Maintaining a Cost Advantage Is Critical for US Airways

[USA320Pilot]

Bill Swelbar, a Research Engineer in MIT’s International Center for Air Transportation, where he is affiliated with the Global Airline Industry Program and Airline Industry Consortium said earlier this month, "Maintaining a Cost Advantage Is Critical for US Airways - US Airways suffers from a stage length adjusted unit revenue disadvantage versus its legacy carrier peers – even more than American. But it also enjoys a stage length adjusted unit cost advantage versus these rivals – much more than American. Despite the revenue generating deficiency of US Airways’ network, the Tempe-based airline is producing very good revenue results relative to the industry."

"US Airways’ revenue disadvantage is offset by maintaining its cost advantage – and most of that advantage is very low labor costs relative to the industry. As a result, US Airways’ pre-tax margins are impressive given its structural deficiencies. The cost advantage the carrier enjoys cannot be overstated nor can the company hide behind the fact a significant portion of its profit performance can be found in lower labor costs. By contrast, United and Continental are only now beginning to navigate what it might cost to buy labor peace, particularly among the pilot groups. US Airways has not explored what labor peace would cost, probably because maintaining the status quo is more cost effective. Or did the flight attendants say in their vote that what US Airways could afford was not sufficient to buy labor peace?," Swelbar noted.

Hummm???

 

[UPNAWAY]

Kinda like the Head FA saying the company is only profitable because of the poor pay for the FA's.
So what is the solution, pay them more and become unprofitable and then lose jobs?

 

[SparrowHawk]

Kinda like the Head FA saying the company is only profitable because of the poor pay for the FA's.
So what is the solution, pay them more and become unprofitable and then lose jobs?

I think it's a bit more complex than that. US Airways route structure creates around a 13% cost differential that is currently being absorbed by the work force. This reasons for this differential are many but one commonly cited reason is the shorter average stage length. A problem that haunted the old US Airways for many years. YES they dominated the East Coast but paying leading wages (at the time, parity +1) caused them to lose large amounts of money. The advent of LCC's like WN and B6 made it worse and 9/11 put a stake through the heart of US. US as a going concern was toast on 9/12. The only question was what day the doors would close.

HP was not in much better shape as they were also headed the aviation grave yard mostly due to WN and 9/11 which exposed their weak cash position at the time. US & HP without Government loans would have ceased to exist by the date of the merger.

So now here we are, the new US saddled with an unsustainable business model unless wage are comparable to NK and what to do about it. The biggest impediment to employees getting a raise is the "Bean Counter" mentality of Sr. Management which stands in stark contrast to the leadership at WN. Doug worries about the next quarter, Gary Kelly is looking 5 years down the road. This is why WN kicks US's assets all over the place most of the time. What should have happened is the day after the ink dried Doug should have offered a significant buyout for all senior F/A's. Doug didn't do it because of the "Hit" he would have taken on the P& L for that year. Never mind the fact that for the next 5 to 7 years he would have lower labor costs. Don't look for him to part with cash. Not happening.

The issue here is how Management manages the business. It is their short sighted approach that hinders growth and profitability at the expense of those who work there.

 

[Beancounter]

Bill Swelbar, a Research Engineer in MIT’s International Center for Air Transportation, where he is affiliated with the Global Airline Industry Program and Airline Industry Consortium said earlier this month, "Maintaining a Cost Advantage Is Critical for US Airways - US Airways suffers from a stage length adjusted unit revenue disadvantage versus its legacy carrier peers – even more than American. But it also enjoys a stage length adjusted unit cost advantage versus these rivals – much more than American. Despite the revenue generating deficiency of US Airways’ network, the Tempe-based airline is producing very good revenue results relative to the industry."

"US Airways’ revenue disadvantage is offset by maintaining its cost advantage – and most of that advantage is very low labor costs relative to the industry. As a result, US Airways’ pre-tax margins are impressive given its structural deficiencies. The cost advantage the carrier enjoys cannot be overstated nor can the company hide behind the fact a significant portion of its profit performance can be found in lower labor costs. By contrast, United and Continental are only now beginning to navigate what it might cost to buy labor peace, particularly among the pilot groups. US Airways has not explored what labor peace would cost, probably because maintaining the status quo is more cost effective. Or did the flight attendants say in their vote that what US Airways could afford was not sufficient to buy labor peace?," Swelbar noted.

Hummm???

Why is it that when Parker tries to explain this, none of the workers believe him? Should we get a raise? Yes. Are we going to get SWA style pay rates? Not if we want the company to be in business a couple years down the line.

Bean

 

[SKY HIGH]

US Airways has not explored what labor peace would cost, probably because maintaining the status quo is more cost effective.

..................that would be a BANKRUPT CONTRACT. No thanks!!

 

[UPNAWAY]

I agree about a buyout offer opportunity lost, but it would have had to happen right at the beginning of the merger before the economy tanked. And you are right they were merging and trying to keep cost down it would have been expensive. But about a year in a buyout was pointless once the economy tanked and that holds true even today. Only people that are going to retire now anyway will take it, you get little bang for the buck now.

 

[AAviator]

Some light bulbs are going on.

This is a positive development.

I may be able to change my signature after all.

Carry on.

B)

 

[Pi brat]

Some light bulbs are going on.

This is a positive development.

I may be able to change my signature after all.

Carry on.

B)

Why do you spend so much time an effort trying to convince any US employee of anything? We will have no say in whatever happens.

 

[USA320Pilot]

I think it's a bit more complex than that. US Airways route structure creates around a 13% cost differential that is currently being absorbed by the work force. This reasons for this differential are many but one commonly cited reason is the shorter average stage length. A problem that haunted the old US Airways for many years. YES they dominated the East Coast but paying leading wages (at the time, parity +1) caused them to lose large amounts of money. The advent of LCC's like WN and B6 made it worse and 9/11 put a stake through the heart of US. US as a going concern was toast on 9/12. The only question was what day the doors would close.

HP was not in much better shape as they were also headed the aviation grave yard mostly due to WN and 9/11 which exposed their weak cash position at the time. US & HP without Government loans would have ceased to exist by the date of the merger.

So now here we are, the new US saddled with an unsustainable business model unless wage are comparable to NK and what to do about it. The biggest impediment to employees getting a raise is the "Bean Counter" mentality of Sr. Management which stands in stark contrast to the leadership at WN. Doug worries about the next quarter, Gary Kelly is looking 5 years down the road. This is why WN kicks US's assets all over the place most of the time. What should have happened is the day after the ink dried Doug should have offered a significant buyout for all senior F/A's. Doug didn't do it because of the "Hit" he would have taken on the P& L for that year. Never mind the fact that for the next 5 to 7 years he would have lower labor costs. Don't look for him to part with cash. Not happening.

The issue here is how Management manages the business. It is their short sighted approach that hinders growth and profitability at the expense of those who work there.

Sparrowhawk said: "The issue here is how Management manages the business. It is their short sighted approach that hinders growth and profitability at the expense of those who work there."

USA320Pilot asks: Can you explain why "short sighted approach that hinders growth and profitability at the expense of those who work there?" Thanks.

 

[USA320Pilot]

Some light bulbs are going on.

This is a positive development.

I may be able to change my signature after all.

Carry on.

B)

It is my understanding APA President Dave Bates and other AA union leaders have met with Doug Parker and AA’s unions are favorable towards a merger. Why? The combined US Airways and AA will generate profits that neither can independently.

A merger between the two companies could yield more than $1.5 billion per year in added revenue and cost savings, officials with US Airways are telling American’s creditors. That’s according to a report in the Wall Street Journal that cites people familiar with the situation.

According to ATA SmartBrief, "US Airways is said to be briefing creditors of AMR Corp. on plans for a possible merger with American Airlines, sources say. US Airways would seek to create a merger plan before American's parent exits bankruptcy protection, a move that Allied Pilots Association spokesman Tom Hoban says may be welcome to allow labor unions to negotiate with new management."

Click here to read the story.

According to Bloomberg, "The leverage pendulum has swung fairly decisively toward US Airways if the company should choose to come to AMR’s labor groups with alternatives to what’s probably going to be fairly draconian cuts,” said Wolfe Trahan’s Keay. “Creditors suddenly have a lot of leverage because of that conditional provision for exclusivity.”
Tom Hoban, a spokesman for the Allied Pilots Association, said that if the union couldn’t reach a consensual labor agreement with AMR as the carrier seeks to rework contracts, the group might be willing to work with new management brought in as the result of a merger.“We’ll consider all options on the table,” Hoban said.

Click here to read the story.

In my opinion, AA employees may have two options: Merger with US Airways and obtain industry leading contracts, which means less of a S.1113 haircut or remain independent and run the risk of fragmentation with bottom of the barrel contracts.

 

[USA320Pilot]

Why is it that when Parker tries to explain this, none of the workers believe him? Should we get a raise? Yes. Are we going to get SWA style pay rates? Not if we want the company to be in business a couple years down the line.

Bean

Bean,

I agree. In addition, comparing Southwest's pay rates to US Airways and other carriers is unfair and not apples to apples. People need to look at the employee's total contract and in particular work rules and productivity. If people want Southwest pay then they need to have Southwest's productivity and up and down flying.

USA320Pilot

 

[FrugalFlyerv2.0]

I think it's a bit more complex than that. US Airways route structure creates around a 13% cost differential that is currently being absorbed by the work force. This reasons for this differential are many but one commonly cited reason is the shorter average stage length. A problem that haunted the old US Airways for many years. YES they dominated the East Coast but paying leading wages (at the time, parity +1) caused them to lose large amounts of money. The advent of LCC's like WN and B6 made it worse and 9/11 put a stake through the heart of US. US as a going concern was toast on 9/12. The only question was what day the doors would close.

HP was not in much better shape as they were also headed the aviation grave yard mostly due to WN and 9/11 which exposed their weak cash position at the time. US & HP without Government loans would have ceased to exist by the date of the merger.

So now here we are, the new US saddled with an unsustainable business model unless wage are comparable to NK and what to do about it. The biggest impediment to employees getting a raise is the "Bean Counter" mentality of Sr. Management which stands in stark contrast to the leadership at WN. Doug worries about the next quarter, Gary Kelly is looking 5 years down the road. This is why WN kicks US's assets all over the place most of the time. What should have happened is the day after the ink dried Doug should have offered a significant buyout for all senior F/A's. Doug didn't do it because of the "Hit" he would have taken on the P& L for that year. Never mind the fact that for the next 5 to 7 years he would have lower labor costs. Don't look for him to part with cash. Not happening.

I don't mean to defend Doug and the bean counters, but I don't think they're that stupid as to not be able to think more than 1 quarter ahead. They probably do have some sort of a vision, even 5 years down the road. However, they realize that they're limited by many factors to nothing more than short-term / make the numbers look good business plan. You've said it in your first paragraph: 9/12 meant the death of the Wolf-era classy US Airways that you've loved so much. Were it not for the ATSB loans, US and HP would be toast. So now you have Doug being the CEO of 1 airline hastily put together from 2 weak ones. Given what the current US is made up of, I'm not sure even Herb with an unlimited line of credit could fix things.

 

[AAviator]

Bean,

I agree. In addition, comparing Southwest's pay rates to US Airways and other carriers is unfair and not apples to apples. People need to look at the employee's total contract and in particular work rules and productivity. If people want Southwest pay then they need to have Southwest's productivity and up and down flying.

USA320Pilot

http://www.airlinefinancials.com/uploads/2010_mainline_summary.pdf

Page 2. Revenue per pilot. LCC pilots generate ~40% more revenue per pilot for the company than Southwest pilots do. Yet you're paid a little better than half.

p.s. I'm not expecting you to answer....

 

[FWAAA]

http://www.airlinefinancials.com/uploads/2010_mainline_summary.pdf

Page 2. Revenue per pilot. LCC pilots generate ~40% more revenue per pilot for the company than Southwest pilots do. Yet you're paid a little better than half.

Sure, and a merger with AA will magically remedy that disparity. The same Parker who has underpaid his flight crews for nearly seven years will suddenly open up his pot of gold and share it with the US (and AA) pilots on "industry-leading contracts."

Now I know why the Easter Bunny never showed up at my house; Parker has imprisoned him in a basement dungeon so he can work the magic at a merged AA-US.

 

[AAviator]

It is my understanding APA President Dave Bates and other AA union leaders have met with Doug Parker and AA’s unions are favorable towards a merger. Why? The combined US Airways and AA will generate profits that neither can independently.

You've got to stop making wildly speculative statements. One would think you would have learned from your ICT/UCT/Crystal Palace Court Jester days. Bates is a busy man these days, and if you think the only people wanting his ear are in Tempe, you"re further gone than I thought. Did I notice you state LCC can't generate profits and needs help?? Is this your public plea for help from AA??



A merger between the two companies could yield more than $1.5 billion per year in added revenue and cost savings, officials with US Airways are telling American’s creditors. That’s according to a report in the Wall Street Journal that cites people familiar with the situation.

And I can produce links that state "synergies" are often non-existant. In fact, you posted one with "they just don't get usairways". Besides, the last thing Parker publically said about his plan involved dismantleing LCC's network to add to ours...



According to ATA SmartBrief, "US Airways is said to be briefing creditors of AMR Corp. on plans for a possible merger with American Airlines, sources say. US Airways would seek to create a merger plan before American's parent exits bankruptcy protection, a move that Allied Pilots Association spokesman Tom Hoban says may be welcome to allow labor unions to negotiate with new management."

I'm sorry you don't know how to use, or even -what- leverage is.

Click here to read the story.

According to Bloomberg, "The leverage pendulum has swung fairly decisively toward US Airways if the company should choose to come to AMR’s labor groups with alternatives to what’s probably going to be fairly draconian cuts,” said Wolfe Trahan’s Keay. “Creditors suddenly have a lot of leverage because of that conditional provision for exclusivity.”
Tom Hoban, a spokesman for the Allied Pilots Association, said that if the union couldn’t reach a consensual labor agreement with AMR as the carrier seeks to rework contracts, the group might be willing to work with new management brought in as the result of a merger.“We’ll consider all options on the table,” Hoban said.

Did you notice his choice of words? i.e. all options on the table? So far we've seen one.. The 1113c, and the company has backed away from a good number of the positions, and I fully expect a negotiated settlement. Haven't you learned anything from history?

Click here to read the story.

In my opinion, AA employees may have two options: Merger with US Airways and obtain industry leading contracts, which means less of a S.1113 haircut or remain independent and run the risk of fragmentation with bottom of the barrel contracts.

Well Chip, if you wonder why people think you're out to lunch, re-read your last statement. I have to wonder who you think you're fooling or impressing with your bravado.