Pitbull:
US Airways must continue its incremental effort(s) to lower costs and increase revenue to enable RASM to be greater than CASM. One area to focus on is airport costs where Pittsburgh’s passenger processing fee is more than 6 times grater than a similar type hub in Charlotte.
Pittsburgh's problem is the hub only needs about 3 million more people living nearby to provide higher revenue, but with this likely to not occur in the near-term, the only other option is to cut its costs or the company could move westward where hub operations could become available in the future.
Dave Siegel will not have true leverage to force the Pennsylvania government leaders to provide relief unless he has a viable exit strategy where the company could actually move from Pittsburgh with a viable business plan. The Pittsburgh negotiations are more than the Hub, it's also about fixed facilities that may be of no use to the combined business entity due to a corporate transaction, e.g. Carnot, the Beaver Grade Road Training facility, the Flaugherty Run Road Simulator Building, RIDC Park West, the Greentree Reservations facility, the catering complex, the maintenance facility, and even the vending machines, etc.
The leases on all of these facilities were rejected and could be excess to a combined business entity if US Airways enters into a likely corporate transaction, which members of the executive suite have privately said is inevitable.
Regardless, a source close to the US Airways’ executive suite is the person who told me that the Pittsburgh negotiations are being held hostage to United's exit financing – or should I say United’s inability to obtain exit financing due to the company being unable to provide a plan of reorganization to the court due to its major problems.
In my opinion, once United's murky situation becomes more in focus, then we will see progress on the Pittsburgh negotiations one way or another. That’s why US Airways’ request to have the current lease be extended to October 2004 is simply a tactic used to buy more time for external events to unfold and to prevent the 20% fee hike. However, Kent George and Jim Roddey are
dead wrong in their analysis that it’s unlikely US Airways could leave Pittsburgh and it is in Pennsylvania's best interest to cut a deal now. If there is one thing I do know about Dave Siegel is that he can be vindictive if he does not get his way (just ask the Allegheny, Piedmont, and Midway pilots) and he just may exit Pittsburgh due to the ACAA playing hardball by rejecting the company's offer to extend the cancellation date until October.
US Airways does want to stay in Pittsburgh and would like to create an operation similar in scope to Delta-Comair in Cincinnatti, but the company has no interest in doing that without reductions in the airport debt.
Thus, if the ACAA is smart, they would cut a deal now to keep the current mainline operation in place and permit MDA/other RJ expansion in Pittsburgh, versus putting the operation at risk when US Airways obtains leverage to move its assets to places westward.
Regards,
Chip
