First Flight in About 3 years

[CallawayGolf]

I can only speak for the pilots and even there only on pay scale since I'm not familiar with the other contractual provisions of the other airlines.

The East pay scales are at or near the bottom for same/equivalent equipment if you exclude the RJ providers and such airlines as Spirit and Allegient. West pay scales are higher. Of course, pay scales are only part of the pay equation - longevity and contractual limits on monthly flying are the others.

The CASM is so high because of potentially 3 major factors, which depending on which airline you're comparing US to. An inefficient operation costs more, and a hub/spoke operation is inherently an inefficient operation. Even between hub and spoke carriers, there are differences in efficiency - the rest have "dehubed" their hub operations to one degree or another, but not US. That means US needs more gates, more people, more equipment to work X flights at PHL than CO does to work the same number of flights at EWR, for example. More gates, equipment, and people cost money, even if the per person cost is less that the other carrier.

Operating a relatively short haul operation in the Northeast. CASM goes up as stage length (the average distance covered by an airline's flights) does down. Shorter state length means the average airplane is sitting on the ground more per day- costing money but producing no revenue. So airlines with a longer stage length have a built in CASM advantage. The Northeast with it's congestion causes more delays, which cost money. Airplanes sitting on taxiways have a cost but produce no ASM's - a CASM of infinity. The more of that an airline does the higher the CASM.

Being a relatively small airline with too many fleet types. CO has 3 basic fleet types - 777, 757/67, and 737 - with the smallest number of planes in any of those fleet types being 20. US has 5 fleet types, with three of those having less than 20 planes (when the 10 E190's have all been transfered). Multiple fleet types cost money - training, maintenance, ground equipment, etc (that's a biggie for WN with only 1 fleett type).

Finally, US has the largest percentage of ASM's flown by Express operaters in the industry (DL used to be the leader but US passed them). Those are high cost ASM's (17.27 cents per ASM), which bring up the average CASM. This is another big advantage for WN. Even AA, which has a higher mainline CASM than US, has an advantage due to their relatively small (for their size) Express operation.

If you are really interested in getting something of a "nuts and bolts" look at cost comparisons (as well as many other comparisons) go to MIT's Airline Data Project website (you can Google it). They have taken the data submitted to the BTS and done the analysis necessary to provide those comparisons. Of special relevance to this discussion is the employee cost and productivity numbers. For example, they show US as having the lowest "cockpit" (pilot) cost per year, but the highest "cockpit" cost per block hour of the legacy carriers (i.e - pay is lowest but systemic inefficiencies cause cost per block hour to be the highest). One note about their site - they only give annual data (2008 is the latest) since that eliminates the ups and downs that would appear in a quarterly analysis because of different schedules for making interest payments, airplane lease payments, heavy maintenance schedules, etc between airlines.

Jim

An excellent description as always Jim. Now that you have laid all the facts and information out there, the question is how many of those CASM variables are truly within Management’s control? Doesn’t the pilot transition agreement state a minimum fleet count with specific tail numbers listed? So how can this management team consolidate the fleet down to say three basic types such as CO without violating the TA which should have been replaced by a new CBA years ago if not for the pilot infighting? I believe consolidation of types was announced when the Airbus deal was announced, but then the economy tanked and who would have thought that the pilots would still be under two separate CBAs in 2009? How much control does management have over internal labor disagreements?

Could we not say essentially the same thing for longevity and contractual limits on flying? Does management have control over these factors to bring the CASM down, or does that not fall at least equally on the labor groups to co-manage (assuming the labor groups have even the slightest interest in reducing CASM). How about the stage lengths scheduled/flown? How much control does management have over that given a countless number of labor, airport authority, FAA, and SEC restrictions that came along with or as a result of the merger?

Also to your final point -how much control does management have over the Express operator flights without violating existing agreements? Would it be fair to say, practically none outside of a bankruptcy order? Would US management like to ditch Mesa, Republic, Air Wisconsin, and the like if they weren’t legally bound to keep those agreements in place? Probably. Didn’t DL try the same with Mesa using bogus statistics they thought would unshackle them from their agreements?

The posters on this thread seem altogether happy to bash US management, but the same are unwilling to recognize that there is precious little that management can do to reduce the inherited contracts and CASMs that came along with them. If labor is willing to assist and renegotiate labor rates and work rules, then I’m sure management would love to take action to reduce costs or put more money into the customer-facing product. The same would be true for the Express partners. In the absence of true control, what would you really like management to do given the current constraints? Be real.

If you want to bash an airline’s management, why not start with Jerry Kelly at WN. Did he really have the nerve to brag about $80m in added revenue from their “bags fly free†campaign? So the other majors are reporting $400m in added revenues from first and second bag fees and WN is gaining $80m by not charging for them. That sounds to me like WN is leaving $300m+ on the table. Why would the stockholders of WN put up with this kind of management incompetence? If I were a WN stockholder I would be asking for his head to go on the chopping block.

 

[SS255]

What I got out of the OP's post was that CO elites actually paid to fly US F, and their expectation level was not met. I think there is a reasonable expectation level to receive at least a light meal in F on a flight of between 1.5 - 3.5 hours, because that is what you get on US's competitors.

As far as value propositions: I just booked a flight to TLV on CO: A B-fare for just under $2,100, inclusive of taxes. For this fare class, I was able to confirm a 60K roundtrip mileage upgrade (with no co-pay) on all 4 legs, AND I get 150% RDM's and 150% EQM's, plus flexibility in making changes. I think that is a very fair price for what I get in return.

If I had done the same thing on US, assuming the ticket price of the B fare was exactly the same, and excluding any service differentials onboard, I would get 100% RDM's, 100% EQM's, and I would have had to pay a $300 co-pay in each direction (or at least I assume I would, since US's fine print when they announced the international mileage upgrade co-pays did not indicate that Y & B fares were excluded from the co-pay -- don't know if this has changed).

I don't know about anybody else, but I think that CO is the better value proposition, with the HUGE disclaimer that had I earned my 124K EQM's in 2009 on US instead of CO, I would have booked the cheapest coach fare and used my CP Envoy certs. But for anybody not using Envoy certs, CO wins hands down in this scenario.

 

[Travelpro72]

This topic may come across as boring to most but it IS a stark reality. For those that slam this management left right and sideways a customer makes a comment on here about crappy service and gets basted. Interesting. Look, nobody likes to hear just how bad their company when all you want is to be proud of but simply can't. Only the employee is allowed to do such a thing. US markets itself ( if you wanna say they market) right along with the majors. US does NOT, NOT, NOT market itself as a "NO FRILLS" airline yet there are NO FRILLS when you compare it to the likes of UA, CO, DL/NW and AA. No way, no how. I understand people being ticked at US1YFARE posting this here instead of directly to Tempe but what do you think Tempe's response to his letter would have been? A pregeneraged form letter? A coupon for a drink or 20 bucks off his next ticket? Please. US is one of if not THE HIGHEST cost carrier if you wanna really crunch numbers. The dusty banners you see hanging around airports should read "The Worlds Largest Low PAY Airline". The product is cheap and Hector is trying his hardest to get management to ease the purse strings but it's not really happening. What you hear are promises of what Hector wants. I wouldn't be surprised if Hector left if the changes he put together were never realized. For you employees that have this piss poor attitude towards a customer who LOVED US just remember one thing....Management feels the EXACT same way about you too baby. US inflight service SUCKS. Pretty simple. Cheap wine, dirty plastic trays, tired snack basket with off the wall brand busted chips, fiesta mix a hampster wouldn't eat and cups that look like they came from the Dollar Tree. We want raises and improved benefits while the customer DESERVES service on par with our competitors. They pay the bills. Rant over......

 

[BoeingBoy]

Let's see...where to start.

the question is how many of those CASM variables are truly within Management’s control?

I guess it starts with defining "truly within management's control" and then gets into which management. Obviously some things are completely out of managements hands - weather and the delays it causes, for example. Others are not as clear - contract terms negotiated without the threat of abrogation that bankruptcy provides, for example. Some are entirely within management's control (at least the management that made those decisions) - number of fleet types for example (if Wolf had chosen to get 737/767's instead of A319/320/321 & A330's the East fleet would have been simplified long ago and the West fleet on it's way to being so. I don't think I said, and certainly didn't mean to imply that everything was this management's fault - some of those issues go back decades.

Doesn’t the pilot transition agreement state a minimum fleet count with specific tail numbers listed? So how can this management team consolidate the fleet down to say three basic types such as CO without violating the TA

The TA specifies a minimum number but not what types make up that number. Nothing requires a certain mix of fleet types as far as I know. The specific tail numbers have nothing to do with the minimum fleet count - they're strictly to define which side's pilots can fly which airplanes during the transition. Quite a number of those specific tail numbers have left the fleet but their leaving hasn't affected the minimum fleet count.

Could we not say essentially the same thing for longevity and contractual limits on flying?

To a degree but shrinkage, status quo, or growth affect average longevity and nothing in any agreement requires one over the other. The East has such high average longevity because "old" US went through 2 massive shrink/layoff cycles with the end result that the "old" US portion of the airline is smaller today than it was in 1990. That's not called for in any "old" US contract or side letter - it was a management decision made because of economic factors, a large one being the high costs I discussed above. Anything that negatively affected revenue put "old" US in economic stress.

Also to your final point -how much control does management have over the Express operator flights without violating existing agreements?

Current management can do little except with the wholly owned carriers (which is a relatively small percentage of the Express operation) except enforce any performance clauses in the contracts. That doesn't mean, however, that the end result is that no management is at fault.

what would you really like management to do given the current constraints? Be real.

As I said, I wasn't pointing the finger at a specific management team. I was just answering the question "Why are US' costs so high?" However, with the lowest employee compensation in the industry what more do you want the employees to do? Work for half their current compensation? That only puts US among the lower cost legacy carriers. Work for no compensation? Still higher costs than WN/B6/etc.

Some of the things you mentioned is totally in management's hands - this management. Short stage lengths in the East - inherited yes, but Tempe (the same management as when HP had one of the longest stage lengths in the industry) has had 4 years to change that. Inefficient old-style hub/spoke opeation - inherited in the east (although the former East management had started to address that), but Tempe undid the tentative steps that the former management had taken and has done nothing else in 4 years. Fleet simplification - inherited yes, but instead of moving quickly once the Airbus orders were reinstated this management took their time and then the economy turned south. Even with the economy, however, AA and CO have been getting replacement aircraft, UA has ordered widebodies and will be ordering narrowbodies. Only DL/NW, in the midst of merging operations is worse off in terms of fleet mix than US.

If you want to bash an airline’s management, why not start with Jerry Kelly at WN. Did he really have the nerve to brag about $80m in added revenue from their “bags fly freeâ€￾ campaign? So the other majors are reporting $400m in added revenues from first and second bag fees and WN is gaining $80m by not charging for them. That sounds to me like WN is leaving $300m+ on the table. Why would the stockholders of WN put up with this kind of management incompetence? If I were a WN stockholder I would be asking for his head to go on the chopping block.

Bad logic - $400 million in added revenue doesn't take into account the lost revenue when potential passengers go elsewhere. So what is the net gain in revenue for US after adding all those fees? None of us knows and Tempe isn't saying (and probably doesn't know either). WN's $80 million in additional revenue is pure gain since they're increasing market share to boot.

Jim

 

[beachboy]

To be fair I think Hector said in a meeting with flight attendants we are on par with maybe Olympic Airways. Theatrically grabs his chest and said how would you feel in first class to ask for wine and be served out of a beach style party cup? This guy is First Class and he did state Tempe was already trying the tug of war with him on the upgrades. He spent one year at UAL over the Pacific division and said it was a bad career move because they questioned him at every turn. Don't be surprised if we loose a good guy because they told Hector one thing and blocked him at every turn.

 

[Dog Wonder]

there is precious little that management can do to reduce the inherited contracts and CASMs that came along with them. If labor is willing to assist and renegotiate labor rates and work rules, then I’m sure management would love to take action to reduce costs or put more money into the customer-facing product.

Is the only way management can cut costs and improve the product through more employee givebacks?

 

[CallawayGolf]

Let's see...where to start.




Bad logic - $400 million in added revenue doesn't take into account the lost revenue when potential passengers go elsewhere. So what is the net gain in revenue for US after adding all those fees? None of us knows and Tempe isn't saying (and probably doesn't know either). WN's $80 million in additional revenue is pure gain since they're increasing market share to boot.

Jim

Thanks Jim. I wasn;'t responding to you as much as using the CASM explanation you provided to make the point that much/most of the hard costs of running the airline are well beyond a simple management decision to drive costs down. Adjusting stage lengths and reducing hubs might be possible and some of it has been tried or done so far by this management team. Of course when they do act they have labor groups or congressmen taking them to task for messing with the status quo.

I will disagree with you on the WN analysis. The $400m in baggage fees for the majors does take into account a reduced market share. They have been reporitng those revenue figures even while reducing capcity so one would expect baggage fee revenue to be even higher if there was no loss in market share. Besides an increase in revenue is good on every measure, especially when it comes without any increase in operational costs for aircraft, airport rent, ticketing fees, labor costs, or fuel. WN may continue to buck the trend, but to claim they are better for it just doesn't add up on the P&L.

 

[mrman]

But how much was it? I checked for today, PHX-ORD-PHX, and IAH-ORD-IAH, first class. US is $842 and Continental is $928. Not a huge difference but $86.00 is still $86.00, and MORE than enough to buy a nice meal either before or after the flight.
No, US' service is not as nice as Continental's but at nearly $100 cheaper, what do you want? With the coach prices there was a HUGE difference, $134 on US vs. $755 on Continental (the prices are each way).

What you are not getting is US is not a cheaper fare because it is Low Cost. The fare is cheaper than CO because that is what US has to price it to fill the seat. There are alternative airlines and US has to price below cost to keep seats filled. The price difference is not due to the cost of dinner. The price difference is due to what people are wiling to pay for an inferior product. Believe me if US could collect $1,000 for the fare they would.

 

[BoeingBoy]

to make the point that much/most of the hard costs of running the airline are well beyond a simple management decision to drive costs down. Adjusting stage lengths and reducing hubs might be possible and some of it has been tried or done so far by this management team.

I beg to disagree, although I take it you're not familiar with some of the terms I used. There has been relatively little change in average stage lengths - the addition of TA and other long flights has been mostly offset by the initial post-merger cutbacks in transcon (true transcon and not between PHX and the east coast). Tempe may have had good reasons for those cutbacks, but increasing average length certainly wasn't one of them. But what I'm talking about the the 16 flights a day each way between LGA and PHL (going to 20 it looks like - is there really a need for a flight every 45-50 minutes?), the 8-10 a day each way between CLT and GSO, etc. That both decreases average stage length and increases costs relative to using one mainline flight instead of 2-3 RJ flights. That is strictly a management decision.

I didn't say a thing about reducing the number of hubs - I said de-hubbing. Two completely separate things.

I will disagree with you on the WN analysis. The $400m in baggage fees for the majors does take into account a reduced market share. They have been reporitng those revenue figures even while reducing capcity

Nope - they have been reporting (suggesting really since the figure is reported in "Other Revenue" along with some other sources of that revenue) only how much gross revenue was produced by the fees. Like I said, I doubt that they even know how much potential ticket revenue was lost by people choosing other carriers that don't charge those fees. So it is not a "we took in this much from fees but lost that much because of lost ticket sales" figure. In other words, what is announced as "additional revenue" isn't the bottom line increase in revenue but strictly part of one revenue line item.

WN, on the other hand, announced a bottom line increase in revenue of $80 million. You just can't compare that to US' $X hundred million in additional revenue. A simple, although probably extreme example shows the difference:

US takes in $400M in fees revenue but loses $350M in ticket sales because of the fees - how much did total revenue increase? Answer - $50 million.

WN increases total revenue by $80M - how much did total revenue increase? Answer - $80M

Just one word of advice - don't apply for a job in accounting. Although, on second thought, you may be the perfect candidate in Tempe's eyes.

Jim

 

[Coach Cabin]

yeah, i'm making it up

I thought so. But, hey, at least you livened up the conversation around here!

 

[CallawayGolf]

Nope - they have been reporting (suggesting really since the figure is reported in "Other Revenue" along with some other sources of that revenue) only how much gross revenue was produced by the fees. Like I said, I doubt that they even know how much potential ticket revenue was lost by people choosing other carriers that don't charge those fees. So it is not a "we took in this much from fees but lost that much because of lost ticket sales" figure. In other words, what is announced as "additional revenue" isn't the bottom line increase in revenue but strictly part of one revenue line item.

WN, on the other hand, announced a bottom line increase in revenue of $80 million. You just can't compare that to US' $X hundred million in additional revenue. A simple, although probably extreme example shows the difference:

US takes in $400M in fees revenue but loses $350M in ticket sales because of the fees - how much did total revenue increase? Answer - $50 million.

WN increases total revenue by $80M - how much did total revenue increase? Answer - $80M

Just one word of advice - don't apply for a job in accounting. Although, on second thought, you may be the perfect candidate in Tempe's eyes.

Jim

Finding the ancillary revenues mostly from bag fees is relatively easy. Compare financials before the fees were instituted versus after. The net increase is quite easy to calculate. As to the lost revenue, when have they ever said how much was attributed to having a bag fee in place?

You might need to take an accounting class yourself. There is no such thing as bottom line in revenue. The bottom line is a profit number not a revenue number. Of course when you increase revenue without increasing costs your revenue increase drops directly to the bottom line as an increase to net income (decrease in net loss). When WN increases PAX revenue they have to actually give them a seat and all cost-driven services that go along with it. When you charge for a bag you would handle anyway, there is relatively little increase in costs so those revenues drop to the true bottom line. The real point here is that if WN begins to charge for bags, where else would PAX go to avoid the fees? Nowhere among the majors so they would not experience the fabled book-away; so every dollar in the $300+ million dollar range would have an immediate impact on their bottom line and shareholder value.

This is not to say that losing market share is a good thing, but bragging about an $80m revenue increase that gains you maybe $1.6m in profitability (2% of revenue) is not fundamentally sound when your could have had a $300m+ increase in profitability by making a simple decision that all of your other competitors have proven to be financially sound.

 

[CallawayGolf]

Here's some more math for you to ponder. If WN's optimistic account of their policy is $80M, then how much did the other major airlines lose to WN on average? Perhaps $10M each? So they are are reporting $300-400M annually as a revenue increase with an average loss of $10M in PAX revenue that yields 1-3% max to the bottom line! Your example numbers are nowhere close to reality even if US took the entire hit.

 

[SparrowHawk]

Here's some more math for you to ponder. If WN's optimistic account of their policy is $80M, then how much did the other major airlines lose to WN on average? Perhaps $10M each? So they are are reporting $300-400M annually as a revenue increase with an average loss of $10M in PAX revenue that yields 1-3% max to the bottom line! Your example numbers are nowhere close to reality even if US took the entire hit.

All of this is all grand and good. However if the presenters of the information, i.e Doug Parker & Scott Kirby have a demonstrated track record of being less then 100% truthful, where then is their credibility? With this customer their words are far overshadowed by their deeds and I do not trust them. Therefore they have no credibility whatsoever. So keep throwing numbers around and have a nice debate.

Bottom line for me is I beleive WN's statements and NOT US's. Pure and Simple really.

 

[mrman]

. The real point here is that if WN begins to charge for bags, where else would PAX go to avoid the fees? Nowhere among the majors so they would not experience the fabled book-away; so every dollar in the $300+ million dollar range would have an immediate impact on their bottom line and shareholder value.

And this kind of thinking is why WN is beating the crap out of US. Southwest figured out 30 years ago that their biggest competition is not the other airlines but the auto. They figured out that you need to price short hops below the cost of the auto. This is what made them the king of the short hops, winning Texas, Florida, California, Baltimore, St Louis, the Midwest, and now they are going after the Northeast. US could take a lesson from them as the majority of US's business is short haul as well, well the short haul that has not been sold away to the RJ's.

 

[CallawayGolf]

And this kind of thinking is why WN is beating the crap out of US. Southwest figured out 30 years ago that their biggest competition is not the other airlines but the auto. They figured out that you need to price short hops below the cost of the auto. This is what made them the king of the short hops, winning Texas, Florida, California, Baltimore, St Louis, the Midwest, and now they are going after the Northeast. US could take a lesson from them as the majority of US's business is short haul as well, well the short haul that has not been sold away to the RJ's.

How many airlines have tried to make themselves in the image of WN and gone under? WN has a successful model but it is not perfect. According to some accounts 80% percent of their profits over the past 20 years have come from fuel hedging not from operations so the model may be suspect at this point. Nevertheless, if a startup can't be successful following WN's model how would you propose for an established major airline with higher fixed and variable costs to change course and become WN-like in their model? Just turn their backs on hundreds of millions in revenue to chase a few million in PAX revenue who might not stay with you anyway? Now that's a sound business model anyone should be proud of.