Ual Lobby‘s For Industry Consolidation

[Cosmo]

Cosmo:

I wish I could tell you the source, but I can't.

Chip:

How very convenient for you! But do you honestly believe that answers like that help you maintain any credibility with the readers of this forum?

US Airways had a $37 million operating loss and United a $19 million operating profit in the third quarter. That’s a net difference of $56 million.

But as you so frequently argue, let's look at the two carriers' "real" 3rd quarter financial results. As you note, US Airways recorded a $37 million operating loss. But United achieved a "real" operating profit of $90 million, once one-time special items were removed (BTW, when was the last time that US Airways had a "real" quarterly operating profit?). So this amounts to a "real" difference in quarterly operating results of $127 million rather than the $56 million that you erroneously claimed. Moreover, United had a "real" net loss of only $37 million during the quarter (again, once one-time special items were removed), in contrast to US Airways' "real" net loss of $66 million. So United, with a much bigger operation, had a "real" quarterly net loss that was $29 million smaller than that recorded by US Airways. Sounds to me like United is making significant progress as it continues through the bankruptcy process (although some major hurdles still remain), and the carrier is clearly making progress relative to its "code-sharing business partner."

United has about three times more revenue than US Airways and is not paying all of its bills, primarily the debt at the UCT airports of Los Angeles, San Francisco, Denver, Chicago, plus the money owed to the Port Authority of NY and NJ. In fact, United has not paid these airport authorities since last April according to S&P. How bad would have United’s results have been if it had meet all of its financial obligations?

OK, let's go over this one more time for the slow learners. United's 3rd quarter income statement INCLUDED ALL of the carrier's quarterly expenses, whether they were actually paid or were simply accrued. This is a requirement of a small Federal agency -- the SEC, maybe you've heard of it -- that oversees the financial reporting of all public companies.

United has stemmed its bleeding, but according to the Denver Post “although United said its planes are booked more fully and at higher fares than last year, analysts predict a fourth-quarter loss in the range of $400 million to $500 million, not including bankruptcy costs.â€￾

As I've asked you at least twice recently, aren't these the same "analysts" that were woefully inaccurate in their 3rd quarter predictions of United's financial results, overstating United's projected net loss (before one-time special items) by a factor of more than 4-to-1? So why would you uncritically expect their 4th quarter predictions to be any more accurate? Merely because it was printed in the Denver Post?

Jeffrey Stanley, manager of economic analysis and regulatory affairs at United, speaking at The Future of the Airline Industry conference at Washington University in St. Louis on October 31 said, "A series of events changed the competitive landscape of the airline industry, including the Sept. 11, 2001 attacks, a sluggish economy and the outbreak of severe acute respiratory syndrome, or SARS, Stanley said. Those factors have helped the growth of low-cost carriers," he said.

Those carriers face plenty of issues, he said, including security, international aviation and air traffic management. But the most important challenges they face are the change in the industry's competitive environment and getting the federal government to recognize it, Stanley said.

"If things stay the way the are now, there will be several Chapter 7 (bankruptcy liquidations) down the road, and that's not good for anyone," he said. The most feasible solution to the situation is consolidation in the domestic airline industry, he said.

So now you believe that United's mid-level managers are being used to make the carrier's major policy pronouncements, rather than CEO Glen Tilton or possibly one of his EVPs? Yeah, right.

Without a corporate combination between the two companies to remove fixed costs, it appears both airlines could liquidate. Therefore, the decision appears to be integrate or die!

That's simply your opinion followed by your conclusion, nothing more. It certainly isn't a verifiable fact.

Bronner is said to be willing to integrate the companies ...

In spite of being unwilling or unable to provide supporting evidence for this statement, you just say it again in the hope that you might be able to fool some of the readers of this forum. As I said near the top of this post, how do you hope to maintain any credibility with statements like these. Or perhaps you simply don't care about your credibility, as long as you stay "on message."

 

[767jetz]

By the way, why don't you post on the UA board instead of desperately trying to dispute every post I make about US and UA? I was just wondering, if my comments will not happen, than why do you even bother posting on the US board. Moreover, why don't you post very often of the UA board?

Desperate?? Not sure where that emotional comment came from. I don't consider any of my posts deserate at all. Just passing along info from my sources. No need to shoot the messenger.

I "bother posting" here because I strongly disagree with your speculations, and I have my own sources of information to share. I think the real question is why do you care so much that people dispute your analysis?

I also post here, because thanks to you, this is where United Airlines is talked about most. In fact the last time I started a thread on the UA board about our business partner USAir, it was moved by the moderators here. So you can thank them too.

As for all the activity on the US board, as anyone can plainly see there is alot of internal unrest at US. Most threads go on for pages with customers and employees venting about all the turmoil. (And rightfully so I might add. Dave Lorenzo is on the war path!) I guess since the employees at UA are generally content and secure with the progress being made, we don't have as much to complain about. Sure we took a beating, but at least the company is not currently at war with the employees. So it stands to reason that there is less to write about on the UA board.

 

[USA320Pilot]

767jetz:

I'n not going to argue with you, but US Airways and United are trying to stabilize their business model(s) before they attempt to probably merge, but consolidation is likely inevitable because both companies need the economies of scale and significant additional corporate combination revenue.

Why? In Q3 US Airways had the highest network carrier RASM and CASM and United had the lowest RASM and the third highest CASM, behind US Airways and Delta.

That makes both airlines unsustainable.

However, if the companies merge the combined business enterprise would likely have the highest industry RASM and a competitive cost structure, which would provide sustained profitability.

Although the carriers preferred the UCT/ICT, the skyrocketing LCC growth has shifted sentiment to a traditional merger so the airlines can have major cost carve outs.

Therefore, either the companies merge or likely liquidate -- it's really quit simple.

Provided United can get overcome its obstacles, Bronner is ready to finance the deal, which may take another 4 to 6 months and be included in United's POR due to be submitted to the bankruptcy court in early March 2004.

By the way, this forum is not a barometer of US Airways employee sentiment, which is much better than this board would indicate.

Regards,

Chip

 

[737nCH11]

Chip says: Although the carriers preferred the UCT/ICT, the skyrocketing LCC growth has shifted sentiment to a traditional merger so the airlines can have major cost carve outs.

737 says: You're kidding right! Chip, for over a year you have been hammering us by saying that U was going to help UAL survive by buying our assets. Now when LUV pops up at PHL you shift your stance and say that UAL and U now need each other to stay alive and defeat the evil LCCs. UAL has been competing with LUV for years while U has retreated from them over the same amount of time. I find it funny that this decision was made by the companies in the last week when it usually takes them months of study to come to even the simplest of decisions. Chip, with all due respect, your arguments are starting to sound a little desperate.

 

[TheLarkAscending]

Chip, with all due respect, your arguments are starting to sound a little desperate.

Starting? A Little?

 

[Busdrvr]

"United had the lowest RASM and the third highest CASM, behind US Airways and Delta."

Sorry Chip, but I can't let a "mistatement of fact" go unchallenged.

3rd Q Operating revenue per availible seat mile

DAL 9.98 (at a significantly higher cost)
UAL 9.95
CAL 9.79
AMR 9.77

As for UAL's costs, yes ALL expenses are still on the books until resolved, and UAL paid considerably more for fuel (no hedging in BK) than the others. that (along with the still high lease expenses) will change for the better.

 

[USA320Pilot]

Busdrvr:

I suggest you check your numbers again. Here's the information from the third quarter:

US Airways has the highest network carrier RASM, Yield, and CASM.

United has the lowest network carrier RASM, Yield, and third highest CASM.

Even after their in-court restructuring efforts, both companies CASM's are still too high to compete (see www.chipsplace.com, then click on Rumor Control, Daily Airline News, November 5 edition, for specific company report information for the network airlines and three main LCC's).

In regard to the shift from the UCT/ICT corporate combination to a merger, what is true today can be different tomorrow. Since UCT discussions began last year the world has changed even since then, and for both companies to successfully compete they have to bring down their unit costs.

That's extremely difficult to do in an industry that has extremely high fixed costs and the only real solution is M&A to create economies of scale and to increase productivity. That's why Jeffrey Stanley, manager of economic analysis and regulatory affairs at United, speaking at The Future of the Airline Industry conference at Washington University in St. Louis on October 31 said, "If things stay the way the are now, there will be several Chapter 7 (bankruptcy liquidations) down the road, and that's not good for anyone. The most feasible solution to the situation is consolidation in the domestic airline industry."

Again, I didn't say that, a United executive did.

In regard to a probable merger between United and US Airways, it's not whether or not I wish for it to happen, it's what the business partners are discussing and what's likely to occur next year after United hopefully solves its problems.

Again, the reasoning behind a "true merger" is with the new economic climate and industry fundamentals changing, the only way to obtain cost cuts sufficient enough to have a CASM low enough to compete against the LCC's is through M&A activity.

The combined business enterprise economies of scale would reduce fixed costs and increase employee productivity; as well as dramatically increase incremental revenue.

In a pilot meeting with Stephen Wolf I attended last year, he said that United's EF&A Department believed the last merger attempt would have increased United's revenue by $1.6 to $1.9 billion, due to a revenue shift from other carriers.

Post September 11 and in today's environment that number would be lower, but would at least be well over $1 billion.

Regardless of the merits of the business argument, the parties are discussing a deal and I understand after United solves its four major obstacles (underfunded pension, UCT airport municipal bond litigation at San Francisco, Los Angeles, Denver, Chicago, and the Port Authority of NY and NJ, aircraft EETC’s, and the Dulles/ACA/Mesa issue), and US Airways stabilizes its finances, David Brooner (RSA) is said to be willing to finance the deal. It's not if consolidation will occur, but I understand from US Airways' senior management it's inevitable consolidation will occur and are companies are almost guaranteed going to be involved in this evolution.

From a bankruptcy perspective, in my opinion, an announcement could be aligned with United's new deadline to file its Plan of Reorganization with the bankruptcy court in early March (probably no more than six months until something is publicly announced).

Will something occur? Probably, but we will have to wait and see. In regard to who is the surviving airline, that’s yet to be determined and ego’s are likely playing a big part of the decision.

I believe a business argument could made for either airline to be the survivor. United has a larger market identity and the integration cost would be less if United survived. On the other hand, a bankrupt airline has never purchased another carrier and US Airways' chairman of the board and his retirmenet fund would provide the financing for the deal to proceed.

In conclusion, let's not forget immediately after announcing the last merger termination, United surprisingly issued a “curiousâ€￾ press release. The press release said, "UAL Corporation intends to work with US Airways to determine the appropriate steps that need to be taken now that US Airways has acknowledged that the merger with United will not go forward.â€￾

Well...the carriers are now taking "appropriate steps" to save their company's by continuing to adapt and evolve to the changing marketplace and it appears likely they will consolidate. Another words, it's either integrate or die.

Regards,

Chip

 

[Busdrvr]

Chip, my source was each of those companies WEBSITES, not "Chips place" Which one do YOU think is more accurate. But I know where your mistake is. You cite PASSENGER revenue, I cite OPERATING revenue. Your number is irrelevent. For example, you have a choice to serve two differant cities with the same jet. one city would give you 5000 in PASSENGER revenue and 1000 in CARGO revenue. The other would yield 5500 in PASSENGER revenue and no cargo. By your biased statistics, you'd choose the latter city. I think UAL is wise to maximize TOTAL OPERATING RASM, not just PASSENGER REVENUE.

 

[USA320Pilot]

Busdrvr:

I believe we are splittng hairs here, but that's o.k.

Regardless, costs are still too high and revenue too low for both companies.

Regards,

Chip

 

[Busdrvr]

Busdrvr:

I believe we are splittng hairs here, but that's o.k.

Regardless, costs are still too high and revenue too low for both companies.

Regards,

Chip

One was profitable (and possibly will be for Q4), the other was not. I disagree with your assesment.

 

[737nCH11]

My contacts within UAL ALPA tell me that things are on track. Chip, why are we getting two different stories here? Are you telling me that my ALPA friends, who are regularly in contact with UAL HQ, are lying to me?

 

[USA320Pilot]

737nCh11:

No I'm not, let's just agree to disagree.

By the way, if things are on track than why do you visit this forum daily and only participate to disupte my comments? If it's "on track", then why respond?

Moreover, are the airline analysts who spoke to the Denver Post wrong too? In addition, it appears your ALPA contacts have a different opinion than ALPA International President Duane Woerth and ALPA EF&A. Time will tell how this evolves...

Regards,

Chip

 

[cavalier]

Time will tell how this evolves...

Regards,

Chip

Time has already past and NOTHING has evolved on just about everything you write! LOL

But ok, I know, it's just fun and games and you enjoy it just like we like enjoy reading your stuff too for it's purely entertainment value.

Love Cav,

the mean ole mechanic who hawk & wall-fly just love

 

[737nCH11]

Chip,

It's called debate. Both sides take a position and then defend that position. But for the most part I consider it entertainment. It's a cold and rainy day, so I have nothing better to do than to refute your posts.

 

[USA320Pilot]

Cav:

Things change and over time things evolve...

Maybe issues such as no consensual restructuring, underfunded pensions, no United POR, and United's four significant hurdles has something to do with it...

By the way, I was just wondering, did you ever have anything change in your life before your plan came to fruition, which required a change?

Will something occur? Maybe, maybe not, but it's inevitable that industry consolidation will occur. In my opinion, those who embrace change will benefit from the pending consolidation and those who resist could be left out on the street.

Regards,

Chip

P.S. Who predicted such things as the previous United merger attempt in front of the US Airways MEC on the same day the UAL APA MEC Chairman directed their Merger Committee to draft a "pre-nuptial" seniority list, who predicted the AMR carve out on December 23, 2000 (16 days before the announcement), the AMR merger ambivalence reported by USA Today, the 21-day Hart-Scott-Rodino Act notice to the Justice Department, the United-US Airways domestic alliance, and the Star alliance before these events occurred?