- Nov 9, 2003
- 16,512
- 5,865
This comes from ALPA board. These two gentlemen were at the meeting and posted their recollections. So consider this hearsay and take it all with a grain of salt.
Jim
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The MEC listened to a presentation from B. Ashby with several other onlookers. One from finance, another guy who I didn't recognize, and of course Ed Bular. Baldanza came over after 3 PM to give his speech. Sorry about the names of the other two, it was hard to hear at first (tech difficulty)
Ashby gave a little presentation and then it was grilling from the MEC. Several points were obvious to me. Management is asking for contractual relief to fly (a slam dunk was the word uded) 60 additional aircraft out of BOS, PHL, DCA, and LGA using increased productivity, ie., they want to do it with existing staffing. It was hinted that they would be under "new paint" ala Metrojet but obviously different. They want to obtain scope modifications in the areas of RJ's and they added (at least on the power point) the 90 seater. Of course, noone pinned them down about how many or who, but I gather that would come with negotiations. They realize the 50 seater is a dead end. The larger RJ's are where the mustard is. Also, noone pinned them down about the RJ's specifically. They are concerned after the 1Q numbers, they will get downgraded to CCC which puts the RJ financing at risk, specifically MDA. They contend they are asking for scope relief so if the financing is pulled, they can siphon off the remaining orders or the whole operation to an affiliate. They didn't say they will do it, only they would like to have the option. Of course, if they have a way and it is cheaper, they will do it. Another question that needed to be asked was if GE pulls the financing for RJ's for MDA because they think we aren't going to make it, then why would they give them to Mesa or anyone else if they are going to fly them for us. I mean, if we are toast, why risk giving the $$$ to anyone flying airplanes for us?
They are anticipating getting bigger aircraft (meaning more mainline) and larger rj's (70 and 90 seaters) to accept rising demand in the face of lower fares. It appears management has come to the realization they cannot continue to "gouge" the consumers and are going to roll out a new fare system which will give us a "revenue premium" relative to the LCC's, but that it will result in a lower total revenue to US and therefore we need lower costs.
My gut is that the first thing they will ask for other than the above mentioned is the retired pilots medical benefits ($130 mil/yr.) Don't want to unnecessarily upset any retired guys, but heard that specifically mentioned several times. If noone else got that impression, please chime in.
I was impressed with both sides. Management clearly has a credibility problem and from Ashby's tone, they know it. I didn't think much of Baldanza, but today realized what a mess he must have on his hands. There was some question dodging and some running around. Ashby seems like a straight shooter, but that is only my impression.
The MEC also asked appropriate questions and was very open to the discussion. They realize the pickle we are in and that change is needed in every area. They were firm in their assertion that management needs to LEAD by example and leadership and credibility are two components that we need to see or we are going to fail.
-----------------------
Shortly after 1200 Bill Pollock called the meeting to order. Bruce Ashby, President of Express and VP of Alliances made the following presentation.
US Airways needs the RJ’s, read MDA and the 170’s, to meet revenue projections. If our credit rating slips one more notch, we will lose the financing for those airplanes and there will be no MDA. Also, GE Capital has the right to pull its financing now if they so choose. If we lose RJ financing, the only remaining way to operate the planes, will be to modify the scope language to allow affiliates to operate them. This is problematic because no one else currently operates 170’s and the company prefers to have the aircraft at MDA, not Mesa or some other airline.
No financing =s no RJ’s =s revenue shortfall=s big trouble with the financial plan, or what’s left of it.
If all goes well, the first 170 will show up on March 2nd, we will have three on the schedule in April, and 39 by the end of the year. A question was asked about price and he said the 170’s cost $7 to $10 million less than a new Airbus.
As an aside, the FAA has declared the 170 simulator “not certified†because of data issues with Embraer. Don’t know the ramifications of this yet.
The POR (plan of reorganization), which was bought into management, the ATSB, RSA, GE Capital and us, is not working. The good news is that the cost performance is better than plan, however the revenue is less than plan. Although the revenue projections were considered conservative at the time by all parties, the following factors have combined to make them invalid.
· Explosive growth by the LCC’s
· Higher fuel prices
· LCC’s got slots (politicians love them)
· Legacy carriers have matched our prices
Now for the big, or not so big, news. The “plan†was given in very general terms, almost all of which, if you’ve been awake, you already know. Basically we have to lower our cost structure, because if we don’t, nothing else will fall into place. The biggest thing I picked up here is that we need to increase our productivity to LCC standards. There were no details given for this, something that I think disappointed everyone in the room.
Apparently the decision was made to get “everyone on board†to restructure the airline before getting into the details.
Some of the info picked up was: PHL may lend itself to the rolling hub concept. This is because it has a large percentage of local traffic. PIT/CLT are not suitable for rolling hubs because they have only 20% local traffic. We can’t simply lower prices because that will lower revenue, which is the problem.
Possibilities for growth mentioned provided we change the cost structure are new point to point flying out of BOS, LGA, PHL and DCA, up to 60 additional Airbuses, more large aircraft for international flights. None of this is possible unless we come to agreement to lower our costs.
If we can restructure the airline, we can also do things like simplify the fare structure and eliminate corporate travel discounts. This is because with lower walk-up fares, corporate discounts will no longer be a necessary marketing tool.
Bottom line in cost/revenue calculus is that compared to every $1 US Airways gets in revenue, SWA gets $.64, Jet Blue gets $.85, Air Tran gets $.66 and Am West gets $. 82. So we already get much more revenue than they do and simply cannot lower our prices until we lower our costs.
How do we restructure the airline? By reevaluating how we price, where we fly, what we fly, product, distribution and labor contracts. All these things need to be addressed in plan.
Q&A followed with MEC members. A couple of things that stood out: Lyle Newman asked about the mention of 90 seat planes in the slide presentation. Bruce said that if the competition, read Jet Blue, flew them, we might need to do the same to compete. Garland Jones asked if the company intended to transition to an all SJ airline. Bruce stated that is not their intention. Later in the presentation, the point was made that the more larger planes we can profitably operate, the better off we are.
Garland: Who takes the 1st step to lower cost structure. Bruce: Must have agreement on direction. Garland: Management needs to show its hand to reassure employees – how much time do we have? Bruce: not much, credit watch has 30 to 90 day duration prior to upgrade or downgrade of credit rating.
Somewhere in this conversation it was stated that most of Wall Street and our competition consider us dead already.
Other MEC members asked questions and made statements, but I couldn’t write them all down. Don Butkovic of the NC committee did make a statement saying the NC should not be devoting half its time to grievance work – why can’t the company abide by what it’s already signed. Bruce answered that mistakes had been made, and that while he was not making excuses for them, the reason is usually pressure from above on individual managers. Either you meet your budget numbers or you may not be working here much longer. He admitted that the company has not lived up to the standard it should have.
The MEC went into closed session for over an hour to hear confidential financial data from Dave Davis a VP from Finance. After that Bill Baldanza, Sr. VP of Marketing and Planning made a presentation.
Our goal is maximum RASM, period. WE don’t care how many people are on the plane, only how much revenue. He showed some slides that were labeled POR, meaning they were shown to the ATSB and lenders. They showed historical revenue data for the industry and it was quite sobering. As pointed out before, cost performance has been ahead of POR and revenue lagging. Airline industry revenue as a percentage of GDP has gone down over the years. It spiked down on 9-11 and has recovered very slowly, more slowly than projections. Keep in mind that not only did we accept these projections, so did RSA, ATSB and GE Capital.
For example, revenue from tickets bought within 6 days of travel, our highest fare customers, has dropped 50% from 2000. Business travelers have found many ways to avoid paying high fares. He talked about pricing for a while, and the bottom line is that revenue is the problem; we raised prices 47 times in the last six months and only about 4 of the price increases stuck. To put this into perspective, we price 17,500 markets with about 445,000 prices.
Business travelers do what everyone else does; they shop on the internet, using Priceline, Expedia, etc. They may want more legroom and assigned seats, but will vote with their pocketbook for cheaper fares. We cannot lower our fares now because we will lose the $0.36 premium we currently enjoy over SWA. However, as SWA comes into more and more markets, we will continue to see that premium erode and must lower our costs.
It’s getting late and I’m forgetting more than I remember for now. The summary, if there is one, is that the company wants to see if the employee groups are onboard to restructure the airline. If they are, we’ll get into the details. It was pointed out that the pilots were the only group meeting 100% of their bogey number during the last round of concessions and that we expect equitable concessions, if they occur, from the other labor groups. Management did not exclude themselves from making concessions either.
Jim
------------
The MEC listened to a presentation from B. Ashby with several other onlookers. One from finance, another guy who I didn't recognize, and of course Ed Bular. Baldanza came over after 3 PM to give his speech. Sorry about the names of the other two, it was hard to hear at first (tech difficulty)
Ashby gave a little presentation and then it was grilling from the MEC. Several points were obvious to me. Management is asking for contractual relief to fly (a slam dunk was the word uded) 60 additional aircraft out of BOS, PHL, DCA, and LGA using increased productivity, ie., they want to do it with existing staffing. It was hinted that they would be under "new paint" ala Metrojet but obviously different. They want to obtain scope modifications in the areas of RJ's and they added (at least on the power point) the 90 seater. Of course, noone pinned them down about how many or who, but I gather that would come with negotiations. They realize the 50 seater is a dead end. The larger RJ's are where the mustard is. Also, noone pinned them down about the RJ's specifically. They are concerned after the 1Q numbers, they will get downgraded to CCC which puts the RJ financing at risk, specifically MDA. They contend they are asking for scope relief so if the financing is pulled, they can siphon off the remaining orders or the whole operation to an affiliate. They didn't say they will do it, only they would like to have the option. Of course, if they have a way and it is cheaper, they will do it. Another question that needed to be asked was if GE pulls the financing for RJ's for MDA because they think we aren't going to make it, then why would they give them to Mesa or anyone else if they are going to fly them for us. I mean, if we are toast, why risk giving the $$$ to anyone flying airplanes for us?
They are anticipating getting bigger aircraft (meaning more mainline) and larger rj's (70 and 90 seaters) to accept rising demand in the face of lower fares. It appears management has come to the realization they cannot continue to "gouge" the consumers and are going to roll out a new fare system which will give us a "revenue premium" relative to the LCC's, but that it will result in a lower total revenue to US and therefore we need lower costs.
My gut is that the first thing they will ask for other than the above mentioned is the retired pilots medical benefits ($130 mil/yr.) Don't want to unnecessarily upset any retired guys, but heard that specifically mentioned several times. If noone else got that impression, please chime in.
I was impressed with both sides. Management clearly has a credibility problem and from Ashby's tone, they know it. I didn't think much of Baldanza, but today realized what a mess he must have on his hands. There was some question dodging and some running around. Ashby seems like a straight shooter, but that is only my impression.
The MEC also asked appropriate questions and was very open to the discussion. They realize the pickle we are in and that change is needed in every area. They were firm in their assertion that management needs to LEAD by example and leadership and credibility are two components that we need to see or we are going to fail.
-----------------------
Shortly after 1200 Bill Pollock called the meeting to order. Bruce Ashby, President of Express and VP of Alliances made the following presentation.
US Airways needs the RJ’s, read MDA and the 170’s, to meet revenue projections. If our credit rating slips one more notch, we will lose the financing for those airplanes and there will be no MDA. Also, GE Capital has the right to pull its financing now if they so choose. If we lose RJ financing, the only remaining way to operate the planes, will be to modify the scope language to allow affiliates to operate them. This is problematic because no one else currently operates 170’s and the company prefers to have the aircraft at MDA, not Mesa or some other airline.
No financing =s no RJ’s =s revenue shortfall=s big trouble with the financial plan, or what’s left of it.
If all goes well, the first 170 will show up on March 2nd, we will have three on the schedule in April, and 39 by the end of the year. A question was asked about price and he said the 170’s cost $7 to $10 million less than a new Airbus.
As an aside, the FAA has declared the 170 simulator “not certified†because of data issues with Embraer. Don’t know the ramifications of this yet.
The POR (plan of reorganization), which was bought into management, the ATSB, RSA, GE Capital and us, is not working. The good news is that the cost performance is better than plan, however the revenue is less than plan. Although the revenue projections were considered conservative at the time by all parties, the following factors have combined to make them invalid.
· Explosive growth by the LCC’s
· Higher fuel prices
· LCC’s got slots (politicians love them)
· Legacy carriers have matched our prices
Now for the big, or not so big, news. The “plan†was given in very general terms, almost all of which, if you’ve been awake, you already know. Basically we have to lower our cost structure, because if we don’t, nothing else will fall into place. The biggest thing I picked up here is that we need to increase our productivity to LCC standards. There were no details given for this, something that I think disappointed everyone in the room.
Apparently the decision was made to get “everyone on board†to restructure the airline before getting into the details.
Some of the info picked up was: PHL may lend itself to the rolling hub concept. This is because it has a large percentage of local traffic. PIT/CLT are not suitable for rolling hubs because they have only 20% local traffic. We can’t simply lower prices because that will lower revenue, which is the problem.
Possibilities for growth mentioned provided we change the cost structure are new point to point flying out of BOS, LGA, PHL and DCA, up to 60 additional Airbuses, more large aircraft for international flights. None of this is possible unless we come to agreement to lower our costs.
If we can restructure the airline, we can also do things like simplify the fare structure and eliminate corporate travel discounts. This is because with lower walk-up fares, corporate discounts will no longer be a necessary marketing tool.
Bottom line in cost/revenue calculus is that compared to every $1 US Airways gets in revenue, SWA gets $.64, Jet Blue gets $.85, Air Tran gets $.66 and Am West gets $. 82. So we already get much more revenue than they do and simply cannot lower our prices until we lower our costs.
How do we restructure the airline? By reevaluating how we price, where we fly, what we fly, product, distribution and labor contracts. All these things need to be addressed in plan.
Q&A followed with MEC members. A couple of things that stood out: Lyle Newman asked about the mention of 90 seat planes in the slide presentation. Bruce said that if the competition, read Jet Blue, flew them, we might need to do the same to compete. Garland Jones asked if the company intended to transition to an all SJ airline. Bruce stated that is not their intention. Later in the presentation, the point was made that the more larger planes we can profitably operate, the better off we are.
Garland: Who takes the 1st step to lower cost structure. Bruce: Must have agreement on direction. Garland: Management needs to show its hand to reassure employees – how much time do we have? Bruce: not much, credit watch has 30 to 90 day duration prior to upgrade or downgrade of credit rating.
Somewhere in this conversation it was stated that most of Wall Street and our competition consider us dead already.
Other MEC members asked questions and made statements, but I couldn’t write them all down. Don Butkovic of the NC committee did make a statement saying the NC should not be devoting half its time to grievance work – why can’t the company abide by what it’s already signed. Bruce answered that mistakes had been made, and that while he was not making excuses for them, the reason is usually pressure from above on individual managers. Either you meet your budget numbers or you may not be working here much longer. He admitted that the company has not lived up to the standard it should have.
The MEC went into closed session for over an hour to hear confidential financial data from Dave Davis a VP from Finance. After that Bill Baldanza, Sr. VP of Marketing and Planning made a presentation.
Our goal is maximum RASM, period. WE don’t care how many people are on the plane, only how much revenue. He showed some slides that were labeled POR, meaning they were shown to the ATSB and lenders. They showed historical revenue data for the industry and it was quite sobering. As pointed out before, cost performance has been ahead of POR and revenue lagging. Airline industry revenue as a percentage of GDP has gone down over the years. It spiked down on 9-11 and has recovered very slowly, more slowly than projections. Keep in mind that not only did we accept these projections, so did RSA, ATSB and GE Capital.
For example, revenue from tickets bought within 6 days of travel, our highest fare customers, has dropped 50% from 2000. Business travelers have found many ways to avoid paying high fares. He talked about pricing for a while, and the bottom line is that revenue is the problem; we raised prices 47 times in the last six months and only about 4 of the price increases stuck. To put this into perspective, we price 17,500 markets with about 445,000 prices.
Business travelers do what everyone else does; they shop on the internet, using Priceline, Expedia, etc. They may want more legroom and assigned seats, but will vote with their pocketbook for cheaper fares. We cannot lower our fares now because we will lose the $0.36 premium we currently enjoy over SWA. However, as SWA comes into more and more markets, we will continue to see that premium erode and must lower our costs.
It’s getting late and I’m forgetting more than I remember for now. The summary, if there is one, is that the company wants to see if the employee groups are onboard to restructure the airline. If they are, we’ll get into the details. It was pointed out that the pilots were the only group meeting 100% of their bogey number during the last round of concessions and that we expect equitable concessions, if they occur, from the other labor groups. Management did not exclude themselves from making concessions either.
