The Future Is Now The Past
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Maybe they meant Greek easter? Nope, that was in May. 😀Cosmo said:
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Cosmo said:Well, Passover was in late April -- maybe that's what he meant.
[post="274975"][/post]
So he also didn't mean "lend", he meant "lent"? 😛
He, didja get any "balloons" for Lent?
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Some true facts from audited financial reports by Deloitte and Touche
1. Salary and related expenses (in millions)
2002 2003 2004
$7,029 $5,264 $5,006
*****Net reduction since 2002 of $2,023,000,000. (Yes $2+billion dollars)
Net 28% over two years!
2. The 5 Highest compensated employees at United Airlines for same period
Year Salary Bonus
Tilton 2004 $756,832 $366,393 Increase $377,476
2003 $745,749 -0-
2002 $312,314 $3,000,000
Hacker 2004 $582,000 $150,413 Increase $150,413
2003 $582,000 (must have topped)
2002 $524,100
Brace 2004 $514,000 $173,403 Decrease $6,163
2003 $461,066 $232,500
2002 $445,717
McDonald 2004 $525,998 $177,602 Increase $33,799
2003 $443,301 $226,500
2002 $301,818
Tague 2004 $541,330 $444,969 Increase $650,768
2003 $335,531
(not employed by UA in 2002 but ATA)
(replaced Lovejoy on list of top 5)
Lovejoy 2003 $225,323 $212,500 Increase $548,476
(utilized in total top 5 compensation increase)
Total Increase 2003 to 2004 in salary and bonus
$1,104,001.00 35% net pay increase for top 5
How many Pilots would that pay for? (to fly more flights)
How many F/A's? (to fly more flights)
How many mechanics? (to work on planes)
How many CSR's? (to assist the customers)
How many etc? (etc.)
3. On the revenue side, interesting points as far as UAX is concerned.
2003 2004
Operating revenue:Regional Affiliates(UAX) $508,000,000 $1,927,000,000
Operating expense:Regoinal Affiliates(UAX) $634,000,000 $2,425,000,000
Net together (loss) ($134,000,000) ($498,000,000)
Professional Fees: (BK Lawyers, exp) $142,000,000 $160,000,000
A $22,000,000 increase?
The list goes on and on and on..........
These are an interpretation of what I read from the financials. I have spent the last four years going to school, while I was working for United Airlines as a CSR, studying to become an accountant. I am still looking for that elusive first post college job in my field. These numbers and the data I extrapolated are a first brush broad interpretation and I encourage you to read all the facts and correct any misstatements I have made as I do not work for Deloitte and Touche, nor did I work in accounting for United Airlines. I have hopefully placed a link to the Adobe PDF file I gained the information from.
These are highlights, and I want it known by all....I no longer work for UA, but I do hope for the continued success of United Airlines. But I feel that until there is a clean sweep at WHQ and this type of raises and bonuses for senior leaders, while the front line and "operating employees" are under attack for wages and benefits, nothing will change. Good employees will continue to leave and seek jobs outside of the industry because they can no longer afford to subsidize United Airlines any longer.
I'm sure there will be many banks and financial instutitions willing to supply United Airlines money to exit bankruptcy, but at a cost. When the costs of "salaries and related costs" have come down a staggering $2billion in two years, and even more after the last round of consessions, dump the pensions, add a little revenue and the company will be back in the black, even more so than they were during ESOP. Fuel will remain high, given! But fares are starting to creep up since NW is allowing increases to stick for the first time in years. It is only a matter of time.
Successful like WN? Never! Return cash to investors over the long haul? Maybe, but not likely. Labor relation problems in 2009/2010? You bet! But will UA make it to be around for my grandchildren to go to college, (at least 40 years away) who knows, but I bet that I, like many others, will be watching.
Good Luck to all the dedicated United Airline Employees
The link to the page where I did the research
1. Salary and related expenses (in millions)
2002 2003 2004
$7,029 $5,264 $5,006
*****Net reduction since 2002 of $2,023,000,000. (Yes $2+billion dollars)
Net 28% over two years!
2. The 5 Highest compensated employees at United Airlines for same period
Year Salary Bonus
Tilton 2004 $756,832 $366,393 Increase $377,476
2003 $745,749 -0-
2002 $312,314 $3,000,000
Hacker 2004 $582,000 $150,413 Increase $150,413
2003 $582,000 (must have topped)
2002 $524,100
Brace 2004 $514,000 $173,403 Decrease $6,163
2003 $461,066 $232,500
2002 $445,717
McDonald 2004 $525,998 $177,602 Increase $33,799
2003 $443,301 $226,500
2002 $301,818
Tague 2004 $541,330 $444,969 Increase $650,768
2003 $335,531
(not employed by UA in 2002 but ATA)
(replaced Lovejoy on list of top 5)
Lovejoy 2003 $225,323 $212,500 Increase $548,476
(utilized in total top 5 compensation increase)
Total Increase 2003 to 2004 in salary and bonus
$1,104,001.00 35% net pay increase for top 5
How many Pilots would that pay for? (to fly more flights)
How many F/A's? (to fly more flights)
How many mechanics? (to work on planes)
How many CSR's? (to assist the customers)
How many etc? (etc.)
3. On the revenue side, interesting points as far as UAX is concerned.
2003 2004
Operating revenue:Regional Affiliates(UAX) $508,000,000 $1,927,000,000
Operating expense:Regoinal Affiliates(UAX) $634,000,000 $2,425,000,000
Net together (loss) ($134,000,000) ($498,000,000)
Professional Fees: (BK Lawyers, exp) $142,000,000 $160,000,000
A $22,000,000 increase?
The list goes on and on and on..........
These are an interpretation of what I read from the financials. I have spent the last four years going to school, while I was working for United Airlines as a CSR, studying to become an accountant. I am still looking for that elusive first post college job in my field. These numbers and the data I extrapolated are a first brush broad interpretation and I encourage you to read all the facts and correct any misstatements I have made as I do not work for Deloitte and Touche, nor did I work in accounting for United Airlines. I have hopefully placed a link to the Adobe PDF file I gained the information from.
These are highlights, and I want it known by all....I no longer work for UA, but I do hope for the continued success of United Airlines. But I feel that until there is a clean sweep at WHQ and this type of raises and bonuses for senior leaders, while the front line and "operating employees" are under attack for wages and benefits, nothing will change. Good employees will continue to leave and seek jobs outside of the industry because they can no longer afford to subsidize United Airlines any longer.
I'm sure there will be many banks and financial instutitions willing to supply United Airlines money to exit bankruptcy, but at a cost. When the costs of "salaries and related costs" have come down a staggering $2billion in two years, and even more after the last round of consessions, dump the pensions, add a little revenue and the company will be back in the black, even more so than they were during ESOP. Fuel will remain high, given! But fares are starting to creep up since NW is allowing increases to stick for the first time in years. It is only a matter of time.
Successful like WN? Never! Return cash to investors over the long haul? Maybe, but not likely. Labor relation problems in 2009/2010? You bet! But will UA make it to be around for my grandchildren to go to college, (at least 40 years away) who knows, but I bet that I, like many others, will be watching.
Good Luck to all the dedicated United Airline Employees
The link to the page where I did the research
WorldTraveler
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You'll find the following assessment of UAL honest and right in line w/ what I've been saying. I hate it when "experts" agree w/ me.
http://www.forbes.com/services/2005/06/03/...ootix&referrer=
BTW - I noticed Delta is putting Song into the Boston transcons which means nearly all of UA's BOS/NYC/WAS transcons have low fare competition in them.
I'll be happy to get the CASM info next week...but I'm outa here for the weekend. If you just can't wait, you can pull it up from SEC filings or the investor relations sections of each carriers website.
Oh, Fly. You may have missed that DL renegotiated its debt covenants this week. Too bad UA management didn't figure out how to renegotiate debt BEFORE they filed for bankruptcy. You may have heard that Delta's Mr. G said he doesn't plan to go back to his employees for more money. THAT must really hurt.
and, yes, Kroger is my favorite grocer. They're sort of a legacy that has managed to reinvent themselves. And I believe they have done it without going into bankruptcy... but that's a discussion for another day.
http://www.forbes.com/services/2005/06/03/...ootix&referrer=
BTW - I noticed Delta is putting Song into the Boston transcons which means nearly all of UA's BOS/NYC/WAS transcons have low fare competition in them.
I'll be happy to get the CASM info next week...but I'm outa here for the weekend. If you just can't wait, you can pull it up from SEC filings or the investor relations sections of each carriers website.
Oh, Fly. You may have missed that DL renegotiated its debt covenants this week. Too bad UA management didn't figure out how to renegotiate debt BEFORE they filed for bankruptcy. You may have heard that Delta's Mr. G said he doesn't plan to go back to his employees for more money. THAT must really hurt.
and, yes, Kroger is my favorite grocer. They're sort of a legacy that has managed to reinvent themselves. And I believe they have done it without going into bankruptcy... but that's a discussion for another day.
So GE gives Delta a temporary reprieve and all of its problems (and there are many) are suddenly fixed? Are you kidding? GE knew they HAD to because if they hadn't, DAL would have been in violation of the financial performance covenants GE negotiated with them in the first place (see DAL 1st QTR 10Q). GE didn't give them a break just because DAL is a wonderful company- GE did it because they know that if they hadn't, DAL would probably have been in bankruptcy by the end of the year putting their initial investments at risk. Now they've postponed a bankruptcy filing until 2006. Maybe they'll figure out what tough decisions they're going to have to make by then?
I can't wait to see your CASM's, World with the source of the info. I asked you the last time you said that UAL's CASM's were some of the highest in the industry and I corrected you, but I have yet to see all your info. Still waiting. While I'm waiting, I'll tell you that our CASM'S were in the bottom half of the top 10 airlines in the U.S., and that was BEFORE the pension cuts and the ongoing cost-cutting occurring as I type.
Song is adding some transcons out of BOS and BDL. I guess when they get a competitive cost structure in place someday, I'm sure they'll put the fear of God into us and JetBlue and US Air and Airtran. Until then......
I can't wait to see your CASM's, World with the source of the info. I asked you the last time you said that UAL's CASM's were some of the highest in the industry and I corrected you, but I have yet to see all your info. Still waiting. While I'm waiting, I'll tell you that our CASM'S were in the bottom half of the top 10 airlines in the U.S., and that was BEFORE the pension cuts and the ongoing cost-cutting occurring as I type.
Song is adding some transcons out of BOS and BDL. I guess when they get a competitive cost structure in place someday, I'm sure they'll put the fear of God into us and JetBlue and US Air and Airtran. Until then......
Scuba-
All of that information can be found on UAL's SEC filings, particularly the 10Q's and the company's annual report under 'investor relations' on the UAL website.
As far as upper management compensation goes, yeah they make more money than a CSR or a pilot or a mechanic or whatever, but if you got your MBA after your accounting degree and you're a smart guy, guess what? You could be making that kind of money too! A better comparison to make, I think, is to look at TOTAL executive compensation for companies with 15B in annual revenue +/- and then see if their compensation is out of line with their counterparts?
UAL express is a money losing enterprise for us no doubt. And I know guys like World will tell you that UAL only knows how to cut labor and there's no business plan (one of my favorites) but Express is a good example. For instance, notice how Air Wisconsin is going away over the next year? Air Wisconsin is one of the most expensive regionals out there and they are slowly being replaced. That saves money, but the full effect won't be seen for months!
High bankruptcy fees? Yup! We have spent 100's of millions on them, sometimes in large one time expenses included in our NET losses. That's something you have to extract out of a post bankruptcy UAL when you look at how much we're 'losing.' That's part (and only part!) of the reason why our monthly results look so badly. Subtract out things like bankruptcy fees, one time bankruptcy expenses, depreciation, and all we need is fuel to come down a bit and we're profitable, or certainly much better off than most of our competition. That's why we've had little difficulty finding exit financing in my opinion.
All of that information can be found on UAL's SEC filings, particularly the 10Q's and the company's annual report under 'investor relations' on the UAL website.
As far as upper management compensation goes, yeah they make more money than a CSR or a pilot or a mechanic or whatever, but if you got your MBA after your accounting degree and you're a smart guy, guess what? You could be making that kind of money too! A better comparison to make, I think, is to look at TOTAL executive compensation for companies with 15B in annual revenue +/- and then see if their compensation is out of line with their counterparts?
UAL express is a money losing enterprise for us no doubt. And I know guys like World will tell you that UAL only knows how to cut labor and there's no business plan (one of my favorites) but Express is a good example. For instance, notice how Air Wisconsin is going away over the next year? Air Wisconsin is one of the most expensive regionals out there and they are slowly being replaced. That saves money, but the full effect won't be seen for months!
High bankruptcy fees? Yup! We have spent 100's of millions on them, sometimes in large one time expenses included in our NET losses. That's something you have to extract out of a post bankruptcy UAL when you look at how much we're 'losing.' That's part (and only part!) of the reason why our monthly results look so badly. Subtract out things like bankruptcy fees, one time bankruptcy expenses, depreciation, and all we need is fuel to come down a bit and we're profitable, or certainly much better off than most of our competition. That's why we've had little difficulty finding exit financing in my opinion.
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ualdriver said:
A discussion for another time, that goes beyond the bounds of UAL or even the entire airline industry, is the trend in senior executive compensation over the last 25 or so years in comparison to other employees.
Personally, I believe the increase in CEO compensation from 42 times the average worker's pay in 1980 to 358 times the average worker's pay in 2004, (after peaking at 531x in 2000 at the end of the bull market) is unhealthy for the economy and for society as a whole, and reflects a distortion of normal market forces.
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You make it sound like these Song flights will completely dry up United's transcon revenue streams. In reality, United has been dealing with the LCCs on the transcon routes for quite some time, and has learned how to cope with them. I guess you missed the announcements about America West flying BOS/JFK/IAD-LAX/SFO, JetBlue flying BOS/JFK/IAD-LGB/SAN/OAK/SJC/SMF, and Independence Air flying IAD-LAX/SAN/SFO/SJC/SEA, to name only three LCCs.WorldTraveler said:
Let's remember that United and Song are aimed at entirely different market segments on the JFK transcons, and that's true to a lesser degree on the BOS transcons as well. In time we'll see which carrier picked the more profitable market segment. Let's also remember that Song doesn't even compete against United on the IAD transcons, and indeed Song beat a quick retreat in April 2004 after competing with United on the IAD-MCO route for less than a year.
Let me save you the trouble. As best as I can determine from carrier press releases showing their first quarter 2005 financial results, the mainline CASMs (excluding special items) are as follows:WorldTraveler said:
AA - 9.80¢
CO - 10.36¢
DL - 9.98¢
NW - 13.57¢ (although this seems high)
UA - 10.12¢
US - 10.89¢
As you can see, this doesn't support your claim that "UA's unit costs (CASM) are still above the four solvent airlines" as you posted yesterday. Indeed, United's CASM is right in the middle of the pack and better than three of its five legacy competitors. And incidentally, continuing to refer to Delta as one of the four "solvent" legacy carriers is becoming more and more untenable given the actions that Delta is taking to preserve its liquidity (see below).
I wouldn't be so quick to hold Delta up as the poster child for everything that going right with the legacy carriers. While Delta did indeed renegotiate two of its debt agreements earlier this week, I don't believe those actions are anything to brag about. According to this Reuters article, Delta had its EBITDAR threshholds lowered and its minimum unrestricted cash level raised by GE and AMEX. Left unsaid was what happened to the interest rates on these loans -- but I'm pretty sure they didn't go down. These changes to the loan terms weren't made because Delta's financial results have seen significant improvements -- rather, it was done to keep Delta from violating its loan covenants, which would have caused a cascading series of cross-default notices from the holders of Delta's other $20 Billion in debt and likely pushed the carrier into Chapter 11 proceedings fairly quickly. Delta simply bought itself some short-term relief.WorldTraveler said:
I would have thought you would have understood the reality behind these actions and therefore been more concerned about Delta's future. But your comment above almost sounds happy (or perhaps naive) at this turn of events. You do know better, don't you?
A different perspective.
Let me walk you through a chronology, and see if any of it sounds familiar.
1. U management tells labor, give us concessions, or we go BK.
2. Because the talks didn't keep management's impossible deadline, U entered BK.
a. U emphasized that anyone entering BK with an 1113© letter (basically,
concessions) would NOT be approached during BK for additional
concessions. ALPA caved prior to BK, and the rest of the unions
capitulated shortly thereafter. The rush was ON to get a letter.
The company promised, in writing, after each letter was signed, that each
union would NOT BE APPROACHED for further concessions.
3. The company obtained roughly 85% of the ask during the 1113 rounds. So in
BK, the company obtained 'consensual' concessions from every union on
the property.
4. While still in BK, the company came back and asked for the other 15%. Guess
what? They got it. From EVERY union on the property. This time, the threat was
a hint of liquidation.
5. Within two years of emergence from BK, U again files Chapt 11. Now the threat
is imminent liquidation.
6. U announces wedding plans with HP, where my guess is addtional concessions
will be asked for, and obtained.
Give or take, that seems to be the script UA is following, too.
As for the why, I was always of the opinion Bush used the ATSB to lower labor costs, and I have read some conservative writers who agree. With the virus successfully finding a host at U, the plan is for it to spread to all of the carriers. Ultimately, even WN will not be immune.
First it was the steel industry - USWA
Now, the air carriers - ALPA, AFA, IAM
And you can already see it shaping up for the auto industry, and the UAW.
JMHO.
Let me walk you through a chronology, and see if any of it sounds familiar.
1. U management tells labor, give us concessions, or we go BK.
2. Because the talks didn't keep management's impossible deadline, U entered BK.
a. U emphasized that anyone entering BK with an 1113© letter (basically,
concessions) would NOT be approached during BK for additional
concessions. ALPA caved prior to BK, and the rest of the unions
capitulated shortly thereafter. The rush was ON to get a letter.
The company promised, in writing, after each letter was signed, that each
union would NOT BE APPROACHED for further concessions.
3. The company obtained roughly 85% of the ask during the 1113 rounds. So in
BK, the company obtained 'consensual' concessions from every union on
the property.
4. While still in BK, the company came back and asked for the other 15%. Guess
what? They got it. From EVERY union on the property. This time, the threat was
a hint of liquidation.
5. Within two years of emergence from BK, U again files Chapt 11. Now the threat
is imminent liquidation.
6. U announces wedding plans with HP, where my guess is addtional concessions
will be asked for, and obtained.
Give or take, that seems to be the script UA is following, too.
As for the why, I was always of the opinion Bush used the ATSB to lower labor costs, and I have read some conservative writers who agree. With the virus successfully finding a host at U, the plan is for it to spread to all of the carriers. Ultimately, even WN will not be immune.
First it was the steel industry - USWA
Now, the air carriers - ALPA, AFA, IAM
And you can already see it shaping up for the auto industry, and the UAW.
JMHO.
Sorry for the chopped up text, guys. I moved some stuff around while typing it up on the first run, and it looked fine before I submitted it.
It sure doesn't look fine now!
I'd edit it, but it'd probably turn out worse :blink:
It sure doesn't look fine now!
I'd edit it, but it'd probably turn out worse :blink:
WorldTraveler
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Your costs are close Cosmo, but I get the cigar. See below.
Despite ualdriver's eternal optimism and desire to deflect reality, I and the business press have many reasons to doubt that UA has what it takes to be viable. Yes, UA has made a lot of progress but competitors have simply done a better job of turning their companies around and have alienated a lot fewer stakeholders in the process.
There are several sets of statistics that I think we need to ALL consider and to which I keep returning: costs and revenues.
The other set of statistics that determine whether a company survives involve liquidity and the balance sheet. All of the legacy airlines have severely damaged their balance sheets over the past few years; only AA/AMR has a relatively decent cash stash and reasonably competitive costs. I’ve never doubted that DL’s balance sheet is badly damaged but you all fundamentally miss the point when you assume that DL will end up in bankruptcy. Companies end up in bankruptcy because they cannot fund their obligations; Delta has been able to obtain the cash needed to fund its turnaround and the waivers from those lenders because everyone recognizes that ending up in bankruptcy hurts EVERYONE (just ask UAL’s lenders). Everyone has every incentive for DL and every other carrier to reorganize outside of bankruptcy. Even FlyI managed to renegotiate their obligations outside of bankruptcy and they are in far worse shape than any legacy airline.
On a unit cost (CASM) basis, each of the six legacy airlines reported the following costs to the for the first quarter of 2005:
CASM Change (year over year)
AA 9.92 +4.5%
CO 10.36 +7.0
DL 9.98 -3.9
NW 10.97 +7.2
UA 10.12 +2.6
US 10.89 -6.8
From the CASM perspective, AA and DL are the only two airlines that have sub-10 CASMs, a very remarkable accomplishment considering that Delta only began its transformation plan on Dec 1, 2004 with the implementation of its pilot agreement. AA started dramatically reducing costs nearly 2 years and UA and US have had the benefit of being in bankruptcy to reduce costs. AA has a near 10% CASM advantage over UA, it’s most direct network competitor while DL has a near 10% CASM advantage over US as its closest network competitor. It is also notable that Delta and US are the only two carriers that reduced unit costs in 1Q 2005 vs 1Q 2004.
There are a lot of people who will argue that CASMs have to be stage length adjusted in order to reflect the types of operations in which each carrier is engaged. It should be expected that DL and US will have higher costs given their shorter operations which are also more domestic oriented than other carriers (DL and US both derive approximately 20% of their revenues from int’l operations vs 30% for NW and AA and 40% or more for CO and UA). Average passenger trip by mileage, from DOT data.
AA 1412 miles
CO 1541
DL 1004
NW 1319
UA 1625
US 949
Mileage adjustments to CASM is almost always done with a bias to one particular carrier or another so I don’t really like to see mileage adjusted CASMs. Given the length of haul data above, DL and US have a cost advantage relative to other carriers. However, since the east coast is the most competitive market today (probably in the world), DL and US management have reduced their costs in order to survive and that is apparent in their relative cost advantage compared to the other four longer haul carriers.
Management at each airline must match costs with revenues for each region.
Eclat Consulting regularly prepares for Aviation Daily a comparison of RASM vs CASM by region (Domestic, Atlantic, Pacific, Latin). The most recent data released and analyzed is 4Q2004. As of the end of 2004, DL, NW, and UA have had comparable system RASM vs CASM (PASM – profit/loss per ASM if you like) consistently through the end of 2004. AA, CO, and US have had PASMs at about the half that rate.
Several things are notable from this data (which tracks closely to previous quarters):
- AA, CO, and DL are profitable on their Pacific operations, although they are much smaller than dominant carriers NW and UA.
- AA, CO, and US (!) make money on their Atlantic operations.
- CO is profitable in every international segment but loses money on its domestic operations at a rate of about 15%.
- NW and UA are the only carriers that lost money in every segment.
- NW’s loses on the Pacific at a rate over six times higher than United. NW also has the highest loss rate over the Atlantic.
- No carrier is profitable domestically although AA and US are in a better shape than the other four.
- UA has the worst domestic losses with a negative margin of nearly 23%. This rate of loss is the highest of all carriers in all regions.
This data is insightful because it is the best way to correlate costs and revenues with the regions served by each carrier, where carrier comparisons are more relevant.
The implications are:
- AA has reduced costs across its system and is profitable in Atlantic and Pacific operations and is on the lower end of the scale with respect to domestic losses. AA is well positioned to compete.
- CO’s strategy of becoming a heavily international carrier is paying off. Although they lose money domestically at a similar rate as DL, they have tapped some of the world’s best international markets – most of which are from NYC. CO is well positioned to compete internationally but still must get costs down in order to compete domestically, esp. given that CO’s domestic strategy is to skim off the highest yielding passengers.
- DL has to get costs down across the board but really has middle of the pack performance in all of its regions. Nonetheless, DL’s domestic costs – surpassed only by AA.
- NW is in the unenviable position of losing more money in its key market segment (the Pacific) than any other airline. NW management’s urge to update their international aircraft is the apparent result and obviously overdue.
- UA’s strategy of becoming more international reflects its domestic losses and its comparatively good international performance . Although no UA international region is profitable, it had the smallest unit losses of any carrier in its primary international region – followed closely by AA’s Latin region. Nevertheless, no US airline can be profitable if they cannot manage costs domestically. No US airline has yet to achieve even 50% of its revenues internationally.
- US’ profit/loss rate for each region compares favorably with other carriers. Nonetheless, US’ domestic costs are still the highest of any carrier.
One final note on costs. These results reflect one quarter, although the trends are similar across other time periods. It should also be noted that as of the fourth quarter 2004, DL had just begun its transformation plan while NW has still not significantly reduced costs from all stakeholders. AA has probably done the best job of reducing costs across the board. Despite a number of years in bankruptcy, UA has not achieved industry leading costs in any segment while US is a cost leader in both the Atlantic and Latin regions. However, US’ high domestic costs make you wonder if they are properly burdening their Atlantic and Latin regions with the appropriate costs. CO shows a similarly large disparity between its domestic and international costs.
Let’s turn to revenues.
I have spoken often of the revenue trends over the past five years. Derived from each airline’s annual reports, here is 2004 vs 2000 revenue. Revenue is that of the parent corporation and not just the mainline operations in order to capture revenue from regional carrier arrangements and non-transportation revenue, where many airlines obtain significant revenues.
AA 95%
CO 98
DL 90
NW 89
UA 82
US 77
It is not surprising that the two lowest percentages belong to the two bankrupt carriers while the two highest numbers belong to the two airlines considered to be in the best shape. It is obvious that, even with comparable costs, generating and maintaining revenue is of utmost importance and is the real determinant of long-term viability.
From a revenue perspective, several things can be noted:
- AA, CO, NW, and UA were most affected by Delta’s fare simplification, the results of which will be seen throughout the remainder of the year. Given that DL has the highest percentage of revenue in LCC competitive markets, it made sense for them but simplifares could be a powerful competitive weapon in dealings with other legacy and low cost carriers. Ironically, simplifares probably helped US in reducing the incentive for LCCs to invade its markets.
- LCC growth continues to erode domestic fares, although price increases have somewhat offset the affect. The impact of LCC growth is not equal for all carriers. DL has very few significant markets which can be further eroded by LCCs. UA and US are currently facing LCC onslaught in many of the remaining markets which were not competitive with LCCs prior to this year. AA, CO, and NW are all highly vulnerable to future LCC growth.
- All carriers are growing their international operations but LCC competition in international markets could be coming soon.
While there is a lot of data and perspective here, the bottom line is:
AA has managed costs well, is profitably serving many international markets but is vulnerable to LCC growth at DFW and in transcon markets.
CO is successfully becoming one of the most international of the US airlines and has domestic operations in large cities. CO continues to be on the high end of the rate of domestic losses, possibly indicating that its strategy of skimming off the highest yielding passengers is not a viable strategy now that LCC pricing has spread across the country.
DL’s costs are coming down and they should fall to legacy carrier leading levels by the end of the year based on statements from DL’s officers. DL’s domestic revenue is growing and DL is entering/expanding markets such as the transcons and mid-Atlantic markets previously dominated by AA, UA, and US. DL’s international growth is slower than other carriers.
NW has high costs systemwide, high losses to Asia and Europe and faces labor conflicts that are necessary if costs are to be reduced. NW has a healthy bank balance which might be just as damaged in its reorganization attempts as DL’s was a year ago.
UA still faces hefty losses and at present only has a reasonable hope of being viable in its international operations despite having had 2 ½ years to cut costs in bankruptcy. History shows that shrinking domestic operations has never led to profitability for any legacy airline. However, UA still has access to some of the best domestic and international markets in the world which will attract investors.
US, like UA, has massively cut costs and probably could be a survivor if competitors would just quick picking it apart!
At the beginning and end of the day, UA is still very far from being a viable airline. They very well may attract financing to get out of bankruptcy but they have fundamental problems with their costs and revenues which other airlines simply have overcome or are overcoming much faster. Given that the global aviation industry is getting hotter by the minute, there is less and less incentive for investors to put up with or invest in US airlines that can’t make it. We haven’t seen much movement in the legacy sector of the US airline industry because just about everyone has been moving in lock step. There are now considerable differences in the financial performance of US legacies, exactly what has needed to happen in order for a shakeout to occur.
As for the transcons, of course Song won’t take down United airlines all by itself. You also fail to mention that Independence is in the IAD transcons and they are doing far more damage than Song could possibly do. It will take months for us to see DOT data which will detail the impact of Song’s entrance into the BOS and JFK transcons but I can very safely say that AA and UA cannot be viable on the transcons if DL is successful in siphoning off or significantly diluting coach revenues. Song has a competitive schedule, a superior product, low fares, and lots of seats to fill – exactly the wrong formula for two airlines that use high cost, premium configured aircraft.
I have not and still do not slight UA if they can turn their ship around. However, despite having access to the world’s greatest routes and the benefit of bankruptcy, UA has still not become a viable airline while others are doing exactly that.
It’s high time for United to do what it takes to succeed but it involves far more than just picking up a couple billion dollars in financing and getting out of bankruptcy.
Despite ualdriver's eternal optimism and desire to deflect reality, I and the business press have many reasons to doubt that UA has what it takes to be viable. Yes, UA has made a lot of progress but competitors have simply done a better job of turning their companies around and have alienated a lot fewer stakeholders in the process.
There are several sets of statistics that I think we need to ALL consider and to which I keep returning: costs and revenues.
The other set of statistics that determine whether a company survives involve liquidity and the balance sheet. All of the legacy airlines have severely damaged their balance sheets over the past few years; only AA/AMR has a relatively decent cash stash and reasonably competitive costs. I’ve never doubted that DL’s balance sheet is badly damaged but you all fundamentally miss the point when you assume that DL will end up in bankruptcy. Companies end up in bankruptcy because they cannot fund their obligations; Delta has been able to obtain the cash needed to fund its turnaround and the waivers from those lenders because everyone recognizes that ending up in bankruptcy hurts EVERYONE (just ask UAL’s lenders). Everyone has every incentive for DL and every other carrier to reorganize outside of bankruptcy. Even FlyI managed to renegotiate their obligations outside of bankruptcy and they are in far worse shape than any legacy airline.
On a unit cost (CASM) basis, each of the six legacy airlines reported the following costs to the for the first quarter of 2005:
CASM Change (year over year)
AA 9.92 +4.5%
CO 10.36 +7.0
DL 9.98 -3.9
NW 10.97 +7.2
UA 10.12 +2.6
US 10.89 -6.8
From the CASM perspective, AA and DL are the only two airlines that have sub-10 CASMs, a very remarkable accomplishment considering that Delta only began its transformation plan on Dec 1, 2004 with the implementation of its pilot agreement. AA started dramatically reducing costs nearly 2 years and UA and US have had the benefit of being in bankruptcy to reduce costs. AA has a near 10% CASM advantage over UA, it’s most direct network competitor while DL has a near 10% CASM advantage over US as its closest network competitor. It is also notable that Delta and US are the only two carriers that reduced unit costs in 1Q 2005 vs 1Q 2004.
There are a lot of people who will argue that CASMs have to be stage length adjusted in order to reflect the types of operations in which each carrier is engaged. It should be expected that DL and US will have higher costs given their shorter operations which are also more domestic oriented than other carriers (DL and US both derive approximately 20% of their revenues from int’l operations vs 30% for NW and AA and 40% or more for CO and UA). Average passenger trip by mileage, from DOT data.
AA 1412 miles
CO 1541
DL 1004
NW 1319
UA 1625
US 949
Mileage adjustments to CASM is almost always done with a bias to one particular carrier or another so I don’t really like to see mileage adjusted CASMs. Given the length of haul data above, DL and US have a cost advantage relative to other carriers. However, since the east coast is the most competitive market today (probably in the world), DL and US management have reduced their costs in order to survive and that is apparent in their relative cost advantage compared to the other four longer haul carriers.
Management at each airline must match costs with revenues for each region.
Eclat Consulting regularly prepares for Aviation Daily a comparison of RASM vs CASM by region (Domestic, Atlantic, Pacific, Latin). The most recent data released and analyzed is 4Q2004. As of the end of 2004, DL, NW, and UA have had comparable system RASM vs CASM (PASM – profit/loss per ASM if you like) consistently through the end of 2004. AA, CO, and US have had PASMs at about the half that rate.
Several things are notable from this data (which tracks closely to previous quarters):
- AA, CO, and DL are profitable on their Pacific operations, although they are much smaller than dominant carriers NW and UA.
- AA, CO, and US (!) make money on their Atlantic operations.
- CO is profitable in every international segment but loses money on its domestic operations at a rate of about 15%.
- NW and UA are the only carriers that lost money in every segment.
- NW’s loses on the Pacific at a rate over six times higher than United. NW also has the highest loss rate over the Atlantic.
- No carrier is profitable domestically although AA and US are in a better shape than the other four.
- UA has the worst domestic losses with a negative margin of nearly 23%. This rate of loss is the highest of all carriers in all regions.
This data is insightful because it is the best way to correlate costs and revenues with the regions served by each carrier, where carrier comparisons are more relevant.
The implications are:
- AA has reduced costs across its system and is profitable in Atlantic and Pacific operations and is on the lower end of the scale with respect to domestic losses. AA is well positioned to compete.
- CO’s strategy of becoming a heavily international carrier is paying off. Although they lose money domestically at a similar rate as DL, they have tapped some of the world’s best international markets – most of which are from NYC. CO is well positioned to compete internationally but still must get costs down in order to compete domestically, esp. given that CO’s domestic strategy is to skim off the highest yielding passengers.
- DL has to get costs down across the board but really has middle of the pack performance in all of its regions. Nonetheless, DL’s domestic costs – surpassed only by AA.
- NW is in the unenviable position of losing more money in its key market segment (the Pacific) than any other airline. NW management’s urge to update their international aircraft is the apparent result and obviously overdue.
- UA’s strategy of becoming more international reflects its domestic losses and its comparatively good international performance . Although no UA international region is profitable, it had the smallest unit losses of any carrier in its primary international region – followed closely by AA’s Latin region. Nevertheless, no US airline can be profitable if they cannot manage costs domestically. No US airline has yet to achieve even 50% of its revenues internationally.
- US’ profit/loss rate for each region compares favorably with other carriers. Nonetheless, US’ domestic costs are still the highest of any carrier.
One final note on costs. These results reflect one quarter, although the trends are similar across other time periods. It should also be noted that as of the fourth quarter 2004, DL had just begun its transformation plan while NW has still not significantly reduced costs from all stakeholders. AA has probably done the best job of reducing costs across the board. Despite a number of years in bankruptcy, UA has not achieved industry leading costs in any segment while US is a cost leader in both the Atlantic and Latin regions. However, US’ high domestic costs make you wonder if they are properly burdening their Atlantic and Latin regions with the appropriate costs. CO shows a similarly large disparity between its domestic and international costs.
Let’s turn to revenues.
I have spoken often of the revenue trends over the past five years. Derived from each airline’s annual reports, here is 2004 vs 2000 revenue. Revenue is that of the parent corporation and not just the mainline operations in order to capture revenue from regional carrier arrangements and non-transportation revenue, where many airlines obtain significant revenues.
AA 95%
CO 98
DL 90
NW 89
UA 82
US 77
It is not surprising that the two lowest percentages belong to the two bankrupt carriers while the two highest numbers belong to the two airlines considered to be in the best shape. It is obvious that, even with comparable costs, generating and maintaining revenue is of utmost importance and is the real determinant of long-term viability.
From a revenue perspective, several things can be noted:
- AA, CO, NW, and UA were most affected by Delta’s fare simplification, the results of which will be seen throughout the remainder of the year. Given that DL has the highest percentage of revenue in LCC competitive markets, it made sense for them but simplifares could be a powerful competitive weapon in dealings with other legacy and low cost carriers. Ironically, simplifares probably helped US in reducing the incentive for LCCs to invade its markets.
- LCC growth continues to erode domestic fares, although price increases have somewhat offset the affect. The impact of LCC growth is not equal for all carriers. DL has very few significant markets which can be further eroded by LCCs. UA and US are currently facing LCC onslaught in many of the remaining markets which were not competitive with LCCs prior to this year. AA, CO, and NW are all highly vulnerable to future LCC growth.
- All carriers are growing their international operations but LCC competition in international markets could be coming soon.
While there is a lot of data and perspective here, the bottom line is:
AA has managed costs well, is profitably serving many international markets but is vulnerable to LCC growth at DFW and in transcon markets.
CO is successfully becoming one of the most international of the US airlines and has domestic operations in large cities. CO continues to be on the high end of the rate of domestic losses, possibly indicating that its strategy of skimming off the highest yielding passengers is not a viable strategy now that LCC pricing has spread across the country.
DL’s costs are coming down and they should fall to legacy carrier leading levels by the end of the year based on statements from DL’s officers. DL’s domestic revenue is growing and DL is entering/expanding markets such as the transcons and mid-Atlantic markets previously dominated by AA, UA, and US. DL’s international growth is slower than other carriers.
NW has high costs systemwide, high losses to Asia and Europe and faces labor conflicts that are necessary if costs are to be reduced. NW has a healthy bank balance which might be just as damaged in its reorganization attempts as DL’s was a year ago.
UA still faces hefty losses and at present only has a reasonable hope of being viable in its international operations despite having had 2 ½ years to cut costs in bankruptcy. History shows that shrinking domestic operations has never led to profitability for any legacy airline. However, UA still has access to some of the best domestic and international markets in the world which will attract investors.
US, like UA, has massively cut costs and probably could be a survivor if competitors would just quick picking it apart!
At the beginning and end of the day, UA is still very far from being a viable airline. They very well may attract financing to get out of bankruptcy but they have fundamental problems with their costs and revenues which other airlines simply have overcome or are overcoming much faster. Given that the global aviation industry is getting hotter by the minute, there is less and less incentive for investors to put up with or invest in US airlines that can’t make it. We haven’t seen much movement in the legacy sector of the US airline industry because just about everyone has been moving in lock step. There are now considerable differences in the financial performance of US legacies, exactly what has needed to happen in order for a shakeout to occur.
As for the transcons, of course Song won’t take down United airlines all by itself. You also fail to mention that Independence is in the IAD transcons and they are doing far more damage than Song could possibly do. It will take months for us to see DOT data which will detail the impact of Song’s entrance into the BOS and JFK transcons but I can very safely say that AA and UA cannot be viable on the transcons if DL is successful in siphoning off or significantly diluting coach revenues. Song has a competitive schedule, a superior product, low fares, and lots of seats to fill – exactly the wrong formula for two airlines that use high cost, premium configured aircraft.
I have not and still do not slight UA if they can turn their ship around. However, despite having access to the world’s greatest routes and the benefit of bankruptcy, UA has still not become a viable airline while others are doing exactly that.
It’s high time for United to do what it takes to succeed but it involves far more than just picking up a couple billion dollars in financing and getting out of bankruptcy.
