Merger is making converts
Skeptics impressed with progress at US Airways
12:00 AM CST on Saturday, March 11, 2006
By ERIC TORBENSON / The Dallas Morning News
TEMPE, Ariz. – For a deal dubbed Project Dumbbell by skeptics, the
merger last year of US Airways and America West Airlines has exceeded
expectations, turning investors and others into believers.
Investors are bullish on the profit potential in the merger between US
Airways and America West. An analyst with J.P. Morgan says the already
hot stock price may keep rising.
"We are exceptionally pleased about where we are right now," said Doug
Parker, chairman, president and chief executive of the combined
company, US Airways Group Inc., at the company's media day on Friday.
"A lot of people thought this wouldn't work," Mr. Parker said,
including a strategy for focusing on operations on each coast, called
Project Barbell. "But it has."
The company's stock, which started trading in September at $20 a share,
closed Friday at $33.26. Wall Street loves the company's potential to
generate profits, even with crude oil prices above $60 a barrel.
The stock price may go up some more, says Jamie Baker, an analyst with
J.P. Morgan. In a note to investors this week, US Airways was Mr.
Baker's top choice among low-cost airlines.
Mr. Baker wrote that the carrier's stock remains relatively cheap,
compared with other airlines, even though the company has more
potential for earnings growth than its rivals.
For Southwest Airlines Co., US Airways' surprising progress doesn't
pose a serious threat, but it does dim hopes for an easy expansion and
more pricing power in the markets where it overlaps with the carrier.
For example, Southwest's thirst for more gates and flights at
Philadelphia may not be quenched, because US Airways officials say
they're "more committed than ever" to the city.
Old rivals
Dallas-based Southwest had been the old US Airways' nemesis, nearly
running it out of Baltimore/Washington International Airport in the
1990s when the low-cost carrier expanded quickly there.
When Southwest launched service in 2004 to Philadelphia, a key hub for
the old US Airways, most analysts began writing obituaries for the
traditional carrier.
But with the merger last September, America West took over management
of the surviving carrier and shifted the headquarters to Arizona.
Now the carrier believes it is leading the domestic industry in revenue
growth and should enjoy 20 percent to 25 percent increases in revenue
per seat mile flown in coming months.
That performance comes despite US Airways' hubs – Phoenix, Las Vegas
and Philadelphia – all facing either strong or growing Southwest
schedules.
Las Vegas is currently Southwest's top city, and Phoenix tied with
Chicago for No. 2 in terms of daily flights.
"It's a gangbusters revenue environment out there right now, and we
really like our position," said Scott Kirby, executive vice president
of sales and marketing at US Airways.
Southwest chief executive Gary Kelly has said the merged US Airways
doesn't concern him because it can't match Southwest's low costs, so it
won't be able to price fares lower.
"They're not a threat to us," Mr. Kelly said last year. "We're going to
be the lowest-cost provider in our markets."
US Airways won't fight seat-for-seat against Southwest, he said.
Instead, it offers just a limited number of flights in markets where
Southwest has lots of capacity to keep loyal US Airways customers
happy.
More resources
By not tying up its aircraft in costly market share battles with
Southwest, US Airways has more resources to focus on building its
strong connecting hubs that are laden with business travelers who want
what Southwest doesn't have: assigned seats, first class and elite
flying privileges.
"We could pull off our first-class seats and cut our costs immediately
by 5 percent," Mr. Kirby said, but that would also cut a higher
proportion of revenue at the same time.
US Airways executives say they're confident they'll get higher average
fares competing against low-cost carriers such as Southwest.
Meanwhile, US Airways doesn't plan to fly head-to-head against
Southwest at its home airport, Dallas Love Field, should the airport
open up to long-haul flights if the Wright amendment were repealed.
"It doesn't appear to make much sense for us," Mr. Parker said.
Mr. Kirby added that the airline believes North Texas residents are
simply used to traveling from Dallas/Fort Worth International Airport,
not Love Field.
US Airways' merger is far from complete, and it's seen its share of
bumps.
The carrier had to fire 22 ground workers recently after a union fight
broke out in Philadelphia over how the two workforces would integrate.
Published reports said chairs were thrown in the fight, and airline
labor experts have said more skirmishes might erupt as employees battle
for seniority in the new carrier.
The two carriers' technology systems are far from integrated, but
should yield $100 million in annual savings.
"Right now I feel like Noah – I've got two of everything," said Joe
Beery, chief information officer.
Still, savings from combining the two carriers is greater than
expected, approaching $300 million annually instead of the $250 million
originally predicted.
Revenue is also exceeding last year's projections, helped by a sharp
reduction in capacity by competitors to give remaining carriers much
more pricing power.
"We're not here to declare victory yet," Mr. Parker said. "But we've
really come a long way in short time."
Skeptics impressed with progress at US Airways
12:00 AM CST on Saturday, March 11, 2006
By ERIC TORBENSON / The Dallas Morning News
TEMPE, Ariz. – For a deal dubbed Project Dumbbell by skeptics, the
merger last year of US Airways and America West Airlines has exceeded
expectations, turning investors and others into believers.
Investors are bullish on the profit potential in the merger between US
Airways and America West. An analyst with J.P. Morgan says the already
hot stock price may keep rising.
"We are exceptionally pleased about where we are right now," said Doug
Parker, chairman, president and chief executive of the combined
company, US Airways Group Inc., at the company's media day on Friday.
"A lot of people thought this wouldn't work," Mr. Parker said,
including a strategy for focusing on operations on each coast, called
Project Barbell. "But it has."
The company's stock, which started trading in September at $20 a share,
closed Friday at $33.26. Wall Street loves the company's potential to
generate profits, even with crude oil prices above $60 a barrel.
The stock price may go up some more, says Jamie Baker, an analyst with
J.P. Morgan. In a note to investors this week, US Airways was Mr.
Baker's top choice among low-cost airlines.
Mr. Baker wrote that the carrier's stock remains relatively cheap,
compared with other airlines, even though the company has more
potential for earnings growth than its rivals.
For Southwest Airlines Co., US Airways' surprising progress doesn't
pose a serious threat, but it does dim hopes for an easy expansion and
more pricing power in the markets where it overlaps with the carrier.
For example, Southwest's thirst for more gates and flights at
Philadelphia may not be quenched, because US Airways officials say
they're "more committed than ever" to the city.
Old rivals
Dallas-based Southwest had been the old US Airways' nemesis, nearly
running it out of Baltimore/Washington International Airport in the
1990s when the low-cost carrier expanded quickly there.
When Southwest launched service in 2004 to Philadelphia, a key hub for
the old US Airways, most analysts began writing obituaries for the
traditional carrier.
But with the merger last September, America West took over management
of the surviving carrier and shifted the headquarters to Arizona.
Now the carrier believes it is leading the domestic industry in revenue
growth and should enjoy 20 percent to 25 percent increases in revenue
per seat mile flown in coming months.
That performance comes despite US Airways' hubs – Phoenix, Las Vegas
and Philadelphia – all facing either strong or growing Southwest
schedules.
Las Vegas is currently Southwest's top city, and Phoenix tied with
Chicago for No. 2 in terms of daily flights.
"It's a gangbusters revenue environment out there right now, and we
really like our position," said Scott Kirby, executive vice president
of sales and marketing at US Airways.
Southwest chief executive Gary Kelly has said the merged US Airways
doesn't concern him because it can't match Southwest's low costs, so it
won't be able to price fares lower.
"They're not a threat to us," Mr. Kelly said last year. "We're going to
be the lowest-cost provider in our markets."
US Airways won't fight seat-for-seat against Southwest, he said.
Instead, it offers just a limited number of flights in markets where
Southwest has lots of capacity to keep loyal US Airways customers
happy.
More resources
By not tying up its aircraft in costly market share battles with
Southwest, US Airways has more resources to focus on building its
strong connecting hubs that are laden with business travelers who want
what Southwest doesn't have: assigned seats, first class and elite
flying privileges.
"We could pull off our first-class seats and cut our costs immediately
by 5 percent," Mr. Kirby said, but that would also cut a higher
proportion of revenue at the same time.
US Airways executives say they're confident they'll get higher average
fares competing against low-cost carriers such as Southwest.
Meanwhile, US Airways doesn't plan to fly head-to-head against
Southwest at its home airport, Dallas Love Field, should the airport
open up to long-haul flights if the Wright amendment were repealed.
"It doesn't appear to make much sense for us," Mr. Parker said.
Mr. Kirby added that the airline believes North Texas residents are
simply used to traveling from Dallas/Fort Worth International Airport,
not Love Field.
US Airways' merger is far from complete, and it's seen its share of
bumps.
The carrier had to fire 22 ground workers recently after a union fight
broke out in Philadelphia over how the two workforces would integrate.
Published reports said chairs were thrown in the fight, and airline
labor experts have said more skirmishes might erupt as employees battle
for seniority in the new carrier.
The two carriers' technology systems are far from integrated, but
should yield $100 million in annual savings.
"Right now I feel like Noah – I've got two of everything," said Joe
Beery, chief information officer.
Still, savings from combining the two carriers is greater than
expected, approaching $300 million annually instead of the $250 million
originally predicted.
Revenue is also exceeding last year's projections, helped by a sharp
reduction in capacity by competitors to give remaining carriers much
more pricing power.
"We're not here to declare victory yet," Mr. Parker said. "But we've
really come a long way in short time."
