New Casm?

[BoeingBoy]

funguy,

Thinging about your estimates of CASM (and savings in personnel costs) going forward, it hit me that a comparison between 3Q04 and 4Q04 might be more appropriate than the 4Q03 vs 4Q04. Why - because employee costs have been slowly coming down each quarter, so the year over year comparison overstates the savings from the latest concessions.

Using this method, personnel costs came down $135 million in the 4th quarter, decreasing from $653 million to $518 million. Annualized, that's about 1/2 ($540 million to be more precise) of the estimated $1.1 billion in savings.

If one assumes that the other half will all be realized in the longer term - say by the end of 2005 - that means another $135 million in labor savings per quarter.

Since these additional savings will be mainline only (or very nearly so), let's divide the additional savings by mainline ASM's to get the possible drop in CASM from the 4Q04. Works out to 1.08 cents, and that's assuming mainline ASM's don't increase. Since the transformation plan calls for more flying, that's undoubtedly an invalid assumption, but it does maximize the value of the labor cost reduction, i.e. more ASM's for the same labor saving gives less reduction per ASM.

That takes mainline CASM from 10.96 cents down to 9.88 cents, both including fuel (which is the big question mark) - but that is the longer term, again something like the end of 2005.

Now that I've said all that, here's my view of 1Q05....

4Q vs 3Q gave a drop of 5.44% in mainline CASM (primarily because fuel increases offset a big chunk of the labor savings). For the 1Q05, I expect no larger drop because fuel will probably be higher in 1Q05 than 4Q04 barring some pretty steep drop pretty soon. That means a CASM of 10.36 cents or higher. Sticking my neck out, I'll predict about 10.5 to 10.6 cents....

Jim

 

[insp89]

I'm sorry...I forgot mechanics were reading this. Let me put it in terms you can understand.

If the company is telling a potential lender something contrary to the public filings, the lender is not going to buy it.

If the company is telling the union leadership something contrary to the public filings, the union leadership is stupid if they buy it.

Therefore, if the numbers do not match among all three, then somebody is not doing their homework.

You keep claiming that the company is lying to you...maybe it's because you don't bother to check for yourself. :huh:

[post="243987"][/post]​

Weiss, You arrogant little suction cup ,, :blink:

If you are as intelligent as you think you are, [Sincerely doubt it], Then you know these corporations have plenty of lee-way when reporting earnings, labor cost, etc...

Figures don't Lie. Only liars Figure.. Ever hear of "one time charges", paying off debt in another column ? Of course you have...

If you are so "superior" to everyone on this board, Why are you wasting your time here?

Don't have anything better to do with all your B.S. degrees ?

 

[funguy2]

Boeing Boy -

Using your method puts US Airways CASM around 10.36 or CASM ex-fuel at 7.77. That is in the good company of Continental, Delta, and Alaska, but a far cry from the LCCs which start CASM ex-fuel at 1.50cents less.

Perhaps another way to slice this apple is this. US Airways declared BK 2 on Sept 13, 2004. Shortly thereafter, the first new contract was approved by TWU/Dispatchers. On Jan 21, 2005, is the first mention of "over $1bil/annually", but lets assume that that is a reduction based on pre-BK2 costs, or roughly 3Q04, as you mentioned. Furthermore, in the press release outlining the Transformation Plan, BBB said that mainline utilization will increase 10%. So, let's take these assumptions and make a "best case estimate".

3Q04 CASM: 11.59cents
3Q04 CASM ex fuel: 9.74cents
3Q04 Total Costs: $1,589mil (on AirPg3 reconciliation backs out Express and MDA costs)
3Q04 Total Costs ex fuel: $1,589mil - $260mil = $1,329mil
3Q04 Personnel Costs: $591mil
3Q04 ASMs: 13,713mil

OK... So lets assume $1.1bil in cost savings is acheived. That is $275mil/quarter (or roughly cutting personnel costs in half).

Next... Let's assume that Baldanza's statement about 10% increase in utilization Feb 05 over Feb 04 applies to Q305 over Q304.

So that gets us to $1,054mil in total cost in 3Q05, and 15,084mil ASMs. CASM ex fuel is 6.98cents... Very close to Southwest at 6.22 and declining.

Of course, I have not added in the additional costs of outsourcing MX nor of returning 10 A319s in 2005...

Lets assume 1/2 of the quarterly IAM savings goes to pay for outsourced MX work. Thats +$44mil

Let's assume 10 less A319's, that's 3.5% of the mainline fleet so decreasing ASMs is 14,556mil ASMs

Also, $80 in cash savings was to occur due to this move. If we divide that by 25 aircraft... Thats $3.2mil/aircraft/year, or $0.8mil/aircraft/quarter, or $8mil for 10 A319's during one quarter.

Total costs ex-fuel are now $1,090mil, making CASM ex fuel: 7.48cents. Still 1.26cents more than Southwest, but below all of the legacies.

Since in 4Q04, fuel was 2.17cents/ASM, lets assume that fuel remains constant, which gets us to 9.65cents CASM. In line with Delta's "low" figure, and close to Continental... Which I theorized a couple weeks ago would be a fantastic acheivement for US Airways to make.

Now my numbers are for Q305... I presume they would be close in Q205, and slightly lower than Q105. Q1's CASM should be slightly higher as the higher ASM Transformation plan, is not implemented until half way through the quarter.

Also, I've made some BIG assumptions, which may or may not be valid. If US Airways becomes the lowest-CASM legacy, that in itself is a huge acheivement for this company. But as I stated earlier, if you are trying to sell the LCC CASM to the exit financing folks, I presume it won't sell. Close, but no cigar.

Also, this data seems to support your call for 7.77 CASM ex fuel and 10.36 CASM for Q105, with further reductions coming in Q2 and Q3.

Lastly, if you continue the math on the 25 leased aircraft return... $0.8mil/quarter comes out to $267K/month... Which, from things I've heard, is rather expensive for a narrow-body aircraft. I am curious if GECAS accepted the aircraft because they wish to reduce exposure to US Airways, or if they really think that is the going rate for these aircraft... (Of course, since this is a mix of A319's and B733's, we can assume the "current generation" A319 leases for more than this average figure and the "older generation" 733 leases for less...)

 

[funguy2]

Oh, one more thing...

If RASM remains flat, along with fuel... That means RASM would be 9.65cents and CASM 9.65 cents. Or breakeven. Of course, any increase in fuel costs, decrease in RASM (like due to DAL's fare structure or WN at PIT), or both, and the losses continue. In other words, DAL and LUV are really putting the screws to US Airways by betting that they can make the CASM improvements US Airways is making less valuable by reducing the RASM side of the picture. The best thing that could occur for US Airways is sustained declining fuel/oil costs. Perhaps this is the argument that US Airways is using when asking the judge to allow the company to enter hedging agreements.

 

[mweiss]

Weiss, You arrogant little suction cup ,, :blink:

You as much as asked for it.

...you know these corporations have plenty of lee-way when reporting earnings, labor cost, etc...

They have leeway in some areas, and not in others. Regardless, if a company wants something from you, they'd better have the proof to back up the request. If you don't do the due diligence, you get what you deserve.

Ever hear of "one time charges", paying off debt in another column ? Of course you have...

Ever hear of having to call those out? Ever hear of being able to do some really simple arithmetic to back them out?

If you are so "superior" to everyone on this board, Why are you wasting your time here?

I never claimed to be superior to everyone else here. That's your interpretation, not mine. I'm here for my own reasons.

 

[Phoenix]

Now thats a company response if ever I heard one.

[post="243787"][/post]​

Repeated self-flagellation brought on by guilt for making too much money has a way of distorting one's thought processes.

Cheers

 

[insp89]

You as much as asked for it.

They have leeway in some areas, and not in others. Regardless, if a company wants something from you, they'd better have the proof to back up the request. If you don't do the due diligence, you get what you deserve.

Ever hear of having to call those out? Ever hear of being able to do some really simple arithmetic to back them out?

I never claimed to be superior to everyone else here. That's your interpretation, not mine. I'm here for my own reasons.

[post="244466"][/post]​

Weiss says, " If a company wants something from you, they'd better have the proof to back up "

Weiss, Where have you been ? When a company files bankrupcy, They do not have to prove anything to anyone. Especially when you got a judge that "rubber stamps" everything that comes down the pike..

This subject has been "talked" to death on this board for the last couple of years, The main reason the airline industry is in the shape that it's in today is due to Southwest's ability and common sense to FUEL HEDGE.

This allows Southwest to set the fares. This has given the "so called" legacy carriers a window of opportunity [with the help of 911] to make unheard of enroads into their labor contracts..

ALL the unions on the property made it crystal clear to the judge [due diligence] what is going on here. You think the judge is stupid ?

When in bankrupcy, You don't get what you deserve, you get what is IMPOSED.

I suggest you keep an eye on UAL, Seems their mechanic's have enough BACKBONE to "press to test' the Section 1113 labor law..unlike the spineless jellyfish majority at Usairways..

Weiss says, "I'm here for my own reasons".

Well goody for you..

 

[mweiss]

When a company files bankrupcy, They do not have to prove anything to anyone. Especially when you got a judge that "rubber stamps" everything that comes down the pike..

Of course they do. Do you think GE renegotiated with US on blind faith? Do you think the ATSB just takes their word for it? You think the judge doesn't actually look at the evidence?

I'll give you a hint...the answer to all three questions is "no."

Lest you forget, the whole reason we're having this exchange is nycbusdriver's assertion that the banks are being told that your costs are the lowest, while the unions are being told that your costs are the highest. This is patently false.

The main reason the airline industry is in the shape that it's in today is due to Southwest's ability and common sense to FUEL HEDGE.

That's a contributing factor, to be sure. However, even if WN had been paying spot rates for fuel, the legacies would be in bad shape.

OBTW, do you recall why WN got into hedging in the first place?

ALL the unions on the property made it crystal clear to the judge [due diligence] what is going on here. You think the judge is stupid ?

I sure don't. I suspect the judge knows a few extraordinarily relevant things that neither of us do. Recall that his job is not to save yours, or even Bruce's. He's not even allowed to save Bronner's investment, unless it happens to coincide with the creditors getting the maximum return on their investments (up to 100%).

When in bankrupcy, You don't get what you deserve, you get what is IMPOSED.

If you're not a creditor, you certainly have far less negotiating power. However, if you can prove to the judge that your offer preserves more of the creditors' investment, the judge is obligated to rule in your favor. Knowledge is power.

I suggest you keep an eye on UAL, Seems their mechanic's have enough BACKBONE to "press to test' the Section 1113 labor law

You bet I'm watching. This is an opportunity to revisit Eastern Airlines under a new set of rules. Does it change the outcome?

 

[funguy2]

mweiss: What I believe is that there is certainly a disconnect between reality and what management is saying. Earlier in this thread, several of us, myself included, have "guestimated" CASM going forward, and in no case was CASM real close to the LCC's. I think the closest was my CASM ex fuel of 6.95, which did not include the cost of aircraft returns nor outsourced maintenance work.

So there is some disconnect, whether intentional or not, between management saying "our costs will be better than Southwest" and what appears to actually be happening. I don't think there is any denying that.

 

[mweiss]

funguy2, while I agree with what you're saying, there are still the unknown elements of streamlined operations that exist on paper. What remains to be seen is whether those can be transferred from paper to operations, and whether it can be done before the company hits the ground.

It does not, however, mean that management's words don't match reality. They are speaking in the future; we are looking at the present.

 

[insp89]

Of course they do. Do you think GE renegotiated with US on blind faith? Do you think the ATSB just takes their word for it? You think the judge doesn't actually look at the evidence?

I'll give you a hint...the answer to all three questions is "no."

Lest you forget, the whole reason we're having this exchange is nycbusdriver's assertion that the banks are being told that your costs are the lowest, while the unions are being told that your costs are the highest. This is patently false.

That's a contributing factor, to be sure. However, even if WN had been paying spot rates for fuel, the legacies would be in bad shape.

OBTW, do you recall why WN got into hedging in the first place?

I sure don't. I suspect the judge knows a few extraordinarily relevant things that neither of us do. Recall that his job is not to save yours, or even Bruce's. He's not even allowed to save Bronner's investment, unless it happens to coincide with the creditors getting the maximum return on their investments (up to 100%).

If you're not a creditor, you certainly have far less negotiating power. However, if you can prove to the judge that your offer preserves more of the creditors' investment, the judge is obligated to rule in your favor. Knowledge is power.

You bet I'm watching. This is an opportunity to revisit Eastern Airlines under a new set of rules. Does it change the outcome?

[post="244518"][/post]​

Weiss, Weiss, You're living in a fantasy land..The ONLY reason Southwest is making a [small] profit is due to fuel hedging...

Do you actually think the judge is "obligated" to rule in ANYONES favor ??

General Electric has a LOT to lose if Usairways goes under, THAT is why they are working with management. Same goes with the ATSB. No big mystery here..

 

[mweiss]

The ONLY reason Southwest is making a [small] profit is due to fuel hedging...

You're looking at the first order conditions. Keep in mind that WN is setting the bar for prices. If fuel were costing them more, they'd be charging more. If they were charging more, so would everyone else. If everyone were charging more, there would be some dropoff in demand, but not sufficient to push WN back into the red.

Do you actually think the judge is "obligated" to rule in ANYONES favor ??

Yes. It's called the law.

General Electric has a LOT to lose if Usairways goes under, THAT is why they are working with management. Same goes with the ATSB. No big mystery here..

[post="244531"][/post]​

Of course they do. They're still not going to take anyone's word over seeing the books. Nor is the judge. Nor should the union leaders, and I hope they don't.

 

[funguy2]

mweiss: I agree that we are looking to the future... But US Airways only has about 5 months of future to look towards. Projected CASM in 2006 is irrelevant if the company continues to post losses, and loses its temporary financing from ATSB/banks and GECAS On June 30th.

The numbers I have presented are basically forward looking to 3Q05. At a point when US Airways expects to be outside of BK, on the basis of $250mil in new financing, lured with the promise of LCC costs, which are not yet acheived and from published information, doesn't seem possible.

I always maintain that there may be unpublished, confidential, non-public information which can change these results, but since I have no access to it (and/or would not reveal confidential information even if I did have access to it), I can't include it in my analysis. It would be nice for management to come out and say, "We expect to acheive LCC costs through the published Transformation Plan as well as a number of confidential matters which are still be developed." Otherwise, I am inclined to believe that the Transformation Plan is largely complete, and the hunt is on for Exit Financing.

 

[insp89]

You're looking at the first order conditions. Keep in mind that WN is setting the bar for prices. If fuel were costing them more, they'd be charging more. If they were charging more, so would everyone else. If everyone were charging more, there would be some dropoff in demand, but not sufficient to push WN back into the red.

Yes. It's called the law.
Of course they do. They're still not going to take anyone's word over seeing the books. Nor is the judge. Nor should the union leaders, and I hope they don't.

[post="244538"][/post]​

Weiss, If Southwest did not have the advantage of fuel cost, They would not have the Power to "set the bar" as you say..I guess that's too simple.

 

[mweiss]

Weiss, If Southwest did not have the advantage of fuel cost, They would not have the Power to "set the bar" as you say..I guess that's too simple.

[post="244548"][/post]​

Are you really that obtuse? Did you not see the numbers that have been posted in the past couple of days in no fewer than three different threads? The legacy carriers spend as much excluding fuel as WN spends including fuel. In other words, if every legacy airline had airplanes that ran on air, they'd still be paying more than WN has been paying with the hedges.

Or, you could look at it another way. If all of the legacies had WN's fuel hedges until 2007, and WN had to buy on the spot market, then the costs would be competitive.

Or, you could look at it the way I did. If everyone had to buy on the spot market (i.e., WN had no hedges), WN would still have lower costs than the legacies, and would therefore still have the power to set the bar.