This Week's Interesting Us Airways &

USA320Pilot

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May 18, 2003
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This week US Airways and its merger partner America West Airlines made a lot of news and I have collated some of the more important points, which are listed below:

-- America West Airlines Thursday posted stronger than expected second-quarter results, with the airline's earnings per share easily exceeding Wall Street expectations despite a 43 percent gain in fuel prices. America West reported net income of $13.9 million, or 29 cents per share, up from net income of $10.7 million, or 20 cents per share, in the second quarter of 2004. The consensus of Wall Street analysts was for America West to post earnings per share of 13 cents. Revenue for the quarter was $833 million, up from $694 million in the year-earlier period.

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-- US Airways won approval Thursday to sell 10 planes and three spare engines to Jet Partners LLC for $52 million.The two companies had previously set a $48 million price, but several new bids led Judge Stephen Mitchell to conduct an auction in bankruptcy court Thursday. US Airways had earlier pitched the planes and engines to about 90 parties, including airlines, aircraft salvage businesses and hedge funds.

-- US Airways won permission to continue dipping into its cash through Aug. 19, as the airline continues to work toward a merger with America West.

-- US Airways' cash is pledged as collateral to the federal Air Transportation Stabilization Board, which guaranteed 90 percent of a $1 billion loan to the airline. Judge Mitchell on Thursday also allowed US Airways to pay the fees and expenses for the lawyers, consultants and financial advisors employed by the company, its creditors committee and retiree committee

-- What does Doug Parker, America West's CEO, consider the biggest risk for his airline's planned merger with US Airways? Himself, and all the other managers for the two airlines. "The biggest risk is we don't manage as well as we have to," Parker said during a conference call to discuss America West's earnings Thursday. He spoke from the US Airways boardroom, where he and America West's senior managers were working on the merger integration. "We have a lot of work to do; we have to make sure we go get all this done, get people motivated." Parker said he's confident managers will be able to do that.

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-- America West Chief Financial Officer Derek Kerr said during the conference call that the airline doesn't plan to add more planes to the fleet through 2005. Kerr said the airline would take delivery of five jets, but return six to their respective leasing companies.

-- Doug Parker said the airline's focus in the next few months would be to blend the employees, equipment and cultures of the two airlines. He said the biggest challenge so far has been to integrate computer systems, and he hasn't waivered from his estimate that the merger would ultimately save the company $600 million a year.

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-- "The pricing and capacity environment continue to improve," said J. Scott Kirby, America West's executive vice president. Aside from fuel costs, Parker said the top challenge for America West is completing its planned merger with US Airways and managing the combination in a way that produces the hoped-for synergies. "(It's about) getting people working together and getting people motivated to work together," he said, adding that "there's no reason to think the synergies can't be realized."

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US Airways CEO Bruce Lakefield was in the Pittsburgh area (yesterday) to meet with the US Airways pilots union at a hotel near Pittsburgh International Airport. He said he expects the senior management team at the merged US Airways-America West to be named next week. The only member announced so far is America West boss Doug Parker, who will become the new company's chief executive officer. Lakefield would be on the board of the new airline, but said he was "not sure" if he would be joining the day-to-day management team.

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-- Lakefield also noted that more investors may contribute to the merger, on top of $565 million already committed, now that America West's stock is up in the months since the merger announcement. He also said the airline is negotiating with a credit card company for more financing.

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-- US Airways Group expects to close its headquarters in Arlington, Va., which employs nearly 600, as early as January, its chief executive said Thursday. The airline will shutter the office "in three to six months or less," after the merger with America West Airline closes, said CEO Bruce Lakefield in an interview yesterday.

Other changes will happen even more quickly and be more evident to the public, once the new US Airways takes flight. "We'll change the signs from 'America West' to 'US Airways' almost immediately" upon closing the merger, said Lakefield. He said that signs and other facets of marketing and branding "will take months, not years, to complete."

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-- Commenting on the pending merger, Parker said that while US Airways' costs are beginning to be reduced to America West levels after renegotiation of contracts and a downsizing of its fleet, "There is still work to do, much of it on the way, or soon to be in place." Parker said there is a "stage-length" issue remaining with US Airways, meaning it has a high ratio of shorter flights, which increases the average cost per mile of flying. He also said that US Airways maintains too many facilities within airports catering to business travelers compared to America West.

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-- America West executives said they lead the industry in year-over-year passenger revenue during the quarter because capacity is slowing thanks to high fuel costs, and the carrier is getting rid of unprofitable transcontinental flights. The airline also said there is a strong demand for leisure travel, and its policy of not matching the lowest fares on peak days is working to increase revenue. Going forward, the revenue outlook is positive because of multiple fare increases, fewer fare sales and Delta Airline’s decision to lift its cap on fares, said Scott Kirby, America West executive vice president of sales and marketing.

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During yesterday’s America West’s quarterly analyst conference call, chief executive officer Doug Parker, executive vice president of sales and marketing Scott Kirby, and executive vice president of operations Jeff McCleeland said (paraphrased):

-- The merged company is “very comfortable with the current fleet plan†and does not anticipate further downsizing.

-- The merged company will have one of the highest margins in the industry.

-- 2006 industry capacity growth will be “flat to low single digits.

-- Revenue increased 20 percent to $833 million. Passenger revenue per available seat mile increased 12 percent over last year, as America West planes were a record 82.4 percent full, an increase of 4 percent over last year. The demand improvement, particularly for leisure travel, remains very strong. The second quarter revenue momentum for the third quarter will be at least as good as the second quarter. 3 percent of the 12 percent revenue gain was due to eliminating some transcontinental flights.

-- There will be no material changes to the current combined company hubs. Major hubs will be located in Philadelphia, Charlotte, and Phoenix with secondary hubs or focus cities in Las Vegas, Boston, Pittsburgh, and Washington.

-- America West is converting 10 of its 13 B757s for ETOPS service and Hawaiian flights.

-- America West currently operates 143 mainline aircraft. The company will take delivery of 3 A319s and 2 A320s in the fourth quarter. The company will return 2 B737-300s to leaseholders in September and 4 A320’s in September through December or about 1 per month. The America West year-end fleet count will be 142.

-- Parker said the ultimate success -- of the merger will be on his and other managers' shoulders. "It's up to us to get it done," saying the highest hurdles in the integration will not be operational, but rather "cultural." "I've been impressed with how well the employees are pulling together on this."

USA320Pilot comments: In Bruce Lakefield’s weekly recorded message, which can be heard at 800-873-2459, he said, “(Yesterday America West reported strong second quarter profits and) a 12% increase in passenger revenue per available seat mile. It appears America West has shown the biggest improvement out of any major airline.†Lakefield said US Airways will report earnings next week and that the company’s “stand alone business plan simply cannot withstand $60 or higher oil pricesâ€. In my opinion, the same thing holds true for United Airlines, Delta Air lines, and Northwest Airlines, who I believe will under go further restructuring. In the case of United, it could include asset sales or a corporate transaction and in the case of Delta and Northwest, a “judicial restructuringâ€.

Meanwhile, in "open" session at yesterday’s ALPA MEC meeting US Airways CEO Bruce Lakefield said the company's fuel expense this year has cost the airline $600 million more than expected. Last year US Airways' fuel cost was 85 cents per gallon and now it is about $1.60 per gallon. Lakefield said the company is looking for cash, it needs to sell MDA, and the merger is essential for the success of the airline. Also noteworthy, ALPA was notified earlier this week that the US Airways - Republic deal to sell MDA will close next Wednesday, July 27.

According to Reuters the newly renegotiated deals with the ATSB, terms of the loan guarantees will remain separate and the carriers will begin payments in September. Repayment terms on the America West portion run through 2008, while the US Airways guarantees must be settled by 2010. Payments on the US Airways debt will depend on the amount of cash it can raise from near-term sales of assets securing the loan guarantee. The airline plans to sell $100 million in planes and airport operating slots to Republic Airlines as well as another $52 million in aircraft and engines to Jet Partners LLC.

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With US Airways’ payments on the guaranteed loan debt dependent on the amount of cash it can raise from near-term sales of assets securing the loan guarantee, the sale of MDA and its assets is important to the ATSB merger approval.

Moreover, I believe in the not-so-distant future PSA and additional assets could be sold, which is why US Airways’ guaranteed loan repayment schedule is not yet finalized.

Finally, the bottom line is America West’s stock has soared to 52-week high on merger mania.

It’s good to be an America West Airlines shareholder. Since news of a merger with US Airways broke May 19, shares in the carrier’s stock have increased more than 64 percent, from $4.81 a share to $7.91 at Tuesday’s close of the New York Stock Exchange.

"Look at all the people that are investing in this thing," airline analyst Mike Boyd said. "This is fast becoming the airline equivalent of the Google initial public offering. Everybody wants a piece of this action, which says a whole lot about a lot of confidence in one (America West CEO) Doug Parker. He must have something up his sleeve just beyond putting these two airlines together."

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Regards,

USA320Pilot
 
Does anyone else find the following two quotes, well, interesting next to one another?


-- Commenting on the pending merger, Parker said that while US Airways' costs are beginning to be reduced to America West levels after renegotiation of contracts and a downsizing of its fleet, "There is still work to do, much of it on the way, or soon to be in place." Parker said there is a "stage-length" issue remaining with US Airways, meaning it has a high ratio of shorter flights, which increases the average cost per mile of flying.

-- America West executives said they lead the industry in year-over-year passenger revenue during the quarter because capacity is slowing thanks to high fuel costs, and the carrier is getting rid of unprofitable transcontinental flights. The airline also said there is a strong demand for leisure travel, and its policy of not matching the lowest fares on peak days is working to increase revenue. Going forward, the revenue outlook is positive because of multiple fare increases, fewer fare sales and Delta Airline’s decision to lift its cap on fares, said Scott Kirby, America West executive vice president of sales and marketing.

Then there is this gem:

[ibHe also said that US Airways maintains too many facilities within airports catering to business travelers compared to America West.[/b]

Who exactly does he think pays the not-so-low fares that HP does not match? If he wants to be down to one (FC) differentiator between his airline and Southwest, this is a stellar place to start.
 
I find it interesting that the new US Airways CEO, who will not take the job to on or about October 3, is already facing what I believe, is criticism from you.

Transcontinental flights have some of the lowest yields in the industry and by reducing some of their transcontinental capacity; the company obtained 25% of the PRASM improvement or 3â€￾ of its 12%. Last night Bruce Lakefield said, “It appears America West has shown the biggest improvement out of any major airline.â€￾

US Airways’ stage adjusted problem is due to its route network built by Ed Colodny with to many short haul flights on the East Coast. This has been and continues to be the biggest company CASM problem and much of it will be rectified with the merger. The same thing held true with the United merger where the companies intended to average down stage length and unit costs and with combined synergistic revenue gains would become profitable.

Southwest and America West are low cost carriers and the new US Airways will morph into a low cost carrier too. These companies do not offer all of the service former legacy company’s did, but I believe the new US Airways will still have a better product than let’s say Southwest or ATA.

Regards,

USA320Pilot
 
USA320Pilot said:
I find it interesting that the new US Airways CEO, who will not take the job to on or about October 3, is already facing what I believe, is criticism from you.


Regards,

USA320Pilot
[post="283434"][/post]​
shame on you Clue by Four......go to your room. :lol: :lol:
 
USA320Pilot said:
US Airways’ stage adjusted problem is due to its route network built by Ed Colodny with to many short haul flights on the East Coast. This has been and continues to be the biggest company CASM problem and much of it will be rectified with the merger. The same thing held true with the United merger where the companies intended to average down stage length and unit costs and with combined synergistic revenue gains would become profitable.



Regards,

USA320Pilot
[post="283434"][/post]​


And yet, rather than use the 15 years since Messr Colodny's departure to rectify US Air's biggest problem, a series of CEO's steered the company towards 2 BK's, billions in labor concessions, the stiffing of shareholders and vendors, AND tens of thousands furloughed.


All in all, the odds would have been better if the BOD had folded CCY in 1990 and let a monkey throw darts at charts of airline strategies tacked to a cork board.
 
USA320Pilot said:
I find it interesting that the new US Airways CEO, who will not take the job to on or about October 3, is already facing what I believe, is criticism from you.

Transcontinental flights have some of the lowest yields in the industry and by reducing some of their transcontinental capacity; the company obtained 25% of the PRASM improvement or 3â€￾ of its 12%. Last night Bruce Lakefield said, “It appears America West has shown the biggest improvement out of any major airline.â€￾

US Airways’ stage adjusted problem is due to its route network built by Ed Colodny with to many short haul flights on the East Coast. This has been and continues to be the biggest company CASM problem and much of it will be rectified with the merger. The same thing held true with the United merger where the companies intended to average down stage length and unit costs and with combined synergistic revenue gains would become profitable.

Southwest and America West are low cost carriers and the new US Airways will morph into a low cost carrier too. These companies do not offer all of the service former legacy company’s did, but I believe the new US Airways will still have a better product than let’s say Southwest or ATA.

Regards,

USA320Pilot
[post="283434"][/post]​
i thought that if USAIR the new one put say the 757 or the 321 on the transcontential route, wouldnt the yield improve onit? even if there are reduced flts?
 
Clue,

Just a couple of comments....

The "stage length issue" comment was made in response to a question about whether the combined CASM was still projected to be equal to AWA's current CASM. Parker's answer was that "stage length adjusted" CASM would be in the ballpark of AWA's current number. He didn't paint stage length as a problem, but rather a factor to be considered when comparing post-merger CASM with AWA's. Of course, only time will tell if the projections are accurate.

Keep in mind, also, that AWA's reductions in transcons will be partly or largely offset by the HI service which will have longer stage lengths than the transcons - though both are long enough that there will not be a meaningful difference in AWA's average stage length. Their 2Q05 average was only 21 miles shorter than 2Q04 at a still respectable 1037 miles, and the HI service hasn't started.

Jim

[edit - added additional comment below]

By the way, having a short average stage length isn't a problem in and of itself - having the shortest average stage length of any major carrier hasn't kept WN from being profitable. The problem is being inefficient, no matter what the average stage length, and depending on "BloFares" to offset that inefficiency - something US has done for far too long.
 
"There will be no material changes to the current combined company hubs. Major hubs will be located in Philadelphia, Charlotte, and Phoenix with secondary hubs or focus cities in Las Vegas, Boston, Pittsburgh, and Washington."



320-
I find it interesting that this list doesn't include LGA or FLL.
 
The airline also said there is a strong demand for leisure travel, and its policy of not matching the lowest fares on peak days is working to increase revenue.

Ladies, gentlemen, and USA320, I give you smart pricing.

Had US practiced this over the past few years instead of throwing GoFares at us and blindly matching every fare in sight, they might have had a chance.
 
diogenes said:
And yet, rather than use the 15 years since Messr Colodny's departure to rectify US Air's biggest problem, a series of CEO's steered the company towards 2 BK's, billions in labor concessions, the stiffing of shareholders and vendors, AND tens of thousands furloughed.
All in all, the odds would have been better if the BOD had folded CCY in 1990 and let a monkey throw darts at charts of airline strategies tacked to a cork board.
[post="283448"][/post]​
I think you forgot the millions in golden parachutes.