Us Airways Casm Only Down A Penny

[funguy2]

Well... I did a little digging today, and found the following information

First Quarter 2004 (source Yahoo! Press Release**):
CASM*: 11.68 cents
Fuel Cost/gallon: 99.40 cents

Full Year 2000 (source US Airways 2000 Annual Report, usairways.com):
CASM*: 12.72 cents
Fuel cost/gallon: 95.81 cents

* CASM is for mainline only.
** identical press release on usairways.com does not provide the financial break down that is provided on Yahoo! Seems odd to me, maybe I could have looked harder at usairways.com and found the financials.

I picked 2000 because I did not want to include the effects of BK, 9/11/01, etc in the comparison period. I wanted the costs to be "typical" of the before BK and concessions situation.

So indeed, through BK and Two rounds of concessions, CASM has dropped only 1.04 cents or 8 percent. Meanwhile, the cost of fuel has increased by 3.5%, which probably contributes somewhat to the lack of CASM reduction, but doesn't explain it completely. If we reduce the 11.68 cent CASM by 3.5% to hold fuel cost contstant, CASM would be 11.27 cents, or a reduction of 1.45 cents/ASM from 2000 (or 11.4%). Not quite the management goal.

So, if management expects 2 cents CASM reduction from employees, then it is true that more needs to be done in the Concessions department.

However, I would argue that its time for management to contribute 1 to 1.5 cents/ASM in savings from non-employee sources. Namely, more agressive fuel hedging (works for Southwest) and the structural changes we continue to discuss.

Perhaps this is the nature of the May 5th (or 6th) announcement. Here is our first penny of cost savings... Now Labor needs to give some more, then we'll find more structural, non-employee savings...

 

[BoeingBoy]

For me, the value of the plan hinges on one thing - which comes first, employee concessions or structural changes.

I say this because the structural changes will have the happy byproduct of lowering employee costs per ASM. If the current A/C hours per day could be increased to near 12 hours, that's probably worth 1/2 cent per ASM for the employee costs. Adding 50 or so more airplanes (and flying them 12 hours a day) is probably worth at least 3/4 cent per ASM in employee costs.

Now, if the plan is to cut the 2 cents per ASM in employee costs first - resulting in employee costs being 2.5 cents per ASM - and then doing the other things, the end result will be employee costs in the 1.5 cent range. That's significantly less than anyone in the industry.

Jim

 

[funguy2]

Boeing Boy:

I certainly agree with your post. However, so far, it seems as though US Airways management has been intent on getting the 2 cents from Labor first. I am hopeful that we are about to see that change... Hopeful, but not getting my hopes to high...

Assuming you are right, and the structural changes lower employee costs by 0.5 cents/ASM in addition to the other structural benefits, then it would seem that the employee sacrifice should be complete. As some would say, "the concession stand is closed." If it were me, I would not close the concession stand permanently, but I would insist on the structural changes before any additional labor negotiations, just to see how much the structural changes add to the solution of 4 cents/ASM reduction.

 

[BoeingBoy]

funguy2,

I can't argue with that. I would even go somewhat further (strictly personal opinion here). If temporary cuts were needed to get over a short-term bump - say financing new Buses - I'd probably agree. Something like the "war deferral" last spring.

I suspect that Lakefield will want any contract changes to last at least the term of the ATSB loan, however.

Jim

 

[Winglet]

Structural changes . . . . 2 cents . . . . . baloney. What Lakefield wants is 4 cents from employess, call it 2 cents then credit the other two cents to meaningless "structural" changes.

With $29 dollar fares, I guess he's going to have to make up the loss on volume, huh?

 

[PITbull]

Boeing Boy:

I certainly agree with your post. However, so far, it seems as though US Airways management has been intent on getting the 2 cents from Labor first. I am hopeful that we are about to see that change... Hopeful, but not getting my hopes to high...

Assuming you are right, and the structural changes lower employee costs by 0.5 cents/ASM in addition to the other structural benefits, then it would seem that the employee sacrifice should be complete. As some would say, "the concession stand is closed." If it were me, I would not close the concession stand permanently, but I would insist on the structural changes before any additional labor negotiations, just to see how much the structural changes add to the solution of 4 cents/ASM reduction.

I can agree with that.

Only thing, if management does address the structural costs first, can we trust their figures when these implementations are put in place.


I continue to believe that a lot of the ATSB guarantee qualifying, BK, liquidation threat, LCC (MAA) had more to do with busting our contracts to infinity along with all the other lagacy carriers that are forced to copy this trend; than to do with industry changes and 9/11.

U has had 3 "business plans in 12 months.....first, was the "Restructuring Plan", second, was the "Transformation Plan", and third, is the "Going Forward Plan".

We've had 4 CEOs in 30 months.....Gangwal, Wolf, Seigel, and Lakefield. Everyone of them has or has received a hefty compensation package regardless of the airline performance.

United followed U's plan almost to the Tee, from BK, to changing CEO, to LCC (TED) to bringing their labor groups to their knees as well. Only difference is, they got the "luxury" of staying in BK longer. And pilots still get to keep their Defined pensions.

 

[Dont call me Shirley]

As has been pointed out before, even if UAIR's employee worked for free, the CASM would ony drop about 4 cents. (some 40% of the company costs are labor).

 

[nycbusdriver]

As has been pointed out before, even if UAIR's employee worked for free, the CASM would ony drop about 4 cents. (some 40% of the company costs are labor).

Well - there you have it. The 4 cent CASM they're looking for.

Cut compensation by 50% immediately (not including management, of course) to get the 2 cents CASM reduction demanded, then threaten liquidation to get the other half. Voila! 4 cents CASM reduction!

And bonuses all around for CCY mahogany row.