Us Airways Strategic Analysis

[delldude]

it will be interesting to see what transpires in the comming week regarding the POR filing and if it happens.
if they twittle around too much more i expect GE to take back some aircraft and radically downsize to profitable markets only.
they have to be getting testy with U management...(GE).

 

[funguy2]

I just read a rather interesting article in the Financial Times - It was an interview with America West's CEO Doug Parker. A couple of interesting stats from the article:

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.

Parker says that a $10/bbl oil increase costs AWA $100mil/year... So a $1/bbl increase costs $10mil/year. This seems consistent with USA320Pilots information, given that US Airways is currently (but not for long) about twice AWA's size in terms of aircraft.

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 In addition, fares were not increased on other routes where the company competes with LCC’s  and it rescinded the hike on some of its highest fares, where the fares were higher than Delta’s new SimpliFares.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.

Interestingly, Parker says that NW's fare increase is already being diluted by fare sales (like we didn't know that already), and that it means an increase in revenue to AWA of $1 to $2mil for 2004. Since AWA typically pulls in about $2bil in revenue/year, that would be a revenue increase of 0.1%. That is not exactly the kind of improvement one would hope for...

Now, I don't know if this information can be extrapolated to US Airways, but its definitely throws a monkey-wrench into USA320Pilot's assertion that the NW fare increase is significantly off-setting fuel price increases.

 

[LGA / 037]

This seems like a release of proprietary information which, I would imagine, be cause for dismissal. Is the firing of USA320 the announcement that will add to USAir's liquidity?

[post="254206"][/post]​

If your an employee , you would and should know in SABRE under N*LAND the bookings broken dwon by Express, Mainline, and total is in the uper right hand corner. I know management has had a few oversights lately but I would hope they know how many customers are on the books for a perticular day !

 

[Ch. 12]

If your an employee , you would and should know in SABRE under N*LAND the bookings broken dwon by Express, Mainline, and total is in the uper right hand corner. I know management has had a few oversights lately but I would hope they know how many customers are on the books for a perticular day !

[post="254325"][/post]​

LGA- Interesting how it turned into a mgmt bashing for you, but when luvn737's states that it is proprietary info, that doesn't mean that mgmt doesn't know it, it means that other carriers should not know it.

 

[BoeingBoy]

Now, I don't know if this information can be extrapolated to US Airways, but its definitely throws a monkey-wrench into USA320Pilot's assertion that the NW fare increase is significantly off-setting fuel price increases.

[post="254304"][/post]​

funguy,

My rough guesstimates show that the $5/$10 fare increase could add as much as $16 million a month in revenue. That would offset about 14% of U's Jan fuel bill, which in turn equals the bottom line result of about an $8 drop in oil prices (assuming that X% drop in fuel cost equals the same % drop in oil prices). Thus, for $55 per bbl oil, the added fare revenue would be the equivalent of $47/bbl oil, not $40 or below oil.

If the latest version of the TP plan is based on $40/bbl oil, it seems to have been an exercise in futility unless oil falls fast.

Jim

 

[FWAAA]

Isn't it time for a new thread entitled Strategic Analysis March 10?

Maybe an AM and a PM version?

 

[USA320Pilot]

Luvn737, US Airways published its bookings for the public on a Daily basis on US Daily, 800-USDAILY. If you do some research, you could get the inofmration too since it's available to the public.

In regard to those who understand the financial markets, especially Lark's "so called 25-year Vet", according to the Charlotte Observer "Jet fuel is the second-biggest cost for airlines, after labor. Crude oil futures closed Wednesday at $54.77 per barrel. The forecast remains bleak for the money-losing airline industry, as the federal Energy Information Administration expects oil to remain in the high- to mid-$40s range through next year."

See Story

Lark, maybe your 25-year Vet hubby should read the newspapers.

From a technical perspective, today NYMEX Crude Oil is trading down 52 cents to $54.25 per barrel, which yesterday's market action suggested.

See Story

Hope777, I do not normally read your posts, especially since you purposely violate USaviation.com rules, which is a lack of integrity. I'm not going to do your research, why don't you take some initiative and do it yourself?

Regards,

USA320Pilot

 

[funguy2]

funguy,

My rough guesstimates show that the $5/$10 fare increase could add as much as $16 million a month in revenue.  That would offset about 14% of U's Jan fuel bill, which in turn equals the bottom line result of about an $8 drop in oil prices (assuming that X% drop in fuel cost equals the same % drop in oil prices).  Thus, for $55 per bbl oil, the added fare revenue would be the equivalent of $47/bbl oil, not $40 or below oil.

If the latest version of the TP plan is based on $40/bbl oil, it seems to have been an exercise in futility unless oil falls fast.

Jim

[post="254333"][/post]​

Well... the problem is that US Airways agreed to the increase, and then shortly thereafter launched a fare sale back to the original levels. That suggests that US Airways will not see the increased revenue until after the fare sale... Or at least it will not be applied to 100% of tickets sold going forward.

I suppose its possible that the fare sale levels have also increased. (i.e. the discount used to be based on the pre NW fare hike fares, now the discount is based on the post-NW fare hike fares).

Also, just to note, your calculation would be an increase in revenue of about 2%, which is 20x as large as what Parker is predicting. Not sure how meaningful that is given the very different nature of the two airlines, but it certainly seems like a very large discrepancy. Of course, I have no idea of knowing how Parker came to his figures et al, but I'd have to assume he has more info on his company's finances than you do of yours. (Not a slam, just the reality of being the boss, etc)

 

[BoeingBoy]

funguy,

I agree with all your points. The end result is that any revenue increase form the $5/$10 fare increase certainly won't hurt but is not likely to be anywhere near what USA320 hopes.

Jim

ps - no offense taken at all - my figures were merely guesstimates and probably overly optimistic ones at that.

 

[mweiss]

Perhaps I'm missing something here...

The legacy carriers all increased "fares" in order to offset the increased fuel prices. Was this all fares, across the board? Was it just for leisure fares? Was it just for business fares?

US and UA just announced a "fare sale." What's the intersection between the set of fares impacted by the "fare sale," and those impacted by the "fuel-related fare increase?"

All of the posts I've been reading on these two actions suggests that they're all the same fares in the same markets. Do we know this to be true?

 

[BoeingBoy]

Michael,

Media reports indicate that the increase wasn't applied in markets with LCC competition. It has been reported that U didn't increase GoFares, for example.

As for the fare sales, I certainly don't know if the fares in the latest sales are $5/$10 higher than previous sales.

For my guesstimates of the effect of the fare increase on revenue, I merely assumed that 60% of passengers would pay the higher fare.

Jim

 

[whlinder]

Generally a sale involves a new fare basis being filed at a sale fare. The fare increases that went through last week were increases to existing fares.

The sales looked to be the typical 'file a new fare basis' type sale. I didn't see any evidence of them being $5-10 more than previous sales.

Also, as an FYI when trying to figure out how much the fare increases help revenue, the $5-10 increase includes the 7.5% excise tax. A $5 increase is really $4.65 more revenue to US...

 

[TheLarkAscending]

In regard to those who understand the financial markets, especially Lark's "so called 25-year Vet"

Lark, maybe your 25-year Vet hubby should read the newspapers.

320, You've obviously never had the opportunity to visit a real Wall Street shop or spend time with those that work in that environment everyday, or you would know that you are embarrassing yourself with this constant obsession/envy with someone that is a paid market professional rather than someone that pretends that they're an expert.

Just as an aside, my PM box was filled with inquiries as to what possible reason you would have to be so fascinated with our lives. 320, everyone that has written speculates that you either want to have an affair with me, or you want to have one with my husband!

My husband is straight, and I remain a monogamous, happily married woman, so if that was the motivation, we'd both decline. I'd like to invite you to please get on with your life. Thank you again, for more laughs than we know honestly know what to do with!

Peace -

Lark

 

[mweiss]

Media reports indicate that the increase wasn't applied in markets with LCC competition.

But in the markets without LCC competition, was it an across-the-board increase, from heavy discount to full Y?

 

[RowUnderDCA]

I'm still kind of surprised that there hasn't been more financing news... Geeez March 15th is just around the corner. What are some dramatic possibilities? Or is it likely there will be a non-event?