US Airways Stand Alone Strategic Analysis/Business Plan
Prepared by Chip Munn - June 30, 2003
Current Mainline Fleet:
Aircraft Type 2003
Total aircraft 279
Potential B737 Fleet Replacement:
During the recent Regional Airline Association (RAA) conference in Phoenix, US Airways chief executive officer Dave Siegel said more than 100 US Airways Boeing 737-300/400 aircraft would be nearing the end of their useful life. Siegel noted the EMB-190/195 looks attractive for US Airwaysâ€™ mainline operation as some of the airlineâ€™s older narrowbodies exit the fleet during the next five to 10 years.
Siegel told conference attendees that the company looked at the EMB-190/195 in its long-range plans and the airline is studying whether they can replace aging Boeing 737-300s and -400s on mainline routes.
The EMB-190LR has a maximum takeoff weight of 110,893 pounds, has a range of 2,300 nautical miles, and a dual class configuration of 8 first and 86-coach class seats (96 total) or 98 seats in a single class configuration.
The EMB-195LR has a maximum takeoff weight of 111,973 pounds, has a range of 1,800 nautical miles, and has a dual class configuration of 8 first and 98-coach class seats (106 total) or 116 seats in a single class configuration.
In relation to previous US Airways mainline aircraft, the F100 was configured for 8 first and 91-coach class seats (99 total) and had a maximum takeoff weight of 101,000 pounds, which is similar in scope to the EMB-190 and is smaller/lighter than the EMB-195.
According to Embraer, the commonality between the four aircraft is high: 89% between the Embraer 170/175 and the Embraer 190/195 and 95% between the Embraer 170 and the Embraer 175 as well as between the Embraer 190 and the Embraer 195, which would provide US Airways with additional cost savings.
Siegel said one big advantage of adding the larger Embraer RJs to the mainline fleet would be moving MidAtlantic Airwaysâ€™ mainline pilots up without a heavy training burden because all four aircraft have a common type rating.
Siegel told Aviation Daily, Itâ€™s premature to say weâ€™re going to pursue that aircraft (EMB-190/195), but it was absolutely something we viewed as attractive and something that went into our calculus.
Potential B767/B757 Fleet Replacement:
US Airways has reached agreement with Airbus Industries for the airline to receive 29 Airbus aircraft in 2007 through 2009. The firm orders are for 10 A330-200s, 13 A321s, and 6 A320s. US Airways could opt to take delivery of these 29 new Airbus aircraft, plus other unspecified aircraft, to replace the aging 41 B767s/B757s before the end of the decade, provided US Airways remains independent and in its current structure.
Hypothetical 2011 Mainline Fleet:
Aircraft Type 2003 2011 (hypothetical date)
A330s 9 19
B767s 10 0
B757s 31 0
A321s 28 41
A320s 23 29 (1)
A319s 61 61
B737-400s 47 0
B737-300s 70 0
EMB-190/195 0 129
Total aircraft 279 279 (2)
Note (1) â€“ US Airways and GECAS negotiated for 7 A320 family aircraft to be removed from service that were replaced by B737 aircraft. The A320 family aircraft could be returned to active service in the future.
Note (2) â€“ The Hypothetical Mainline Fleet Plan listed above would leave the carrier with A330s, A320 family, and EMB aircraft, which would provide the company with two aircraft manufactures, both located outside of the U.S.
US Airways Express RJ limitations:
Prior to August 9, 2002, the US Airways â€“ ALPA scope clause limited the airline to code share with 70 50-seat RJs, which are operated by Mesa Airlines, Trans States Airlines, and Chautauqua Airlines, per LOA 79
The ALPA Restructuring Agreement and Accelerated Small Jet LOA #83, signed on December 13, 2002, provided US Airways with the most flexible industry wide scope clause and increased the companyâ€™s RJ authorization to 465 RJs, which includes the EMB-170/175 aircraft operated by new subsidiary MidAtlantic Airways.
Mesa Airlines, or any wholly owned subsidiary of Mesa Air Group (Freedom Airlines) has authorization to add 20 50-seat RJs, a second agreement for up to 20 50-seat RJs and up to 30 70-seat RJs (specifically limited to the CRJ-700 aircraft only).
Midway Airlines has authorization to fly 18 50-seat RJs, with US Airways holding an option to increase the carrierâ€™s fleet to 66 50-seat RJs.
Chautauqua recently signed an order for 12 ERJ-145LRs and the company said Republic Airlines would operate nine of these jets, with Chautauqua adding three to its fleet to be flown in US Airways Express colors.
US Airways recent 170 RJ firm order split between Bombardier and Embraer, includes 85 EMB-170/175s for MidAtlantic Airways and 60 CRJ 200s scheduled for delivery to wholly owned subsidiary PSA Airlines. PSA began pilot training with its first class on June 16. In addition, the company ordered 25 CRJ 700s (disputed CRJ-705) and the company has not announced what US Airways Group company will operate these aircraft. The CRJ-700s could be operated by a participating wholly owned subsidiary (Allegheny, Piedmont, or PSA Airlines) and contractually could be flown on the mainline in addition to the 279 aircraft fleet, but this option is considered unlikely (see note 6). Use of the CRJ-705 will require ALPA's approval and a change in the pilot contract.
According to Aviation Daily, US Airways plans to have six to nine first-class seats in the Embraer 170, and nine in the 175. Siegel said the dual class configuration in short-haul flying is key to attracting business passengers connecting on transcontinental or transatlantic flights. We expect the dual-class product at worst case will be economically neutral, and our analysis suggest, P&L (profit and loss) positive, Siegel explained. Otherwise we wouldnâ€™t do it. US Airways sees potential for the 175 on some lower time-demand channels on its Boston, New York and Washington, D.C., shuttle flights, Siegel noted. Executive vice president of corporate development and express operations Bruce Ashby told Aviation Daily expects furloughed US Airways pilots to begin Embraer 170 training in July. The Daily reported breakeven load factor for the Embraer 170's flown under the MidAtlantic banner should be about 50%, Ashby said, noting, We're pretty comfortable with that number.
US Airways RJ Order Summary
Embraer Firm Orders
- 85 EMB-170s (70-seat dual class aircraft), convertible to EMB-175s (76-seat dual class aircraft)
- Deliveries to begin in November 2003 and to be completed by September 2006
- On average 2.5 EMB aircraft delivered per month for 34 months
- 50 EMB-170/175s
- 145 EMB-145s (50-seat single-class aircraft)
- 100 options to buy a variety of Embraer aircraft
Total Embraer RJ and Mainline Firm Orders & Options
- Up to 135 EMB-170/175 aircraft can delivered to MidAtlantic Airways (MDA)
- Total US Airways Embraer firm orders and options is 275 aircraft
Canandair Firm Orders
- 60 CRJ-200 (50-seat single class aircraft), first aircraft delivered to PSA Airlines In October 2003 and all deliveries to be completed by April 2005
- 25 CRJ-700 (75-seat dual class aircraft) (note 6)
- On average 4.4 CRJ aircraft delivered per month for 34 months
Canadair Reconfirmable Orders
- 90 reconfirmable orders (which have scheduled delivery dates but allow the customer to cancel the order within a specific time prior to the delivery date)
- 100 options to buy a variety of Canadair RJs
Total Canandair Orders, Reconfirmable Orders, & Options
- Total US Airways Canadair firm orders and options is 275 aircraft
- (3) - The two regional jet manufacturers split the deliveries with a combination of 170 firm orders and 380 options. All firm orders will be delivered within 34 months. 150 of 170 of the aircraft have been financed at attractive rates by GECAS and a Brazilian bank.
- (4) - Embraer and Canadair each could deliver up to 275 RJs each for a total of 550 additional US Airways Group Embraer and Bombardier aircraft.
- (5) - US Airways will receive approximately 7 RJs per month during the first 19 months of the delivery schedule followed by 2.5 EMB-170 deliveries per month thereafter; however, the combined deal has Canadair reconfirmable orders, which have scheduled delivery dates that will likely provide additional RJ aircraft for the Arlington-based airline.
- (6) - Letter of Agreement (LOA) 83, Accelerated Small Jets, says up to 25 Large SJs, specifically limited to the CRJ-700, may be placed into revenue operation at a Participating Wholly-Owned Carrier, other than MDA. All Large SJ positions created by operation of this paragraph shall be filled by US Airways pilots in accordance with the Jets for Jobs Protocol, Attachment B-3 of the Restructuring Agreement. In addition, as an exception to the Jets for Jobs Protocol, 100% of the first 25 Medium or Small Jet positions at the Wholly Owned Carrier where the above Large Small Jets are placed shall be filled by pilots of that Wholly Owned Carrier. Upon completion of the staffing of these aircraft, the 50/50 balance of hiring pursuant to the Jets for Jobs Protocol will be followed.
- (7) US Airways Express affiliate airlines have reached agreement with US Airways to operate 170 RJs, with US Airways holding 48 options for Midway CRJ expansion. In addition, US Airways subsidiaries have 170 firm orders; therefore, the US Airways Express network will expand to 340 RJs, with about 300 RJs in service by the end of 2006.
- (8) By the end of 2006, the total US Airways network jet aircraft in operation will be about 580 jets, with 279 mainline and about 300 RJ aircraft. Then in 2007 the Company will begin taking delivery of new Airbus aircraft that could replace aging Boeing aircraft.
Regional Jet/Express Operator Consolidation
At the recent RAA meeting, looking at US Airwaysâ€™ long-term future, US Airways CEO Dave Siegel told ATWOnline, a Washington, D.C.-trade publication, that US Airways likely will consolidate its regional operations over the next several years. The carrier currently operates the US Airways Express network that consists of 10 regional airlines. PSA Airlines, Piedmont Airlines, and Allegheny Airlines are wholly owned subsidiaries the remaining seven companyâ€™s code share with to US Airways. We don't need 10. Two or three are more likely, Siegel said during the interview with ATWOnline. Siegel noted at the June 10 Merrill Lynch Global Transportation conference Mesa Airlines would be a big RJ operator for US Airways, as Express operations are consolidated.
US Airways Hub and Focus City Analysis
Philadelphia International Airport
US Airways controls 78 gates in Philadelphia, its primary international gateway. The airline has 13 gates in the new A-West International concourse, 32 gates in concourses, B, C, & D, and 33 of 36 gates (25 with RJ jetways) in the new US Airways Express concourse F. In addition, the company has access to gates in concourse A-East, when necessary.
US Airways has entered into discussions with the State of Pennsylvania and the City of Philadelphia seeking government provided cost reductions and capital improvements.
Specifically, the carrier is seeking $140 million in lease concessions for five years and another $95 million in capital improvements at Philadelphia International.
The State of Pennsylvania has offered $96.4 million in lower operating costs and capital improvements, including constructing a new runway.
Negotiators for the company expect to meet 6 to 8 times during the next few weeks and Pennsylvania Governor Ed Rendell has set a target date of July 18 to complete negotiations to reach a mutually acceptable agreement.
The hub has been restructured with the October 2002 schedule change to become the airlines principal international gateway, will tap the strong local O&D market, and will be similar in scope to Continental Airlines in Newark. US Airways anticipates growing Philadelphia mainline and express ASMs when market conditions permit.
Pittsburgh International Airport
US Airways controls 53 gates in Pittsburgh (excluding concourse E, which is being temporarily closed to reduce costs during a period of low demand). 25 are mainline gates in concourse B, the company has 5 gates in concourse A that can be used for over flow operations or terminating fights, and 3 gates in concourse C. US Airways Express operates from 25 gates in concourse A and will shortly move out of concourse E.
The airline has entered into discussions with the State of Pennsylvania and the Allegheny County Airport Authority seeking government provided cost reductions and capital improvements, which include lowering its $62 million per year landing fees and lease expense. In addition, US Airways is seeking $155 million in capital improvements, including the construction of regional jet loading bridges, maintenance, training, and reservation facilities.
The State of Pennsylvania has offered to the airline to lower Pittsburgh Internationalâ€™s operating costs by $80.4 million over five years and the government would pay for at least $87.5 million in airport capital improvements. The improvements include modifying the terminal to accommodate regional jets ($25 million), constructing a regional jet maintenance facility ($20 million), making improvements to existing hangars ($15 million), building a reservations center ($12.5 million), constructing a mainline pilot training center, (at least $10 million) and building a regional jet training center (at least $5 million).
State demands for Philadelphia and Pittsburgh in exchange for financial support, call on US Airways to continue to serve smaller airports across the state, maintain flight levels at both Pittsburgh and Philadelphia, maintain employment levels at both airports, and better market itself to help increase its local passenger base. Gov. Ed Rendell also said the state wants a seat on the US Airways board of directors in return for the $263.9 million in Philadelphia and Pittsburgh Airport taxpayer incentives.
Provided the government and the state reach an agreement on cost reductions and capital improvements by July 18, which will permit the Company to operate Pittsburgh as a hub beyond January 5, 2005, the hub will be restructured to create an East-West focused directionalized traffic flow. Due to Pittsburghâ€™s relatively high operating costs and low O&D traffic, the company will rely on strong RJ feed to make the hub profitable. When the hub restructuring is complete the operation will be similar in scope to Delta Air Lines and Comair in Cincinnati.
Charlotte Douglas International Airport
US Airways controls 66 gates in Charlotte. The airline operates from 33 gates in concourses B and C, 11 gates in the new international concourse D, and 32 gates (9 with jetways) in the new US Airways Express concourse E. In addition, the company has access to 2 additional gates in concourse D and concourse E remote parking for Express aircraft.
The hub has been restructured to become omni-directional with larger, higher frequency banks due to geographical opportunities and will be similar in scope to Delta Air Lines and ASA in Atlanta.
According to Andrew Nocella, vice president of planning and scheduling, the hub changes, which reflect the previously announced capacity reductions, will result in an annual improvement of an estimated $400 million in additional revenue and cost reductions, which will be increased pending current negotiations with Pennsylvania officials to a sum greater than $400 million.
Washington Ronald Reagan National Airport
US Airways operates 14 gates in Washington and has outdoor Express turboprop/RJ operations in the Commuter World. 11 gates are located in the North Pier, concourse A, with 3 gates in the center pier, concourse B, which are used by affiliate RJ operators.
The company is in preliminary discussions with the Washington Metropolitan Airports Authority (MWAA) to build a RJ terminal, next to the former interim terminal/US Airways maintenance hangar, to provide access from the North Pier to RJ aircraft with jetways. If negotiations are successful, terminal construction could begin as early as September 2003 with the facility designed to replace the Commuter World.
US Airways is also seeking 1,250 nautical mile slot exemptions to begin non-stop service between Washington National and both Los Angeles and San Francisco with current or some of the proposed twenty new slot authorizations pending in Congress. There have been 12 pairs [of slots] handed out in the last four years, and we haven't gotten any, Siegel told the Greater Washington Initiative annual meeting on May 29. Instead, the flights went to Delta Air Lines, Alaska Airlines, Corporate Air, Frontier Airlines and America West.
The House of representatives approved a new slot allocation in Flight 100, the Century of Aviation Reauthorization Act (CARA), and Senate has not completed their proposal for the new flights from Washington National. Once the Senate action is complete, the two bills will then to the Conference Committee for resolution.
Meanwhile, on June 13, US Airways announced it has reached agreement with the government to increase its commuter slot aircraft capacity seat limit from 56 to 76-seat aircraft. This agreement will permit the airline to operate 70-seat EMB-170 and 76-seat EMB-175 aircraft in and out of Washington, without having to use mainline aircraft slots.
New York LaGuardia International Airport
US Airways controls 12 Mainline/Shuttle gates, as well as 8 Express gates, for a total of 20 gates. The Express gates handle multiple aircraft and the airline previously upgraded its Shuttle boarding area to provide the premier Shuttle facility.
Boston Logan International Airport
US Airways controls 16 Mainline and Shuttle plus 2 Express gates. The company previously opened its new premier Shuttle concourse, and the company provides subcontractor support for Alaska Airlines (which is a US Airways revenue generator).
US Airways has four new alliance partners/groups â€“ United Airlines, Lufthansa German Airlines, the Star Alliance, and the GoCaribbean network.
The company told analysts at the June 10 Merrill Lynch Global Transportation conference the United alliance is exceeding expectations, the two companies code share on 1,100 daily flights, and each receive 10,000 additional passengers per day due to the business relationship.
According to Aviation Daily, US Airways opened a Buenos Aires office and plans within a month to start code sharing with United, which will carry passengers on its flights from Ezeiza International Airport to Washington to connect with US Airways service to the rest of the country. Cormoran International now represents US Airways in Argentina.
The Lufthansa bilateral alliance will begin in Q4 2003 and when fully implemented will provide $50 million in additional annual revenue.
US Airways is required to complete Star Alliance Information Technology (IT) interoperability by December 31. Once the IT integration is complete, the airline expects to then become a full alliance partner in Q1 2004 and when fully implemented, the company expects $25 million in additional annual incremental revenue.