ACA's reasons for cutting UAL...

[Cappy]

I have been wandering pages of a few chat rooms and message boards and there seems to be a lot of confusion over why/how/when ACA will leave the UAL feeder network. I am only providing what I know.

The background on the ACA LCC:

Early in 2001, a management board meeting concluded that an opportunity existed for a LCC that was based at IAD. The timetable allowed startup at the end of '04 or early'05. Then 9-11 and the ensuing UAL bankruptcy cast a doubt on the viability of UAL as a long term partner.

Management has stated that they did want to reach an agreement with UAL but could not. In the webcast on 07-28 it is stated that the rates were not really the issue, but of control.
What ACA Management found unpalatable:

1. NO growth moving forward

2. NO risk sharing from UAL

3. Rates would be based on CPI only. It is possible that CPI could go negative

4. Any changes in costs (regulatory, security, airworthiness directives,fleet movements, airport costs) are to be born by the regional with NO adjustments in case of future cost increases.

5. Around 2012 have the ability to send a letter to any regional and take away or shift 30% flying somewhere, or to someone, else. Not acceptable when you have long-term acft leases.

6. Ability to eliminate the jobs of the 1500 outstation employees at will. Could not have that happen to our employees due to the will of UAL.

7. A "Force Majuer" clause stipulating that UAL can come back at any time and demand more from the regional.


So you see, it was not that the profit margins offered were bad, but if you have any business sense it is clear that a regional airline signing this agreement, or one like it, has no control over it's destiny!

Bottom line from management: Too much risk with NO growth.


It is important to understand that the LCC, properly named "Project Independence", has been planned for some time. This is not:

- A kneejerk reaction to UAL

- A negotiating tactic (although I thought so at first) by ACA

- A "wing and a prayer" move


Consider this:

- ACA has over $230 million in the bank

- They will have 87 CRJ's on DAY ONE

- Training for the new narrowbodies (type unknown yet) will begin in January of '04

- No other new airline has had the cash or equipment that ACA has before...including jetBlue.



Well, there you have it! That is what I know for now. All I can wonder is how the other regionals that signed with UAL can feel good about the conditions imposed on them. Best of luck to all!

Chow

 

[Mr DC3]

SkyWest:

Over $500 Million in the bank.
Over 100 CRJ's.
Perfers to hang with Delta and United because they know that going out on their own is way too risky.

 

[46Driver]

Correct me if I am wrong, but ACA is 85% United Express and 15% Delta Connection. Isn't SkyWest just about the opposite? (Thus no need to worry about Delta like ACA does about the long term health of UAL.) Finally, ACA has the advantage of owning the gates at Dulles (a market just waiting for a LCC) and thus is all set-up to make a go of it.

 

[WhiteCloud]

Good post Cappy! How do you stay in business with a "partner" who goes bankrupt, trys to squeeze you out of every penny they can get from you when THEY owe YOU money and then threatens to cut you off in the future? UAL now faces stiff competition in the areas ACA will serve from an airline with lower costs, newer airplanes and money in the bank. It will be interesting to see if they come back to the table.

 

[B1900DFO]

Aren't those "conditions" imposed upon them a natural reaction to a bad economy? Now times are tough and ACA has to share in the hardship. I find it understandable that they would want to break out on their own but consider the fact United is the main reason ACA has 87 RJ's and 200+ mill in the bank.

I'm not saying anything about your comments but so many people paint a picture of ACA suffering under the oppression of United. It will definitely be interesting to see how a new airline does in this economy. Hopefully things turn around sooner rather than later.

 

[WhiteCloud]

consider the fact United is the main reason ACA has 87 RJ's and 200+ mill in the bank.

It's not like it was welfare or a handout. ACA earned it and ACA may be the main reason UAL was able to remain in business in many areas of the country.

 

[BJK]

In reference to an earlier post in this thread, the SkyWest website states that they fly about 400 flights a day for Delta and 650 a day for United.

 

[46Driver]

I stand corrected. Thank you for the correct stats.

 

[rubberducky]

MrDC3,

Consider this. 25+ years ago nobody thought Southwest would work. Besides should we stay with UAL and cut our own throats?

RD

"splash and GO"

 

[Cappy]

So does anyone out there think it is more riskier to be with UAL under the terms listed above or strike out on their own with a well prepared business plan and $ in the bank?

Please make sure you carefully read all of the conditions imposed in the agreement that ACA did not sign. I would be much more concerned if my company were subject to having our flying taken away at a moments notice.

Quite possibly, with the conditions I originally posted above, UAL could mastermind quite the bidding war between SKY, ARW, TSA and Mesa. Although, I think SKY is too well managed to be dragged into something like that

Post responsibly!

Chow.

 

[fracflyer]

Good post Cappy! How do you stay in business with a "partner" who goes bankrupt, trys to squeeze you out of every penny they can get from you when THEY owe YOU money and then threatens to cut you off in the future? UAL now faces stiff competition in the areas ACA will serve from an airline with lower costs, newer airplanes and money in the bank. It will be interesting to see if they come back to the table.

That's what business is all about. UAL has a responsibility to get the best deal out of its suppliers. ACA does the same thing. Obviously, the other United Express carriers were able to work out a deal with United. Whoever told you life was fair lied.

You may think 87 airplanes is an advantage, but I think it’s a terrible liability. None of the other LLC’s started with more than a few airplanes. You’re going to have to fill 87 aircraft on day one. All on an airline that no one has ever heard of. You’re not going to be able to offer the frequent flyer benefits or the numerous destinations of the UAL/STAR ALIANCE network. Plus, you’re going to have to charge less than you are now if you want to be a LCC. $230 million might sound like a lot of mone, but not when you’re making payments on 87 aircraft, gates, and hundreds of employees. I understand you don’t have any choice in the matter, but don’t blame UAL when it doesn’t work.

Good luck.

 

[General Lee]

I think the LCC idea ACA has is very interesting. I hope it does work, but I think it will be hard to compete initially with the likes of Southwest (in BWI--your closest LCC competition). The one thing Southwest has that you do not is extra seats. Those seats can spread the costs around and help pay the bills. If they charge $59 to fly to Manchester, NH from BWI, you will probably have to match it from IAD to stay competitive. Their 737-300 has probably 130 seats, and your RJ has 50. It will be hard, not impossible, for you to make money with those fares. I know you will be getting larger planes, and I can only hope you can get them quick and train pilots fast, but from what I heard about the Do-328 Jet training and the quagmire that resulted--it might take awhile to train the needed pilots. I hope you succeed.

Bye Bye--General Lee

 

[WhiteCloud]

That's what business is all about. UAL has a responsibility to get the best deal out of its suppliers.

Well...not really. Honorable people do business in an honorable way and can be counted on for honesty and integrity. That cutthroat business mentality is what's screwing the stock market because no one trusts corporations. UAL is bankrupt the stock is worthless and they should be embarrased as should you for somehow thinking UAL's tactics are what's business is all about.

 

[acaTerry]

Well, suprisingly, a good many of the ACA customers know ACA as UAX, but understand that it is ACA. So they do not think of us as UAL, but ACA. In fact, ACA has quite a following of repeat business.
Also, just because 85% of our customers is UAX/UAL operations does not mean that they CONNECTED in from UAL.
BWI may or may not be a big problem. A lot of people go to BWI because of PRICE out of IAD. If ACA can price reasonably, then BWI may lose a few people. Not by any means will the bottom fall out from SWA, though. I just don't think that ACA will cease to exist over it. The Metrojet vs. ACA battle, which primarily was fought over IAD-RDU, was won by ACA. Of course, UAL played a part in that, but they utilized ACA well in it.
The question that remains is that can ACA, which traditionally has been a high-dollar airline, get into a low-cost frame of mind? I think so, and I sure hope so.

 

[DoinTime]

Press Release Source: AirTran Airways

AirTran Airways Announces Ronald Reagan Washington National Airport Schedule and Fares

Tuesday August 19, 5:30 am ET

Nonstop Service to Three Markets In October

Flights to/from Nation's Capital Will Include Atlanta, Fort Lauderdale and Fort Myers

ORLANDO, Fla.--(BUSINESS WIRE)--Aug. 19, 2003-- AirTran Airways, a subsidiary of AirTran Holdings, Inc. (NYSE:AAI - News), today announced its schedules and fares for Ronald Reagan Washington National Airport after having been awarded slots by the Federal Aviation Administration late on Thursday, August 14, 2003. The close-in Washington airport will be the airline's 44th airport served and its fourth city opening this year.

The airline will launch three daily nonstop flights between Washington and its Atlanta hub, and one daily nonstop flight between Washington and both Fort Lauderdale and Fort Myers. Service begins October 23, 2003, and tickets are now available for purchase at http://www.airtran.com.

Its not just Southwest in BWI that ACA has to look out for. You can bet that every carrier that serves the east coast smells blood and will dump $hitloads of money into preventing another LCC from entering the market. I wish you guys at ACA the best. Its going to be a héll of a fight.

 

[fracflyer]

Well...not really. Honorable people do business in an honorable way and can be counted on for honesty and integrity. That cutthroat business mentality is what's screwing the stock market because no one trusts corporations. UAL is bankrupt the stock is worthless and they should be embarrased as should you for somehow thinking UAL's tactics are what's business is all about.

Are you kidding me? United didn't offer what ACA wanted, so they're trying to screw you? Why didn't ACA screw UAL because they didn't offer what UAL wanted? ACA has the right to walk away and they made that choice. This "oh pitty us, because UAL screwed us" is pretty sad. Life sucks.

 

[House_X]

I'm glad people are underestimating ACA...because when you hear our new call sign on center, and see RJ's and 757's on YOUR ramp, your going to hate us even more.

ACA is not a $hitty commuter dreaming of buying jets. We employ 5000 people and have 1600 pilots, 100+ jets so on and so forth. We are a force to be recon with. We are the largest UAX carrier and we were forced to sign a horrible contract....that's why we are going it alone.

Overall, most pilots from other carriers have been very supportive. Our success will benefit other regional carriers and may give them the courage to forge out on their own as well.

As far as competition is concerned...the last time I checked SWA Airtran and jetBlue didn't fly into places like CRW, ROA, CHO etc...
We will offer low cost fares to small cities and connect them with larger aircraft at Dulles...Skeen (CEO) knows what he's doing.

As far as competition is concerned. The other low cost carriers are not a factor. jetBlue's Emb-190 hasn't even flown yet. SWA can't put 737's on our RJ connecting routes and Airtran has Delta and Song to worry about. Bleeding UAL has Frontier, SWA and ATA hunting it down.

The more doomsayers that lurk, the more ACA will thrive...

 

[climbhappy]

quote....you can bet that every carrier on the east coast will smell blood and dump S$%$loads of money into the market to prevent another LCC from entering.

its service and not just price that wins CUSTOMERS.....ironically a fare war will simply weaken the ones who underperform

the real loser in all this will be Us air, who continues to fall short of revenue expectations. this includes Q3.


To ACA , i hope you guys consider RDU because Midway made it work when the economy was bustling. all indices point to a recovery....foreign markets are all increasing, a keymeasure of proserity to come....

 

[Herman Bloom]

House

Keep telling yourself that bro. Just be cautious...you may be eating those words very soon when our management approaches us with rediculous concessions (I don't think most ACAers realize just how deep they're gonna try to go...get ready). I hope this works for obvious reasons, but try to prepare yourself for what MIGHT happen. It's hard enough to start an airline from scratch, and while in some ways having already been in operation will be an advantage, starting an airline with 87 to 100 jets is not without serious risks. Don't let your excitement blind you from the facts...that is a dangerous attitude, especially during contract negotiations. That attitude is why I believe ACA will set a new standard in SUB-standard narrowbody pay. Hope I'm wrong, but I don't think I am.

 

[Carl_Everett]

I think the LCC idea ACA has is very interesting. I hope it does work, but I think it will be hard to compete initially with the likes of Southwest (in BWI--your closest LCC competition). The one thing Southwest has that you do not is extra seats. Those seats can spread the costs around and help pay the bills. If they charge $59 to fly to Manchester, NH from BWI, you will probably have to match it from IAD to stay competitive. Their 737-300 has probably 130 seats, and your RJ has 50. It will be hard, not impossible, for you to make money with those fares. I know you will be getting larger planes, and I can only hope you can get them quick and train pilots fast, but from what I heard about the Do-328 Jet training and the quagmire that resulted--it might take awhile to train the needed pilots. I hope you succeed.

Bye Bye--General Lee

General,

Good points about Manchester, but I think the idea is to serve cities where the market will only support 1-2 flights a day on 737's while it could support 8 flights a day on an RJ. I don't know the exact numbers, however if we use a simple number like 30 pax to break even on a 500NM flight in an RJ, then this model could work. 30 PAX x 8 flights = 240 PAX to break even. That would be 2 737 flights per day. The frequency will be the selling point especially to business folk.

As for the 328 Training...I am not here to make excuses for that fiasco. The company stumbled mightily on that one. However there were other forces that prevented that operation to get up and runnng quickly. Namely the FAA. It took them forever to certify Check-Airmen. That meant FAA had to do many of the type rides, on a schedule that fit the FAA, not a new airline. Much of the training backups were because the FAA only did check rides on an average of 1 week out of the month.