Hard Questions

[phlrez]

US Airways leases almost all their planes except the Embadear (spelling?)
I'm not sure you can just park planes with a lease contract. Airbus bailed US out and I'm sure they want the money for their planes.

There is over capacity right now because oil has hit the roof. If oil was still under $40, capacity might be in line. It's not in line at $120 a barrel.

This is what management is supposed to forsee but did anyone forsee $120 a barrel.

So here we are losing money and there's not anything to do about it.

Question is. Does US have enough assets to make it through this rough stretch. They probably have have a year left at the rate they are bleeding.
Hedging has helped a bit, but when those hedged contracts run out and oil is still $120 a barrel, it's over.

Just asking, does the above make sense?

 

[jerseyfinn]

I'm gonna come from a different angle here. I hope that the folks who call themselves management in Tempe are asking one simple question: What is the new reality of oil/energy costs going to do to the entire aviation premise/model?

My point is that the question facing Tempe is not the usual issue over product defintion or improving this op or that op -- " to be lcc or not to be lcc" is unfortunately not the right question to be asking. Nor is it about getting rid of pretzels or peanuts or slashing wages/benefits or cutting routes/capacity here and there. The real challenge facing US and every major airline at this moment is how to adjust/adapt to an energy situation which strikes like lightning and is having the lasting effect of a tsnumi which irreversibly changes the landscape. Airlines are not alone in this situation. Most businesses and individuals are in incredibly vulnerable positions at the moment as the only "truth" is that the price of oil ( and all of the products/services which cascade from it ) is not going to fall to good-old-days prices because global demand/consumption is not going to allow this to happen.

There's an ironic beauty in this paradigm because our polilticians can talk all the bullsh!t they want and promise us that they're gonna castrate all of the Exxons in the world, but it has nothing to do with reality: decades of whacking off and playing the usual political games and allowing a sloppy attitude towards energy issues to persist. The chickens have come home to roost & these birds are sitting atop government, industry, and individuals alike with you know what trickling down upon all of us. Unfortunately, there exists no short-term solution to any of this. The price is what the price is and we individuals are saddled with our driving habits and SUVs and long commutes and there's little we can do at the moment except scamble for a smaller vehicle or reduce discretionary spending. Likewise for the airlines which are saddled with gas-sucking planes and unprofitable routes and a tried and tested business model which still found a way to stay afloat selling seats at a loss, flying half empty and earning revenues in feast or famine fashion ( with a few BKs thrownin for good measure ). Those days are abrubtly gone for good. No small wonder then that everyone is stunned and somewhat clueless about what to do next.

It's just my opinion that the biggest issue facing US is whether their riverboat gambler management even has the mental capacity and professional acumen to apprehend that the game has completely changed. Does Tempe possess the capacity to face this new reality and then sit down and make a bold decision which they can slowly conform to this new energy/aviation reality? Now US is not the only airline facing this challenge. All airlines come from the same aviation revenue/ops model. But only the astute, well-versed managers and the strong are gonna survive this challenge.

Airlines must learn real fast the wisdom of having cash in hand to weather out these tough times. But not all airlines will have enough cash in hand to make it. So the gun has sounded and around the track they race. Who will be the first to queue for BK? Will banks be willing/able to lend given the aftershocks of the sub-prime mess? Of course Uncle Sam will get involved in this because aviation is fundamental to the nation's economy. Congress will actually have to make an intelligent decision on behalf of aviation ( my own fear is that Congress is more clueless than Tempe ). But a debate will follow about who to rescue and whom to let go of and let them sink. These next few years are not going to be pretty times for any of us to fly in, either as a pax or as an employee.

For now, I'd worry more about Tempe's cash position and whether they can limp into the 4Q. Between now and then, there's gotta be a lot of routes discontinued simply to preserve cash ( which means gnarly ops and more chaos for pax . . . this is where the lack of pax good will amplify the discord and dissatisfaction because of Tempe's poor/indifferent past track record ). It takes time to cut routes and discard planes, all while oil prices ratchet up and down having their salutory effect on the bottom line. You're stuck with the product that you have. Of course this is where this (poorly executed ) lcc/full service model might hurt Tempe. How odd that if well-managed, those TAs and east ops might bring in more cash.

Sorry for the gloomy post, but in the short term, it's not about jumping up and down to get my attention so I will fly with you. It's about keeping your planes in the air while all carriers morph and conform to what the future holds for aviation. I'm not optimistic that your management can do the job as they have always appeared to me to be more about doing deals than running an airiline. You may have the wrong people in the cockpit at the wrong time. It's gonna be a rough ride for all.


Barry

 

[autofixer]

My question is why do we accept the premise that there is an over capacity? What does that really mean? Are not our flights nearly full? If capacity is reduced, will SWA not backfill with seats of their own? If SWA increases capacity, is their really an over capacity? In all of this I am asking, do we (LCC) have a business plan? Are we shoting from the hip or is their a plan B? I do not know as there is no clear direction from our "leadership".

It makes sense that there may be an overcapacity in the form of 50 seat RJs; however, management jammed that pannacea down our throats 10 years ago. Brilliant!

 

[sharktooth]

This is what management is supposed to forsee but did anyone forsee $120 a barrel.

I foresee $150 a barrel oil. A barrel is 55 gallons of crude. I imagine refineries are pretty efficient. Could you please reference the price of jet fuel, per gallon, because most of us see a rather tenuous relationship between the cost of a gallon of jet fuel and the speculative cost of a barrel of crude.

Per your comment. Airlines can construct budgets based on the speculator's price of Saudi sweet but for those of us who budget excluding broccoli futures, among other things, please use actual price per gallon.

Also, crude oil prices.

 

[jets_2573]

My question is why do we accept the premise that there is an over capacity? What does that really mean? Are not our flights nearly full? If capacity is reduced, will SWA not backfill with seats of their own? If SWA increases capacity, is their really an over capacity? In all of this I am asking, do we (LCC) have a business plan? Are we shoting from the hip or is their a plan B? I do not know as there is no clear direction from our "leadership".

It makes sense that there may be an overcapacity in the form of 50 seat RJs; however, management jammed that pannacea down our throats 10 years ago. Brilliant!

u r absolutely 100% right....they have no plan a or b....or any clue how to put one together.....another useless management group just collecting the big bucks, practicing corporate rape and they will laugh all the way to the bank.

 

[sharktooth]

My question is why do we accept the premise that there is an over capacity? What does that really mean? Are not our flights nearly full? If capacity is reduced, will SWA not backfill with seats of their own? If SWA increases capacity, is their really an over capacity? In all of this I am asking, do we (LCC) have a business plan? Are we shoting from the hip or is their a plan B? I do not know as there is no clear direction from our "leadership".

It makes sense that there may be an overcapacity in the form of 50 seat RJs; however, management jammed that pannacea down our throats 10 years ago. Brilliant!

Excellent question!!!!

For a while US was spilling so many passengers on transcon flights that SWA put in transcon 737s 30 minutes behind the US transcons to take advantage of it. Nothing like supporting ones competition.

I wonder if the "over capacity" is not really a reference to number of seat limited aircraft vs available seats like the rest of us think.

 

[delldude]

u r absolutely 100% right....they have no plan a or b....or any clue how to put one together.....another useless management group just collecting the big bucks, practicing corporate rape and they will laugh all the way to the bank.

Supports my contention to a Tee........

 

[zethya]

Plan A = Downsize.
Plan B = Downsize more if Plan A doesn't work.
Simple business economics.
IMO, US should bring in some well respected OUTSIDE consultants to make a detailed analysis of the company and attempt to identify the "core" segments (including routes) that Must be preserved to maintain (at least) a break even business model through this downturn. Then, unfortunately for some, the "fat" would have to be quickly trimmed, a "lean and mean" machine established AND then EFFECTIVELY MANAGED. I know this sounds a little "fundamental", but I can attest how something this basic is very difficult for typical management teams to accept and implement. The tendancy is to Band Aid the organization until it becomes too late to save the victim.

 

[phlrez]

This is more of a question. If airlines raise prices to where they make a profit, would that reduce the number of people flying.
The latest report is that even with these low prices, flying has reduced in this last quarter. This is not because of price but because of lousy service.

You can raise your prices to where the aircraft aren't filled to capacity anymore. You also start losing to competitors.

Parker doesn't make as much as you think. A large majority of his pay is in worthless options. Not too smart there I guess.

Goverment already subsidises flights to minor cities. (Especially if you're a congressman from one of these cities)

Ultimatly, it's the price of soaring fuel prices that's the killer. I think charging for the second bag to reduce weight is the best idea so far.

AA idea to charge for the first bag is even better. Is it true non-revs are voluntarily asked to reduce bags also. Maybe charge $10 for the second bag for non-rev's (flames expected)

Major problems are too many aircraft and the price of fuel. Nothing can be down quickly here and the rest is nickles and dimes.

Anyone know what deal was cut with Airbus when they bailed US out. Was it to comit to buying or leasing so many new Airbus.
US may not be able to downsize because of the terms of the bail-out terms. (Makes Airbus look smart)

 

[jerseyfinn]

This is more of a question. If airlines raise prices to where they make a profit, would that reduce the number of people flying.

Look, the bottom line is that prices must rise. And rise they will as each airline faces the same bottom line. As to your customers. Face it. Pax are gonna peel off starting right now as they're already reeling from the effects of higher energy prices. Air travel is not a priority for a big segment of lcc's flyers. A lot of air travel for the infrequent flyer crowd is discretionary spending. It's gonna come down to which specific routes are more discretionary than others ( or conversely, to where do discretionary-sensitive flyers want to fly ).

Obviously the TA traffic from this side of the pond is going to drop as the poor dollar exchange rate combined with higher airfares is toxic. Better question: will the favorable dollar exchange rate bring more traffic from Europe? This is important since international routes are the profit makers for all carriers. For US, it's crucial since amongst majors, their international revenues make up less of the overall revenue pie. This is where the cash comes from that an airline needs to keep flying through these dire times.

The rest of it comes down to where and how US is positioned in domestic routes. Airlines gotta walk away from the money losers as soon as possible and hold on and hope that enough folks continue to fly. That's where the business crowd comes into play as that's the segment that will be in the air no matter what ( even there, businees will be cutting back as they face their own constraints ). All of othe airlines are facing a similar situation. Who is gonna play the game more cleverly?

Barry

 

[nycbusdriver]

Now that all the conjecture is over with UA where does this leave us?

Can fleet size be reduced - are planes going to be parked?

From the "rumor van" from the Daze Inn it sounds like 73s are going away.

East/west this affects us all - "shrinking to profitability"?

Thoughts?

The 73s were going away even if the price of oil dropped to $5 a barrel. The long term fleet plan is all Airbus and Embraer, with about a dozen or less ETOPS 757s as the only Boeings on the property.

The company is already within about a dozen airframes of the minimum fleet size specified in the pilot contract (I think it is spelled out in the transition agreement for minimums for east and west fleets.) They can't just go parking a lot of aircraft without relief from the pilots, and I doubt that will be forthcoming any time soon.

If Doug needs to park a bunch of airplanes in a hurry, he will probably have to file Chapter 11 to do it. Maybe that's why we're number two on that list.

Another possibility (slim, IMHO, but it has been done here before) is to just park the airplanes and pay pilots to stay home after displacing the excess into the lowest paying reserve position. Given the price of fuel, that may well be a cheaper way out. When this happened at the old USAir, those excess pilots were all F28 reserve first officers who got a long paid vacation. Since the minimum fleet size numbers don't include the E190, I don't think they can displace the excess to that airplane.

 

[phlrez]

Barry's post makes a lot of sense on what needs to be done.
nycbus tells the story on how to accomplish it. Looks like Chapter 11 to me also.
Good posts you 2.

 

[JoeDirt]

This is more of a question. If airlines raise prices to where they make a profit, would that reduce the number of people flying.
The latest report is that even with these low prices, flying has reduced in this last quarter. This is not because of price but because of lousy service.

You can raise your prices to where the aircraft aren't filled to capacity anymore. You also start losing to competitors.

Parker doesn't make as much as you think. A large majority of his pay is in worthless options. Not too smart there I guess.

Goverment already subsidises flights to minor cities. (Especially if you're a congressman from one of these cities)

Ultimatly, it's the price of soaring fuel prices that's the killer. I think charging for the second bag to reduce weight is the best idea so far.

AA idea to charge for the first bag is even better. Is it true non-revs are voluntarily asked to reduce bags also. Maybe charge $10 for the second bag for non-rev's (flames expected)

Major problems are too many aircraft and the price of fuel. Nothing can be down quickly here and the rest is nickles and dimes.

Anyone know what deal was cut with Airbus when they bailed US out. Was it to comit to buying or leasing so many new Airbus.
US may not be able to downsize because of the terms of the bail-out terms. (Makes Airbus look smart)

PHLREZ
From my perspective this is one of the worst decisions I have seen in a long time. The total weight is not being reduced. The pax are cramming as much as they can into a single bag. The weight per bag has increased across the board and I would be willing to bet that at least 50% of the bags now weigh between 30 and 50 pounds. Then there are at least 10% now going over 50 pounds. Some are being tagged as heavy and I assume those pax are being charged extra but the majority are not being tagged as heavy. It is not uncommon to have bags upwards of 90+ pounds. I even had one today that said 96 pounds.

Then instead of checking the second bag they are taking them to the aircraft to be put in the overhead bins. The bins fill up and then these are jetway checked. I have had flights where there were over 20 gate checked bags. We are still getting the weight but in another form.

 

[N924PS]

I foresee $150 a barrel oil. A barrel is 55 gallons of crude. I imagine refineries are pretty efficient. Could you please reference the price of jet fuel, per gallon, because most of us see a rather tenuous relationship between the cost of a gallon of jet fuel and the speculative cost of a barrel of crude.

Per your comment. Airlines can construct budgets based on the speculator's price of Saudi sweet but for those of us who budget excluding broccoli futures, among other things, please use actual price per gallon.

Also, crude oil prices.

Check with OCC. The dispatchers get the fuel prices at each station so they can plan to tanker as necessary. It ain't cheap anywhere. Last week in PHL $3.70/gal. Yesterday in LAX $4.52/gal.

Don't know how hedging figures into the USAirways fuel puzzle.

 

[Be Careful What You Wish For.]

The 73s were going away even if the price of oil dropped to $5 a barrel. The long term fleet plan is all Airbus and Embraer, with about a dozen or less ETOPS 757s as the only Boeings on the property.

The company is already within about a dozen airframes of the minimum fleet size specified in the pilot contract (I think it is spelled out in the transition agreement for minimums for east and west fleets.) They can't just go parking a lot of aircraft without relief from the pilots, and I doubt that will be forthcoming any time soon.

If Doug needs to park a bunch of airplanes in a hurry, he will probably have to file Chapter 11 to do it. Maybe that's why we're number two on that list.

Another possibility (slim, IMHO, but it has been done here before) is to just park the airplanes and pay pilots to stay home after displacing the excess into the lowest paying reserve position. Given the price of fuel, that may well be a cheaper way out. When this happened at the old USAir, those excess pilots were all F28 reserve first officers who got a long paid vacation. Since the minimum fleet size numbers don't include the E190, I don't think they can displace the excess to that airplane.

Thanks. This was what I was looking for - again, thanks.