- Nov 9, 2003
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Posted on Tue, Jul. 27, 2004
US Airways aims to show improvement
Time is running out for the airline to avoid bankruptcy by proving to its creditors that it can cut costs.
By Tom Belden
Inquirer Staff Writer
This may sound familiar: It's crunch time again for US Airways.
By late September, analysts say, the airline that dominates air service in Philadelphia could be staring at another trip through Chapter 11 bankruptcy if it hasn't shown its creditors that costs are dropping enough to keep it from defaulting on loans and aircraft-lease payments. The airline must make a payment to its employee pension plans of about $110 million that month.
The airline's parent, US Airways Group Inc., plans to report second-quarter earnings today, providing another glimpse at the progress the beleaguered company has made to stay aloft.
US Airways president and chief executive officer Bruce R. Lakefield, in a message to his 28,000 employees last month, indicated that the Arlington, Va.-based airline would break even in the April-to-June period but lose money in the last half of the year - unless it has new cost-cutting agreements with its labor unions.
"A lot depends on what their results are," analyst Ray Neidl of Blaylock & Partners in New York said yesterday. "But they still need to have something done in late summer or early fall to avoid another bankruptcy filing."
US Airways' creditors granted the airline new terms on a $1 billion loan in March, but that only bought the company time to get its house in better order.
"They need to substantially complete their labor negotiations so they can persuade these parties that they're moving forward on meeting their obligations," Standard & Poor's airline analyst Philip Baggaley said last week. "They've been given a stay of execution."
US Airways has said that to be competitive with discount airlines, it must cut about $1.5 billion in operating costs, including lowering its labor expenses by $800 million through wage and benefit concessions or changes in work rules. In two other rounds of concessions in 2002 and 2003, the company reduced its labor costs by $1 billion.
In the current negotiations, the Air Line Pilots Association has offered to take a 12.5 percent wage cut and work 10 percent more a month. Spokesmen for the airline and the union said the offer was welcomed by the company and helped move the negotiations along.
The airline has started formal contract talks with the Association of Flight Attendants and the Communication Workers of America, which represents gate and ticket agents. But the International Association of Machinists, the union for mechanics and baggage handlers, has refused to discuss concessions, proposing instead changes in ways the airline operates that the union says would save millions of dollars.
The second quarter is usually one of the best for airlines because vacation travel fills airplanes and brings in revenue. But this year, those leisure travelers are a mixed blessing for US Airways. The arrival of Southwest Airlines at Philadelphia International Airport, where US Airways gets as much as a quarter of its revenue, has pushed passenger traffic up but revenue down.
"Traffic is OK," Baggaley said. "The problem is no one is paying much to get on planes."
The revenue shortfall is common this year to all airlines, especially the so-called legacy carriers that predate industry deregulation in 1979. Over the last two weeks, Continental, Delta and Northwest airlines have reported second-quarter losses, and American Airlines had only a tiny profit, the result of both low fares and high jet-fuel prices.
Even discount carriers, including Southwest and JetBlue Airways, haven't made as much money in the second quarter as they did a year ago, when carriers received onetime federal payments to reimburse them for security costs.
Still, Southwest's plans to grow its business in Philadelphia are only making US Airways' problems worse.
Southwest started flying to Philadelphia on May 9 and quickly built up its schedule to 28 flights a day to 13 cities. On Oct. 31, the discounter plans to have 41 daily flights, including the addition of routes to Hartford, Conn., Jacksonville, Fla., and Oakland, Calif.
Analysts have said that the lower fares Southwest introduced - all of them matched by US Airways and other carriers - could save Philadelphia-area passengers more than $200 million a year.
Eclat Consulting, a Reston, Va., aviation-consulting firm, pointed to the Philadelphia-Los Angeles route as an example. If the average one-way fare between the cities dropped from $194, where it was last year, to $123 - the average fare from Baltimore to Los Angeles, a longtime Southwest route - travelers would save $35 million a year, the firm said.
At the same time, Standard & Poor's Ratings Services said that Philadelphia International's credit score - currently "A," or stable - could suffer a bit were US Airways to drastically shrink here. But with its large regional population, Philadelphia would be hurt less than US Airways' other hub airports in Charlotte, N.C., and Pittsburgh.
At Philadelphia's airport, the lower fares are pushing up traffic to the point that a record 26 million passengers are expected to get on or off flights this year.
The fares available this summer also are changing the airport's mix of business and leisure travelers. Airport chief of staff Jeff Shull said surveys of passengers indicated that about 45 percent of them now were vacationers, up from 40 percent in recent years, when fares were higher.
"Leisure travel is a lot more affordable," Shull said. "They're looking for air service rather than driving the family to Disney World."
Contact staff writer Tom Belden at 215-854-2454 or [email protected].
US Airways aims to show improvement
Time is running out for the airline to avoid bankruptcy by proving to its creditors that it can cut costs.
By Tom Belden
Inquirer Staff Writer
This may sound familiar: It's crunch time again for US Airways.
By late September, analysts say, the airline that dominates air service in Philadelphia could be staring at another trip through Chapter 11 bankruptcy if it hasn't shown its creditors that costs are dropping enough to keep it from defaulting on loans and aircraft-lease payments. The airline must make a payment to its employee pension plans of about $110 million that month.
The airline's parent, US Airways Group Inc., plans to report second-quarter earnings today, providing another glimpse at the progress the beleaguered company has made to stay aloft.
US Airways president and chief executive officer Bruce R. Lakefield, in a message to his 28,000 employees last month, indicated that the Arlington, Va.-based airline would break even in the April-to-June period but lose money in the last half of the year - unless it has new cost-cutting agreements with its labor unions.
"A lot depends on what their results are," analyst Ray Neidl of Blaylock & Partners in New York said yesterday. "But they still need to have something done in late summer or early fall to avoid another bankruptcy filing."
US Airways' creditors granted the airline new terms on a $1 billion loan in March, but that only bought the company time to get its house in better order.
"They need to substantially complete their labor negotiations so they can persuade these parties that they're moving forward on meeting their obligations," Standard & Poor's airline analyst Philip Baggaley said last week. "They've been given a stay of execution."
US Airways has said that to be competitive with discount airlines, it must cut about $1.5 billion in operating costs, including lowering its labor expenses by $800 million through wage and benefit concessions or changes in work rules. In two other rounds of concessions in 2002 and 2003, the company reduced its labor costs by $1 billion.
In the current negotiations, the Air Line Pilots Association has offered to take a 12.5 percent wage cut and work 10 percent more a month. Spokesmen for the airline and the union said the offer was welcomed by the company and helped move the negotiations along.
The airline has started formal contract talks with the Association of Flight Attendants and the Communication Workers of America, which represents gate and ticket agents. But the International Association of Machinists, the union for mechanics and baggage handlers, has refused to discuss concessions, proposing instead changes in ways the airline operates that the union says would save millions of dollars.
The second quarter is usually one of the best for airlines because vacation travel fills airplanes and brings in revenue. But this year, those leisure travelers are a mixed blessing for US Airways. The arrival of Southwest Airlines at Philadelphia International Airport, where US Airways gets as much as a quarter of its revenue, has pushed passenger traffic up but revenue down.
"Traffic is OK," Baggaley said. "The problem is no one is paying much to get on planes."
The revenue shortfall is common this year to all airlines, especially the so-called legacy carriers that predate industry deregulation in 1979. Over the last two weeks, Continental, Delta and Northwest airlines have reported second-quarter losses, and American Airlines had only a tiny profit, the result of both low fares and high jet-fuel prices.
Even discount carriers, including Southwest and JetBlue Airways, haven't made as much money in the second quarter as they did a year ago, when carriers received onetime federal payments to reimburse them for security costs.
Still, Southwest's plans to grow its business in Philadelphia are only making US Airways' problems worse.
Southwest started flying to Philadelphia on May 9 and quickly built up its schedule to 28 flights a day to 13 cities. On Oct. 31, the discounter plans to have 41 daily flights, including the addition of routes to Hartford, Conn., Jacksonville, Fla., and Oakland, Calif.
Analysts have said that the lower fares Southwest introduced - all of them matched by US Airways and other carriers - could save Philadelphia-area passengers more than $200 million a year.
Eclat Consulting, a Reston, Va., aviation-consulting firm, pointed to the Philadelphia-Los Angeles route as an example. If the average one-way fare between the cities dropped from $194, where it was last year, to $123 - the average fare from Baltimore to Los Angeles, a longtime Southwest route - travelers would save $35 million a year, the firm said.
At the same time, Standard & Poor's Ratings Services said that Philadelphia International's credit score - currently "A," or stable - could suffer a bit were US Airways to drastically shrink here. But with its large regional population, Philadelphia would be hurt less than US Airways' other hub airports in Charlotte, N.C., and Pittsburgh.
At Philadelphia's airport, the lower fares are pushing up traffic to the point that a record 26 million passengers are expected to get on or off flights this year.
The fares available this summer also are changing the airport's mix of business and leisure travelers. Airport chief of staff Jeff Shull said surveys of passengers indicated that about 45 percent of them now were vacationers, up from 40 percent in recent years, when fares were higher.
"Leisure travel is a lot more affordable," Shull said. "They're looking for air service rather than driving the family to Disney World."
Contact staff writer Tom Belden at 215-854-2454 or [email protected].
