Reality - Deflation and a fare market

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chipmunn

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Deflation and a fare market
BOSTON (Boston Globe) - Alan Greenspan is paying a lot of attention to falling prices these days. Asked recently about deflation, in an appearance before Congress, the Federal Reserve chairman said, We cannot allow that to creep up on us unseen.
I had my own brush with deflation last week. It kind of crept up on me. I'm not sure what it signals, but I think it is a story worth telling. My deflationary experience came on a bus trip to New York City. On a relative's recommendation, I booked a round-trip ticket to New York on a small bus line called Coach New England. For $40, I was told, I could take a bus from South Station to Penn Station and back. That $40 compares to $128 on the train, $238 on the high-speed Acela, more than $400 on the plane, and $79 on Greyhound or Peter Pan (more on that later).
Chip comments: Today's Boston Globe column above clearly illustrates the grim economics that are today's reality. Airlines can not raise ticket prices and there is no pricing power.
To complicate our situation US Airways does not qualify for the loang guarantee and either must increase revenues or cut costs to survive.
The company is trying to raise revenues by joining the Star Alliance in 2003 and putting more RJs into the system earlier, and now it appears both of these events will occur. Seprately, all creditor, vendor, and lessor restructuring discussions are now complete with the company extracting $425 to $475 million per year in annual savings.
Therefore, to make up the difference the company is seeking consensual labor accords that address RJ relief, productivity changes, and pension cuts.
On Friday, November 8, in his weekly message Dave Siegel said US Airways has obtained as much as possible from aircraft lessors, lenders and vendors and those savings actually exceeded the carrier’s targets by a significant amount. We are going to work tirelessly with your union leadership to resolve these issues and I’m very confident we’ll be successful, he said. We've come too far not to complete the task to ensure our survival.
US ALPA MEC has scheduled a Special Meeting for November 21 to address these issues and its uncertain how the other unions proceed. The MEC agenda is:
1. Staffing Review Committee Report
2. V. P. Flight Operations Presentation
3. Negotiating Committee Update
4. Report from Professional Advisors
5. Retirement & Insurance Update
6. Economic and Financial Analysis Update
If the required union contracts are not changed to lower employee expense, the company may not emerge from bankruptcy.
>From my perspective, the unions have no choice but to work with management to obtain acceptable agreements or the rank-and-file may as well fill out an unemployment applications and mortgage default notices, to beat the rush.
Without acceptable agreements the company has three choices:
1. Liquidate the company and terminate all employees.
2. Seek S.1113 cuts, which the company said it would not like to do.
3. Seek alternative ways within the context of the current accords to cut labor expense.
Nobody likes this situation and it's either adjust or seek employment elsewhere.
Chip
 

Black Wind

Member
Sep 21, 2002
33
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www.usaviation.com
[BLOCKQUOTE]
----------------
On 11/20/2002 1:28:22 AM chipmunn wrote:

Deflation and a fare market

BOSTON (Boston Globe) - Alan Greenspan is paying a lot of attention to falling prices these days. Asked recently about deflation, in an appearance before Congress, the Federal Reserve chairman said, We cannot allow that to creep up on us unseen.

I had my own brush with deflation last week. It kind of crept up on me. I'm not sure what it signals, but I think it is a story worth telling. My deflationary experience came on a bus trip to New York City. On a relative's recommendation, I booked a round-trip ticket to New York on a small bus line called Coach New England. For $40, I was told, I could take a bus from South Station to Penn Station and back. That $40 compares to $128 on the train, $238 on the high-speed Acela, more than $400 on the plane, and $79 on Greyhound or Peter Pan (more on that later).


Chip comments: Today's Boston Globe column above clearly illustrates the grim economics that are today's reality. Airlines can not raise ticket prices and there is no pricing power.

To complicate our situation US Airways does not qualify for the loang guarantee and either must increase revenues or cut costs to survive.

The company is trying to raise revenues by joining the Star Alliance in 2003 and putting more RJs into the system earlier, and now it appears both of these events will occur.

[FONT face=Comic Sans MS size=3]your assuming u will still exist at that point arent ya?[/FONT]


Seprately, all creditor, vendor, and lessor restructuring discussions are now complete with the company extracting $425 to $475 million per year in annual savings.

Therefore, to make up the difference the company is seeking consensual labor accords that address RJ relief, productivity changes, and pension cuts.

[FONT face=Comic Sans MS size=3]more cuts? what happened i though austin siegel had his mojo back ?[/FONT]

On Friday, November 8, in his weekly message Dave Siegel said US Airways has obtained as much as possible from aircraft lessors, lenders and vendors and those savings actually exceeded the carrier’s targets by a significant amount. We are going to work tirelessly with your union leadership to resolve these issues and I’m very confident we’ll be successful, he said. We've come too far not to complete the task to ensure our survival.

US ALPA MEC has scheduled a Special Meeting for November 21 to address these issues and its uncertain how the other unions proceed. The MEC agenda is:

1. Staffing Review Committee Report
2. V. P. Flight Operations Presentation
3. Negotiating Committee Update
4. Report from Professional Advisors
5. Retirement & Insurance Update
6. Economic and Financial Analysis Update

If the required union contracts are not changed to lower employee expense, the company may not emerge from bankruptcy.

From my perspective, the unions have no choice but to work with management to obtain acceptable agreements or the rank-and-file may as well fill out an unemployment applications and mortgage default notices, to beat the rush.


Without acceptable agreements the company has three choices:

[FONT face=Comic Sans MS size=3]feel like ive read this before...wait a sec i have!!!!!!![/FONT]

1. Liquidate the company and terminate all employees.
2. Seek S.1113 cuts, which the company said it would not like to do.
3. Seek alternative ways within the context of the current accords to cut labor expense.

Nobody likes this situation and it's either adjust or seek employment elsewhere.


Chip

[FONT face=Comic Sans MS size=3]youll fit in perfectly at freedom air[/FONT]----------------[/BLOCKQUOTE]

[FONT face=Comic Sans MS][/FONT]
 

ChairPrefRes

Member
Aug 19, 2002
89
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For God's sake and ours.please take some prozac Chip...USAirways problem is a USAirways problem not an indusrty problem...Every airline faces the same challenges as USAirways and some have it figured out better than others...U's problem is that while in BK ,revenues are going to be in the tank no matter what...U should plan for increased revenues once it emerges from BK...I'm sure the immediate problem of cash burn is serious...But U just has to suck it up till they emerge in March...The company is trying to use this problem to solve some long term productivty issues...This wont solve any short term problems and could backfire by losing the faith of the remaining employees...Than you have Eastern again because the employees will take it out on everybody...(including customers) and that will be the end of U...Bottom line is everybody just have to do the best job they can (which I think there doing) and management and Chip need to show some class and quit pistol-whipping those who are left. A little calm please!!!
 
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chipmunn

Guest
I believe people who lack respect and decorum post their comments because of an inability to post facts. Although some passengers book away from an airline in bankruptcy to protect their purchase, this is not the only problem during an airline formal reorganization.

Downsizing sucks and nobody likes it, but for those of you who believe the entire industry is not witnessing a meltdown go non-rev on US or other airlines.

Dave was an integral part of a team that successfully downsized NW and CO to profitability and through their partnership helped HP on a similar path. These are cases where airlines had excess capacity and eventually grew their operation. Every situation is different and it's a myth and the uninformed that think that some troubled airlines, which have shrunk and failed, prove this hypothesis true.

US Airways business plan is sound and due to the revenue shortfall will take additional time to be successful. I do not like this situation any better than anybody else, but unless labor helps out again there will be “no airlineâ€￾ to work for. For those who want to draw a “line in the sandâ€￾, I strongly recommend you file out your unemployment application and discuss the issue with your mortgage lender.

This industry will consolidate and those airlines willing to adjust to this difficult environment will be around to participate in this consolidation. US is involved in consolidation thoughts and wish I could elaborate, but I’m not willing to go to jail and discuss the issue with SEC regulators.

The choice is simple: Either we collectively help the company during the short-term crisis or we fail. We face difficult problems that can be solved. The question is will be like NW & CO or like TW & Pan Am? The decision is ours...

Chip
 

KCFlyer

Veteran
Aug 20, 2002
10,833
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www.usaviation.com
[P]
[BLOCKQUOTE][BR]----------------[BR]On 11/20/2002 8:59:00 AM chipmunn wrote:
[P]US Airways business plan is sound and due to the revenue shortfall will take additional time to be successful. I do not like this situation any better than anybody else, but unless labor helps out again there will be “no airlineâ€￾ to work for. For those who want to draw a “line in the sandâ€￾, I strongly recommend you file out your unemployment application and discuss the issue with your mortgage lender.[BR][BR]The choice is simple: Either we collectively help the company during the short-term crisis or we fail. We face difficult problems that can be solved. The question is will be like NW & CO or like TW & Pan Am? The decision is ours...[BR][BR]Chip[BR][BR][/P]----------------[BR][BR]For the umpteenth time...why oh why won't the company partner with the employees and try to do something about the revenue shortfall by at least attempting a restructuring of the fares? Employees can give back only so much before free travel as an only benefit isn't worth giving back anymore. The stancee of managment toward the revenue shortfall is akin to Butterfly McQueen in gone with the Wind...Miss Scarlett, Miss Scarlett, I don't know nuthin' bout increasing no revenues. If they'd try something hand in hand to address the revenue shortfall, perhaps labor groups who have given and are now asked for more might just feel like their sacrifices are helping. Keep going after costs without trying to increase demand and U soon will be gone with the wind.[/BLOCKQUOTE]
 

USAirBoyA330

Veteran
Aug 23, 2002
724
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Chip:

You said something before about Me Too rules and FA's. So with the productivity changes exactly how many Pilot positions can they eliminate and come out with a new pilot bid? You know....our staffing numbers are tied to the pilots so it would help when I am figuring out how many fellow F/A's I am voting out of a job. Most likely myself.
 

UAL777flyer

Veteran
Aug 20, 2002
730
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Black Wind,

First of all, I believe if you had read the thread correctly, you'd have noticed that the author of the article was alluding to having bought the round trip bus fare, not Chip. His comments were below that. Don't be so quick to slam someone.

Do you even possess the ability to debate someone's opinion and insight with your own? Or are you merely another one of the many intellectually challenged folks who seem to get off on being able to hurl insults and flaming rhetoric in this forum while hiding behind their message board anonymity?

Look, not everyone agrees with what Chip has to say. There are many times when I disagree with him. But I do so in a professional, respectful manner. Why can't you do the same? Chip posts his information in an attempt to keep as many people as possible informed about what's going on. If you don't like to read what he has to say, than refute his opinion with something intelligent instead of insults. Or just ignore it. But your flaming responses only serve to highlight your inability to effectively debate/defend your own opinion. I see you've only been a member a short time. Maybe you ought to re-read the etiquette guidelines again before your priveleges get revoked.

KCFlyer,

I highly suggest you look at US Airways system fare activity each and every day. If you don't think they're trying new fare strategies, than you're not paying attention. They are. United is. Every airline is. Just because the press isn't reporting it, doesn't mean it's not happening. It may not be in enough markets yet, but once the right formula is found, it gets rolled out across the system. But you can't approach airline pricing with a piss into the wind mentality. It takes careful analysis and testing. Everyone is so quick to slam airlines for not attempting new revenue enhancement ideas like they're sitting on their hands every day and doing nothing. It's ridiculous. Airlines are continually trying to find new ways to enhance revenue. But even with continued fare sales, the industry revenue situation is worsening each month. Fixing the revenue problem is simply not as easy as you make it out to be.
 

delldude

Veteran
Oct 29, 2002
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Downrange
www.youtube.com
this stuff is better than TV....i'm soory though,i must go rake leaves and cut the grass before i go to work.
 

KCFlyer

Veteran
Aug 20, 2002
10,833
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www.usaviation.com
UAL777flyer - do you mean the changing of airfares about 50 times a day as tweaking the system. Oh, , but I have checked U fares pretty much every day. One of their brainstorms turned a 2 hour nonstop for $1000 from CLT-MCI into a 16 hour CLT-RDU-PIT-MCI trip for $800. In another thread, someone pointed out that they dropped a $1,900 DEN-PHL fare to $300. Too bad it was going to cost them $330 to fly the seat. If 'testing a fare means leaving it out there for a couple of hours to see if anybody bites, well that's just not good enough. Fact is, you want the media attention. Look at AA and their new plan on selected routes. They're hanging their b*lls out for the world to see. It gets attention. It gets people thinking about them. You know, if the building were on fire, I'd be looking for a plan to save myself that was quick and bold. I sure as heck wouldn't call a meeting to brainstorm about the best exit strategy...I'd throw a freaking chair thru a window and climb out. Yeah, I might get cut, but it's something bold...it made a statement... and people noticed. You want the exposure that you're doing something bold. It's risk versus reward. In the good times, you've got the luxury of conducting a risk analysis. In an emergency, you don't. But it you dont try, you'll never know.
 

usfliboi

Veteran
Aug 20, 2002
2,070
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This airlines management has tried to sell this airline for a very long time chip! Theres no new news there!
 
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chipmunn

Guest
During the past few months US labor and management worked together to restructure the company. Management created a three-part business plan to improve liquidity, increase revenues and reduce costs. Much is this plan is moving forward with success; however, the industry is experiencing an unprecedented drop-off in revenue.

US has obtained access to $300 million of $500 million in debtor-in-possession financing, has a shrewd equity investor, and obtained conditional approval for a federal loan guarantee.

The company is beginning to improve revenues with additional RJ expansion beginning in December and the ALPA MEC will hold a Special Meeting tomorrow (November 21) to discuss reaching an agreement for further RJ expansion and resolving the Freedom Air issue. Management continues to work on implementing the UA code share program/alliance and the company has announced it will join the prestigious Star Alliance ahead of schedule in 2003.

All of these programs will improve revenue in the medium and long-term, but they will take time to implement and not provide significant short-term revenue. During the recent third quarter conference call CO CFO Jeff Mizer told analysts it took NW and CO four years to fully implement their alliance, which each airline said has added four points to their load factor. With the NW – CO alliance used as a benchmark, it is easy to see why it will take time for US to recognize incremental revenue from its UA and Star Alliance.

The US revenue improvements bode well for the medium and long-term, but do not significantly help during the short-term revenue crisis.

On the cost side of the business plan US has made progress with reducing expenses by greater than $1.3 billion per year. The company has obtained vendor, creditor, and aircraft lessor cuts of $425 to $475 million per year and stabilized the fleet at 279 aircraft. Unless there is another industry “shock event†the fleet should remain at 279, but if full-scale war breaks out in the Middle East or there is another terrorist attack the fleet could be further reduced to 245 aircraft.

Unfortunately, US and the other mature carriers are not meeting their revenue projections. Most observers knew September traffic would be soft because passengers had a fear of flying during the terrorist attack anniversary, but few people felt traffic would not return in the fall. Now the current industry business model does not expect traffic to return until the seasonally strong period of the second and third quarter of 2004, 16 months away.

From a fundamental perspective the industry has a capacity demand imbalance where there are too many flights chasing to few passengers. The supply and demand equation does not equal and recently CO CEO Gordon Bethune said the industry has 15 to 18 percent to much capacity, roughly the size of UA. The only way airlines will be able to raise fares is to reduce capacity, to permit higher load factors on remaining flights, which would then permit airlines to raise prices.

Generally, the industry has been able to hold down capacity and research shows total parked planes rose again in October. Late edition aircraft are accumulating at storage facilities as the entire industry braces for a protracted downcycle. Industry observers do not expect a decline in parked planes until the industry revenue environment shows signs of improvement.

However, in the case of US competitors are increasing capacity in the Arlington-based airlines key markets, such as DL RJ DCA and AA Eagle Shuttle expansion. These carriers are also holding up capacity and their downsizing plans until next year. Why? These airlines are purposely depressing US yields (and siphoning off traffic from US) in hopes US will bleed to death. With deeper pockets AA and DL are trying to force US to liquidate at which time they can “cherry pick†our assets, redistribute their flying, and return to profitability at the expense of US employees and other interested parties.

To me, this is an unacceptable conclusion to the US restructuring.

So what should US management do? Bury its head in the sand, enter denial, or address the industry economic reality?

US must obtain the DIP financing and loan guarantee that both require certain benchmarks. Without this financing US management has said it may not be able to formally restructure and thus eventually grow the business. The company cannot raise short-term revenues, has obtained as much relief as possible from non-labor stakeholders, and has no other recourse but to re-visit the cost side of the business plan with labor.

Nobody likes this situation and there will be further short-term pain if US is going to survive. Either labor and management work together to solve the short-term revenue/liquidity crisis, which will permit US to restructure, or we don’t. If we do work together there is every reason to believe we will have a bright future, but we must get through the next three months, emerge from bankruptcy, and obtain the remaining DIP financing/loan guarantee to prosper. It’s going to take every US employee to participate with management to address our cost issues with the current objective to not further reduce W-2, but to adjust productivity and retirement agreements to competitive levels.

If we do I believe US will be involved in an “interesting corporate transactionâ€, which was recently hinted at in a letter to all pilots by the vice-president of flight operations. US is in discussion about growing the airline in the future and there are unfolding discussions occurring, but for obvious reasons I cannot disclose the details. The only question is what carriers will be around to participate when this consolidation takes place?

Will it be US?

There is no question we face difficult issues and difficult problems, but these problems can be solved. In my opinion, there is little doubt US and its employees can have a prosperous future, provided we all work together to address this incredibly difficult period.

Chip
 

DLFlyer31

Senior
Aug 20, 2002
444
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KCFlyer,

The majors are trying out more reasonable fares and it continues to fail.

Example:

TLH-MDW on Delta
21 day Advanced purchase fare: $186
Walk-up fare: $380

Both of those fares seem pretty reasonable to me for a 900 mile trip. Of course, DL is offering these fares because of AAI. However, according to your logic with this reasonable pricing, DL should be doing great on this route. DL does this on hundreds of other routes as well and guess what....DL still loses a boatload of money. So now what do you recommend DL do?
 

KCFlyer

Veteran
Aug 20, 2002
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[P]
[BLOCKQUOTE][BR]----------------[BR]On 11/20/2002 4:03:35 PM DLFlyer31 wrote:
[P]KCFlyer,[BR][BR]The majors are trying out more reasonable fares and it continues to fail.[BR][BR]Example:[BR][BR]TLH-MDW on Delta[BR]21 day Advanced purchase fare: $186[BR]Walk-up fare: $380[BR][BR]Both of those fares seem pretty reasonable to me for a 900 mile trip. Of course, DL is offering these fares because of AAI. However, according to your logic with this reasonable pricing, DL should be doing great on this route. DL does this on hundreds of other routes as well and guess what....DL still loses a boatload of money. So now what do you recommend DL do?[/P]----------------[/BLOCKQUOTE]
[P][/P]That $380 fare is laden with change penalties, use it or lose it rules, no standby, etc. If one wanted an unrestricted ticket, it'll run you $1,264. Let's say that I can't make my return flight and I have to come back the next day. I can only assume (since your websites show nothing about what each segment is costing me) that I will be assessed the difference between the MDW-TLH one way leg is for walk up and the MDW-TLH segment I paid for. Delta's web site shows a one way MDW-TLH flight pricing out at $582. Half of my $380 fare is $190, so I am assuming I'll be paying the difference between $582 and $190, or $392. Then there's the hundred dollar change fee. So I'm paying out $492 additional dollars because I had to change my schedule. The other alternative is to let Delta keep my $190 and walk over to Airtran and buy a one way on them for either $90 or $184, depending on the time I need to leave. I still save $300 doing that. THose are bullsh*t fare games there. [BR][BR]THAT's what frustrates travellers...that's why I say airlines are DARING a business passenger to book a flight. Even that last minute fare doesn't guarantee that won't get charged out the *** should they make a change. Simplify the damn fares. Show me what the outbound leg costs and what the return leg costs. And don't toss in these bogus change fees. Charge a fare price without any games and you'll find that business travellers will not hesitate to pay
 
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chipmunn

Guest
USAirBoy330:

Estimating a specific job loss number that occur due to productivity changes cannot be determined until a TA is obtained. However, it appears some or all of the jobs for the pilot group may have already been lost.

The December pilot bid was based on increased utilization and about 4500 pilots. The company is furloughing 471 pilots in the first quarter, but keeping the December fleet count at 279. Management told the unions, including the AFA, the January schedule will under utilize the fleet to try and match demand with capacity. Therefore, dependent on how the productivity changes are implemented much of the pilot and F/A furloughs mya have already been announced.

After tomorrows ALPA MEC meeting, we will know more.

Chip