Vultures Circle OverUS Airways' Main Routes
Frequent Fliers May Find
Their Miles Are Liability
No Other Carrier Wants
It's time to cash in your US Airways frequent-flier miles.
The airline industry is ready to split up what's left of US Airways Group Inc. A successful reorganization is a long shot, so creditors, leasing companies and rival airlines are taking steps to plan for a future without US Airways.
Consumers should, too. There's a fair chance that no airline will swallow US Airway's frequent-flier program -- enough of a chance that it's now time for travelers to make the most of the six million awards sitting in US Airways accounts. Go to Paris. Burn your miles. Soon.
Cashing in US Airways frequent-flier awards.
• Go somewhere quickly: Find a fun destination this fall, book with your miles -- and head out.
• Book on a partner airline. US Airways Dividend Miles can be used for trips on United, Lufthansa and other Star Alliance members.
• "Buy up" to reach a threshold: US Airways sells miles at 3 cents each, plus a $25 processing fee. So if you're close to an award, it might pay to get it now.
• Consider giving miles to family, friends or a charity. US Airways lets you donate miles to the Make-A-Wish Foundation, starting at a minimum 5,000 miles.
• Use miles to pay for magazine subscriptions or other non-travel expenses through Milepoint.com.
US Airways has already hocked all its assets, so it can't borrow more money. It'll have a tough time finding new investors to throw more money into the business. It has to hope that its $750 million in working capital can get the fragile franchise through an expensive winter of high oil prices, impatient creditors and a likely drop in advance ticket purchases.
Airline Chop-Shop
The company said yesterday in bankruptcy court that it doesn't intend to sell itself off in pieces. But if forced to shut down, US Airways would likely be hauled off to the airline chop-shop simply because no U.S. carrier is in a position to be the bold buyer of the whole company.
Should you buy tickets? Travelers aren't likely to encounter many problems for the next couple of months as US Airways keeps its current schedule. Analysts note that the U.S. government is the airline's second-largest creditor (after General Electric Co.), and the Bush administration would be loath to force a pre-election shutdown that could put 26,000 people out of work, many of them in the swing state of Pennsylvania.
After Nov. 2, it could be a riskier proposition for travelers -- although ticket buyers have a lot more protection than frequent-flier award travelers. By law, other carriers have to honor tickets of defunct airlines after a $25 fee. But that's only if there's space available. And credit-card companies have to refund ticket purchases if the airline can't deliver the transportation (though in most cases only if the purchase was made within 60 days of the travel).
Swooping In
If US Airways were to shut down, jets from other airlines would swoop into its main cities. There's enough excess capacity out there to keep travelers moving.
Several airline executives say they already have their eyes on the airport gates and landing slots they want, but there isn't much more of value to them. Few have much interest in US Airways airplanes, and several executives say leasing companies have already lined up new homes -- mostly overseas or with cargo carriers -- should US Airways stop making lease payments or turn planes over to creditors.
"There is something there to be salvaged, but not as a standalone company," said one major airline chief executive.
Consider the line-up of possible bidders. UAL Corp.'s United Airlines, which tried to buy US Airways in 2000 for the now-incomprehensible sum of $4.3 billion, is still mired in its own bankruptcy reorganization. Delta Air Lines is on the verge of a possible bankruptcy-court filing. Northwest Airlines might be a player and could use more heft on the East Coast, where US Airways is concentrated, but it is trying to negotiate concessions from its pilots. Continental Airlines is trying so hard to hoard its remaining cash that it decided to skip pension contributions this year.
Among the large traditional U.S. airlines, only AMR Corp.'s American Airlines , which tried to buy a chunk of US Airways four years ago, has any semblance of a cash pile. American, the nation's largest airline, had $3.4 billion in unrestricted cash at June 30.
But American is paying $1.1 billion more this year for jet fuel than it planned, and senior executives aren't inclined to write big checks these days. And American, which has studied US Air's planes so closely that it knows them down to the doors, doesn't see huge value there, according to people close to American.
Several airline executives said they doubted any carrier would want to try to take over US Airways' hub in Philadelphia, once considered an airline money-printing press, because a new entrant today would be late to the party.
"Someone is already building a hub in Philadelphia, and it's Southwest" Airlines, said another airline senior executive. "No one wants to go up against that."
Aircraft Grab
In fact, if US Airways were to close, many expect the low-cost carrier Southwest to temporarily grab a bunch of the carrier's 69 Boeing 737-300 jets in order to quickly replace US Airways service at Philadelphia. A Southwest spokesman says the airline would "carefully have to evaluate any opportunity that would present itself."
There's little need for more hubs among remaining U.S. major airlines, so Charlotte, N.C., would likely lose its hub status and become a spoke of other carriers if US Airways fails, airline executives say. US Airways has already downsized its Pittsburgh hub. All those cities would see an increase in service from remaining airlines, but mostly just to their own hubs.
Likewise, the US Airways Boston-New York-Washington shuttle isn't nearly as valuable as it once was because of train competition and airport-travel hassles. American, which twice before tried to buy the US Airways shuttle, now has a bit of a shuttle operation of its own, using small American Eagle jets. If it could get airport gates and landing slots for bigger jets, it wouldn't need anything else.
In all, gates and landing slots at crowded airports are the most valuable assets US Airways has left, and those likely will be sold off to competitors.
Continental already has first option on US Airways' terminal at New York's La Guardia Airport, and will need takeoff and landing slots to go with it. That would make Continental stronger in the New York market, supplementing its hub across the river in Newark, N.J.
US Airways' takeoff and landing slots at Washington's close-in Reagan National Airport -- it's the biggest airline at Reagan National in terms of passengers -- will attract a lot of interest, as will real estate at cramped airports like Boston's Logan International. In both Boston and New York-La Guardia, US Airways is the third-biggest airline.
If no single airline acquires a critical mass of US Airways, no carrier would be inclined to assume the US Airways frequent-flier program in the event of liquidation. US Airways estimated the program's liability at $85 million at year's end.
In past airline failures, carriers have adopted orphan frequent fliers to win instant loyalty. US Airways says it figures the same would happen should it have to fold, so there's no reason for its customers to take action. "If there are three pizza shops on a corner, and one goes away, the other two will always take the other guy's coupons," a spokesman says. In previous airline cases, "someone has always accepted those miles."
Don't be so sure about this time. In the past, the frequent-flier programs were much smaller, the liability was easier to swallow and assets weren't scattered around the globe. This time, travelers with US Airways Dividend Miles awards might end up with tickets to the bankruptcy-court claim window rather than tickets to Bermuda
