Latin American focus city with a possible announcement in early August , LaGuardia increasing mainline service from 42 to about 150 daily flights this winter, EMB-170 flights replacing 50-seat RJs in Washington, more Boston service to key U.S. business/leisure markets, and adding five new transatlantic markets from Philadelphia this spring. Potential new European markets are: Birmingham, Oslo, Copenhagen, Vienna, Milan, Helsinki, Zurich, and Barcelona. Moreover, there are reports the company is evaluating adding A320 family and A330/340 aircraft to the fleet, provided the company can return to the capital markets. To obtain the financing, the company must first obtain a competitive cost structure either with new labor accords or in a “judicial restructuringâ€, where it’s anticipated that labor would be worse off.
Although the rate of change is going slower than many observer’s desire, the company is moving forward with the “Transformation Planâ€. Further radical changes to the business model can occur, which are required to compete with the new “realities†of the industry, as soon as labor participates in new business plan, either consensually or if necessary, through court ordered labor accords.
I do not like what is happening to US Airways and the U.S. airline industry, but the Arlington-based airline has a plan to create a new airline designed to compete in the future. US Airways is the first network carrier to truly adapt to the “new realities†of the industry where the LCCs now control 70% of the pricing power. Meanwhile, management's actions in Philadelphia, where Southwest Airlines is now competing head-to-head with US Airways for business, the Arlington-based airline had an 85.2 percent load factor in June. Furthermore, the carrier's $34 million second-quarter profit beat out every US Airways competitor except Southwest.
In a recent New York Times article, AFA president Pat Friend said, “ This industry is transforming itself in front of our very eyes. The economic situation of the industry is a reality. We can’t change that. We have no choice but to try to adapt ourselves to a new business model while reserving as much as we can,†she said.
I continue to believe it’s in the best interests of ALPA and the company’s other labor groups to reach new accords prior to a potential bankruptcy filing. Then if these deals are unacceptable -- rather than to fight the change -- then as Dave Siegel said, "If it doesn't work, I'd encourage you to support the change, and then go on and find something else. It's better to have a job when you're trying to find another job."
Labor Actions:
ALPA is close to a TA, which is expected this week. No other union is very close to a deal and the IAM is not negotiating. Tic-Toc-Tic-Toc...
Respectfully,
USA320Pilot
