USA320Pilot
Veteran
- May 18, 2003
- 8,175
- 1,539
When US Airways put the final pieces together of its Transformation Plan last summer crude oil was trading at about $36 per barrel. At the time is was reasonable to assume that oil prices would remain stable, but shortly after Labor Day prices climbed to above $40 and yesterday closed at $54.49 on the NYMEX for the front month contract or April delivery.
As negotiations continued US Airways needed to seek deeper cuts from labor due to passengers booking away from the company, which created lower revenue and coupled with the increase in oil prices, hurt liquidity. The updated version of the Transformation Plan could support oil prices probably in the mid-$40 range, but not prices at nearly $55 per barrel.
Each $1 increase in the price of crude oil increase US Airways average fuel expense by nearly $2 million per month or $24 million per year, thus if current prices remain stable the company’s annual fuel expense would be about $300 million over budget.
In contrast, other legacy carrier’s larger than US Airways such as American, United, and Delta would see their fuel expense climb about $5 million per month or $60 million per year for each $1 increase in the price of crude oil. These companies have seen their fuel expense increase from last summer to day by about $1.2 billion per year, which like at US Airways is clearly unsustainable.
There are certain members of OPEC who are pushing higher prices, such as Iran that has said that if the U.S. continues its efforts against the country’s weapons program, the Middle East country will drop oil production that will push energy commodity prices even higher. However, the OPEC chief concerned about oil prices and would like to see them lower.
See Story
So what can be done?
Fare increases – This would seem to be a logical solution, but in today’s low fare environment that is not an easily obtainable solution, to simply pass the increased cost onto the consumer. LCC’s like Southwest, who is hedged in 2005 with its total fuel cost equal to oil prices at about $30 per barrel, and jetBlue are not increasing fares. However, the recent initiative by Northwest to increase short-haul round trip fares by $10 and long-haul fares by $20.
See Story
It’s unclear how much this initiative will raise revenue, but it’s a significant number.
Mainline bookings during the past 7 days were:
March 3 - 123,000
March 4 - 135,000
March 5 - 115,000
March 6 - 112,000
March 7 - 110,000
March 8 - 95,000
March 9 - 110,000
During the past seven days mainline bookings averaged about 115,000 customers and its Express bookings average about 47,000 passengers per day.
It’s difficult to quantify how the fare increase will impact revenue because US Airways did not match the increase in its GoFares markets, which represents about 25% of its revenue base. In addition, fares were not increased on other routes where the company competes with LCC’s and it rescinded the hike on some of its highest fares, where the fares were higher than Delta’s new SimpliFares.
For discussion purposes, lets assume that US Airways increased its round trip fares for about 75,000 customers per day by $10 and not include those long-haul flights where the increase was $20 per round trip. That would boost the company’s revenue by $750,000 per day or about $22.5 million per day. If this number is accurate, the increase in revenue would offset about a $11.25 increase in crude oil prices and its effect on the carrier’s jet fuel expense over budget.
Boost revenue – Earlier this week according to US DAILY, usairways.com again has set a new record for both ticket sales and revenue, thanks in large part to the systemwide fare sale. In overwhelming response to the low fares available across US Airways’ network, close to 331,000 customers visited usairways.com yesterday. By midnight, almost 21,000 tickets were sold. This represents a 54 percent increase week over week and is almost double the volume of tickets sold during the same time frame last year. This also drove a 46 percent increase in revenue year over year.
Also noteworthy, like the Maters Gold Tournament US Airways will “beefs up†service for Kentucky Derby to obtain more revenue.
See Story
Further cut costs – US Airways announced that it would remove 11 B737s from its fleet beginning in May. The average lease expense on these aircraft is about $85,000 per month or about $1 million per year. These aircraft are scheduled for millions of dollars in refurbishing and overhauls and burn much more fuel than a similar size Airbus aircraft.
Eliminate unprofitable flying – In a recent email, US Airways executive vice president of marketing and planning Bruce Ashby said, "It is true that the loads for Panama City in March are strong. It is Easter time, probably the best month of the year for Latin American destinations.
Looking forward at the next several months is probably a better indication of the issues we are facing. PTY and SAL have advance bookings in the 25% range for April (i.e., % of seats booked now for travel in April) compared to an average of just under 50% for Caribbean destinations. For May, the markets are booked in the 3% range, compared to about 30% for the average Caribbean destination.
Those kinds of numbers are not encouraging. It is always possible that the markets will book up late and we would get an pleasant surprise. But they are not performing to our expectation and it is far more likely we will lose money on them if we continue to fly them.
[REMOVED]
We continue to push the other moves we made in the February schedule, including other FLL trips, the redesign of PHL, the rebanking of CLT, the new business nonstop services in DCA, etc. But these routes just weren't meeting expectations.
I think we all hope to build up FLL services at a time when we have more resources and more appetite for risk. Right now is not the time.†Ashby noted.
Meanwhile, US Airways continues to make progress in implementing its Transformation Plan to lower unit costs.
Flight Attendant Voluntary Furlough with Limited Recall - The Company is offering a Voluntary Furlough with Limited Recall (VFLR) Program, under which qualifying Flight Attendants may voluntarily furlough (due to lack of work) from US Airways with limited recall rights in exchange for a cash payment and certain travel benefits for themselves and eligible family members. This program will be offered to 500 Flight Attendants who will leave the company.
See Story
Active flight attendants may elect to go on furlough on June 1, Sept. 1 or Dec. 2, said a letter late Monday to flight attendants from Sherry Groff, US Airways' vice president of in-flight services. Those interested must respond by April 20. The airline will accept up to 200 applications in June, 100 in September, and 200 in December.
See Second Story
Flight Attendant Cabin Cleaning and Utility outsourcing – Per its new labor accords, US Airways Flight Attendants have begun cabin cleaning for flights east of the Mississippi River including those in the hubs. Except for some long haul and European flights starting on March 28 most of Utility work will be "outsourced".
See Story
As US Airways marches towards its March 15 deadline to file its plan of reorganization with the bankruptcy court the company will continue its efforts trying to raise money, talk to all interested parties, and see what shakes out, which could lead to some sort of corporate transaction or other means to deal with fuel prices. US Airways is “thinking out of the box†to address its financial problems, but the company will probably have to do things focusing on the short-term rather than long-term. Thus, expect more significant news in the not-so-distant future.
Meanwhile, tomorrow at 3:30 p.m. at the Pittsburgh Airport Crowne Plaza Hotel US Airways President and CEO Bruce Lakefield and Bruce Ashby, Executive VP, Marketing and Planning will report to the ALPA MEC in “open session†on Transformation Plan progress. All pilots and their spouses are encouraged to attend and courtesy transportation is available from the airport.
Regards,
USA320Pilot
As negotiations continued US Airways needed to seek deeper cuts from labor due to passengers booking away from the company, which created lower revenue and coupled with the increase in oil prices, hurt liquidity. The updated version of the Transformation Plan could support oil prices probably in the mid-$40 range, but not prices at nearly $55 per barrel.
Each $1 increase in the price of crude oil increase US Airways average fuel expense by nearly $2 million per month or $24 million per year, thus if current prices remain stable the company’s annual fuel expense would be about $300 million over budget.
In contrast, other legacy carrier’s larger than US Airways such as American, United, and Delta would see their fuel expense climb about $5 million per month or $60 million per year for each $1 increase in the price of crude oil. These companies have seen their fuel expense increase from last summer to day by about $1.2 billion per year, which like at US Airways is clearly unsustainable.
There are certain members of OPEC who are pushing higher prices, such as Iran that has said that if the U.S. continues its efforts against the country’s weapons program, the Middle East country will drop oil production that will push energy commodity prices even higher. However, the OPEC chief concerned about oil prices and would like to see them lower.
See Story
So what can be done?
Fare increases – This would seem to be a logical solution, but in today’s low fare environment that is not an easily obtainable solution, to simply pass the increased cost onto the consumer. LCC’s like Southwest, who is hedged in 2005 with its total fuel cost equal to oil prices at about $30 per barrel, and jetBlue are not increasing fares. However, the recent initiative by Northwest to increase short-haul round trip fares by $10 and long-haul fares by $20.
See Story
It’s unclear how much this initiative will raise revenue, but it’s a significant number.
Mainline bookings during the past 7 days were:
March 3 - 123,000
March 4 - 135,000
March 5 - 115,000
March 6 - 112,000
March 7 - 110,000
March 8 - 95,000
March 9 - 110,000
During the past seven days mainline bookings averaged about 115,000 customers and its Express bookings average about 47,000 passengers per day.
It’s difficult to quantify how the fare increase will impact revenue because US Airways did not match the increase in its GoFares markets, which represents about 25% of its revenue base. In addition, fares were not increased on other routes where the company competes with LCC’s and it rescinded the hike on some of its highest fares, where the fares were higher than Delta’s new SimpliFares.
For discussion purposes, lets assume that US Airways increased its round trip fares for about 75,000 customers per day by $10 and not include those long-haul flights where the increase was $20 per round trip. That would boost the company’s revenue by $750,000 per day or about $22.5 million per day. If this number is accurate, the increase in revenue would offset about a $11.25 increase in crude oil prices and its effect on the carrier’s jet fuel expense over budget.
Boost revenue – Earlier this week according to US DAILY, usairways.com again has set a new record for both ticket sales and revenue, thanks in large part to the systemwide fare sale. In overwhelming response to the low fares available across US Airways’ network, close to 331,000 customers visited usairways.com yesterday. By midnight, almost 21,000 tickets were sold. This represents a 54 percent increase week over week and is almost double the volume of tickets sold during the same time frame last year. This also drove a 46 percent increase in revenue year over year.
Also noteworthy, like the Maters Gold Tournament US Airways will “beefs up†service for Kentucky Derby to obtain more revenue.
See Story
Further cut costs – US Airways announced that it would remove 11 B737s from its fleet beginning in May. The average lease expense on these aircraft is about $85,000 per month or about $1 million per year. These aircraft are scheduled for millions of dollars in refurbishing and overhauls and burn much more fuel than a similar size Airbus aircraft.
Eliminate unprofitable flying – In a recent email, US Airways executive vice president of marketing and planning Bruce Ashby said, "It is true that the loads for Panama City in March are strong. It is Easter time, probably the best month of the year for Latin American destinations.
Looking forward at the next several months is probably a better indication of the issues we are facing. PTY and SAL have advance bookings in the 25% range for April (i.e., % of seats booked now for travel in April) compared to an average of just under 50% for Caribbean destinations. For May, the markets are booked in the 3% range, compared to about 30% for the average Caribbean destination.
Those kinds of numbers are not encouraging. It is always possible that the markets will book up late and we would get an pleasant surprise. But they are not performing to our expectation and it is far more likely we will lose money on them if we continue to fly them.
[REMOVED]
We continue to push the other moves we made in the February schedule, including other FLL trips, the redesign of PHL, the rebanking of CLT, the new business nonstop services in DCA, etc. But these routes just weren't meeting expectations.
I think we all hope to build up FLL services at a time when we have more resources and more appetite for risk. Right now is not the time.†Ashby noted.
Meanwhile, US Airways continues to make progress in implementing its Transformation Plan to lower unit costs.
Flight Attendant Voluntary Furlough with Limited Recall - The Company is offering a Voluntary Furlough with Limited Recall (VFLR) Program, under which qualifying Flight Attendants may voluntarily furlough (due to lack of work) from US Airways with limited recall rights in exchange for a cash payment and certain travel benefits for themselves and eligible family members. This program will be offered to 500 Flight Attendants who will leave the company.
See Story
Active flight attendants may elect to go on furlough on June 1, Sept. 1 or Dec. 2, said a letter late Monday to flight attendants from Sherry Groff, US Airways' vice president of in-flight services. Those interested must respond by April 20. The airline will accept up to 200 applications in June, 100 in September, and 200 in December.
See Second Story
Flight Attendant Cabin Cleaning and Utility outsourcing – Per its new labor accords, US Airways Flight Attendants have begun cabin cleaning for flights east of the Mississippi River including those in the hubs. Except for some long haul and European flights starting on March 28 most of Utility work will be "outsourced".
See Story
As US Airways marches towards its March 15 deadline to file its plan of reorganization with the bankruptcy court the company will continue its efforts trying to raise money, talk to all interested parties, and see what shakes out, which could lead to some sort of corporate transaction or other means to deal with fuel prices. US Airways is “thinking out of the box†to address its financial problems, but the company will probably have to do things focusing on the short-term rather than long-term. Thus, expect more significant news in the not-so-distant future.
Meanwhile, tomorrow at 3:30 p.m. at the Pittsburgh Airport Crowne Plaza Hotel US Airways President and CEO Bruce Lakefield and Bruce Ashby, Executive VP, Marketing and Planning will report to the ALPA MEC in “open session†on Transformation Plan progress. All pilots and their spouses are encouraged to attend and courtesy transportation is available from the airport.
Regards,
USA320Pilot
