Bring a knife to a gunfight - ACA future

[embdrvr]

I don't have a warm fuzzy feeling about the future of ACA and the outlook for the pilot group. I think ACA management screwed the pooch by trying to sue UAL.

Think about it for a minute. ACA is going to go head to head against the only profitable airlines in the country, SWA and JBLU. They are currently saddled with a whole bunch of RJ's which are huge money losers when pitted against the 73's and 320's. The only reason a 50 seater was built was scope. They could be operated at a profit in the pre 9/11 economy because yields were much better than they are today. Bottom line is it doesn't cost much more to purchase and operate a 73 than it does an overpriced stretched Challenger. To have any chance of success they will have to undercut the competition. That will translate into every flight being operated at a loss. But wait you say, ACA will be getting Boeings or Airbuses. Those won't be on the property overnight. With their stock sinking like a torpedoed banana boat I'm not sure how many leasing or financing companies will touch them. In order to succeed they will need favorable financing which they couldn't even get on the RJ's from what I've heard.

They will likely lose money until they get real airplanes for the job. By then maybe the economy will improve and the yields will do likewise. The question in my mind is will they even be around a year from now? Sadly the pilot group and employees will pay the ultimate price and ACA top brass will walk away with their pockets full. Had they not sued UAL during the earlier negotiations maybe they could have negotiated an agreement like SKYW and AWAC managed to do.

Finally we have to remember that a large percentage of current ACA pax are not O&D. They are making connections on UAL and accumulating UAL frequent flyer miles. They will continue to book on UAL and simply fly on whoever UAL replaces ACA with.

 

[flx757]

Think about it for a minute. ACA is going to go head to head against the only profitable airlines in the country, SWA and JBLU.

I don't think they are the ONLY profitable airlines in the country. AirTran just posted a 2Q profit of $57.2 million, or 74 cents per share on record revenues of $233.9 million.

Even without such items as $38.1 million of government reimbursement for security fees, earnings were $19.1 million, or 28 cents per share.

 

[Carl_Everett]

I don't have a warm fuzzy feeling about the future of ACA and the outlook for the pilot group. I think ACA management screwed the pooch by trying to sue UAL.

Think about it for a minute. ACA is going to go head to head against the only profitable airlines in the country, SWA and JBLU.

I have read and listened to every piece of info that ACAI has put out over the last 24 hours. I have yet to hear anything about the RJ operation going head to head against SWA and JBLU. In fact Skeen even said SWA was not considered in the same league right now. Everything they said points to lack of LCC service at smaller cities. The examples I heard was CHS and SAV and similiar cities. These type cities do not have SWA or JBLU service. That is the market they are after during the start-up phase.

When the large aircraft start up, then they will start to compete with JBLU and SWA. ACA believes there is a market closer to IAD that needs LCC service without a 3 hour drive to BWI.

They are currently saddled with a whole bunch of RJ's which are huge money losers when pitted against the 73's and 320's. The only reason a 50 seater was built was scope. They could be operated at a profit in the pre 9/11 economy because yields were much better than they are today. Bottom line is it doesn't cost much more to purchase and operate a 73 than it does an overpriced stretched Challenger. To have any chance of success they will have to undercut the competition. That will translate into every flight being operated at a loss. But wait you say, ACA will be getting Boeings or Airbuses. Those won't be on the property overnight. With their stock sinking like a torpedoed banana boat I'm not sure how many leasing or financing companies will touch them. In order to succeed they will need favorable financing which they couldn't even get on the RJ's from what I've heard.

They will likely lose money until they get real airplanes for the job. By then maybe the economy will improve and the yields will do likewise. The question in my mind is will they even be around a year from now? Sadly the pilot group and employees will pay the ultimate price and ACA top brass will walk away with their pockets full. Had they not sued UAL during the earlier negotiations maybe they could have negotiated an agreement like SKYW and AWAC managed to do.

Finally we have to remember that a large percentage of current ACA pax are not O&D. They are making connections on UAL and accumulating UAL frequent flyer miles. They will continue to book on UAL and simply fly on whoever UAL replaces ACA with.

That may be true in ORD, but at IAD many customers connect thru IAD on another ACA flight. As for frequent flyer miles, you have me there. ACA will not be able to offer frequent flyer miles like UAL does. That is until a code share/miles agreement is done with another airline.

 

[46Driver]

Some quick counterpoints. ACA's best option was to go it alone considering what United was offering. Not only the reduced fee for departure but also UAL not signing a long term contract with ACA and UAL asking for a clause to be reduce and/or completely get rid of ACA with MESA/Trans States. Also, lets not forget that UAL is in bankruptcy and their future is uncertain at best. One of pilots described it as cutting loose the lifeboats from the Titanic.

Now what do we have. First and foremost are good managers - Tom Moore and Kerry Skeen know how to make money. Second, the enthusiasm of the employees - everybody is quite happy about the decision. Those are the intangibles. For the concrete, we have the gates at IAD and Dulles is a better place to run a LCC than BWI. Second, the routes we are looking at (IAD - CHS, IAD - MOB, etc) have been proven successes in the past and we can make a profit on those thinner routes which the bigger aircraft of SouthWest, Jet Blue, etc bypass. Third, many cities are hungry to have a LCC to reduce mainline fares and will subsidize us flying into their cities. The traffic numbers in IAD show that 60% of the passengers ACA flies into IAD connect on another ACA flight. Another 20% are IAD roundtrips - thus a lot of these are our own passengers. Finally, as stated above, UAL left us no choice. It is best to strike now: there is money in the bank, big airplane prices are dirt cheap, our 2 biggest competitors in our IAD market (UAL and USAir) are weak, MESA and Trans States do not have the aircraft and crews ready, and JetBlue and AirTran haven't reached critical mass yet but are set to expand rapidly. It was now or never.

Finally a wild card simply to speculate. Could we as a LCC do flights to Europe? That is what I am wondering - it is a niche that Southwest, JetBlue, and AirTran do not have with their aircraft. Can a 757 or 737-800 make it across the pond?

 

[dasburt]

ACA morf into JET BLUE EXPRESS

Ok guys and girls just to muddy up the waters a bit.

An Idea about ACA's future.

Jet Blue is buying the new jet from Brazil and is going to start up a Jet Blue Express carrier. Why not just buy out ACA and you now have a working airline to place the new aircraft.

I wonder if Jet Blue Management might just be thinking something like this.

Just an idea Ladies and Gentlemen.

Dasburt

 

[govisual]

the idea that rj's can't work in a low cost carrier probably isn't true. midway out of raleigh started out strong primarily with rj's. yes, i'm aware of the end result, but they had a fighting chance, perhaps a better chance than aca had w/ united. my hat's off to them for giving it a shot.....

 

[Bako Cap]

Jet Blue have been staunch that their pilots will fly their aircraft. But, then again I have heard that one before.

 

[embdrvr]

I hope my post turns out to be wrong. You guys raised some good points. I'm just not too convinced about the viability of doing anything with 50 seaters except feeding mainline and even that's sketchy. If they had some way of scrapping the -200's completely I think they'd have a better shot.

 

[General Lee]

With Southwest's fares so low out of BWI, ACA will have to be fairly close with the fares. They claim they will fly RJs (until they get larger aircraft)----which have 50 seats. For the shorter flight distances from IAD they will probably try to match those SW fares---let's say $59 one way from the DC area (IAD) to Manchester, NH (both go there). 50 passengers times $59 dollars equals $2450 dollars. Can that cover the gas (at around $30 a barrel now), the insurance, the lease payments, and crew costs for that segment of time? RJs need to have higher fares, especially in shorter segments. I think the ACA management will ask for huge paycuts to help pay for all of this, and the new airplane leases. Southwest can spread it's costs out on a 737 with 128 or so seats. I hope it works.

Bye Bye--General Lee

 

[embdrvr]

Something is wrong in this world when I start agreeing with General Lee. The above post is the first I've seen in a while that does not incorporate a reference to Comair requiring furloughees to give up their mainline seniority number. GL, did you get on some sort of 12 step program?

 

[46Driver]

I seriously doubt we are going head to head with SouthWest - or Air Tran - or Jet Blue. I bet the company is looking at smaller cities not served by the 3 noted above as well as people who might want to pay a little extra for the convenience of flying into Dulles vice Baltimore.

 

[KingAirer]

I thought DCA was the prefered airport for Washington. IAD seemed like a long drive to me.

 

[AWACoff]

If ACA screwed the pooch by suing United...I guess Air Wisconsin must be involved in beastiality as well because we sued shortly after ACA did. I doubt the lawsuit has much to do with anything. Otherwise, interesting post.

 

[climbhappy]

aca similarities to the old midway

with aca having a larger fleet to amoritize costs over, they should be able to make money if they can brand their airline successfully and offer things like frequent flyer perks. airtran has been using buy three legs get one free...for a while.

midway was profitable with 24 rjs and 8 737s only until the demand dropped off before 911 and the ensueing tailspin.

they were flying out of little ol raliegh durham, yet a hotbed for tech and biotech business travel.

there are good opinions expressed here, but time will tell.

i don't feel they(ACA) had any other choice, so go for it!

 

[AirBoard]

Re: aca similarities to the old midway

i don't feel they(ACA) had any other choice, so go for it!

That just about sums it up folks. Regardless of what you think of the decision we had no real choice. Just look at the facts putting aside the hardball we played w/ United.

1. United in Chap 11.
2. 78% of Chap. 11 airlines will end up back in Chap 11 in 5 years (figure was noted in a webcast)
3. Increased low cost competition (ie Mesa) in regional area.
4. Unattractive deal offered by United.


What would you do faced with this situation:

1. Go along with United and take your chances everything works out - status quo, small opportunity for growth at best.

2. Be proactive and get out sooner rather than later.


I'm not jumping for joy as our stock tanks but I feel our mgmt. made the best decision faced with their predicament. Love em' or hate em' they only have growth in mind.

 

[General Lee]

EMBDRVR,

Well, I am working on it. I did make a small reference to it yesterday in another thread, but I do not delve into it as much. I will try to avoid it in these threads, but that doesn't mean I will forget it.


Airboard,

I agree that UAL handed you a bad deal, but I think it really is risky to go at it alone with no name recognition (compared to United Express). I hope it works.

Bye Bye--General Lee

 

[climbhappy]

name recognition

General Lee,

did valujet have any name recognition after the crash, and what about airtran with 10 to twelve tired old 737-200 ( before the ad agency said "change your name and paint the planes"), now they're climbing up delta's skirt. No offense meant!

did jetblue have any recognition? only the best financed start up with 130 mil in seed capital before they ever flew.

People make a difference and their attititudes. ask gordon bethune , whose book, from worst to first chronicled how he changed the culture of a bunch of self deprecating people to where they are now.

if keegan(correct name?) can rally his troops to the call of proving the critics wrong, this may well be the airline story of this decade!

 

[NEDude]

I have to disagree with the statement that IAD is better for a LCC than BWI. BWI is perfectly suited to pick up traffic from three major cities - DC, Baltimore and Philadelphia.

I think this will be interesting to watch however.

Best of luck to all of you Blueridgers, hope it goes well.

 

[j41driver]

Think about it for a minute. ACA is going to go head to head against the only profitable airlines in the country, SWA and JBLU. They are currently saddled with a whole bunch of RJ's which are huge money losers when pitted against the 73's and 320's.

Where does it say we plan on competing directly with JBLU and SWA with CRJ's?

 

[j41driver]

Re: ACA morf into JET BLUE EXPRESS

Jet Blue is buying the new jet from Brazil and is going to start up a Jet Blue Express carrier. Why not just buy out ACA and you now have a working airline to place the new aircraft.

There is not going to be a JB Express carrier. When the EMB's show up they will be, for lack of a better term, mainline aircraft and will be flown by pilots on the jetBlue seniority list. It's not going to be a different carrier at all. Unless something has changed since they announced the EMB order.

 

[tittyjet]

nevermind, it's just not worth it.

 

[Marko Ramius]

Is a MBA really needed?

To look at some of the basic math around this deal? ACA quoted a current CASM figure of 18-19 cents per mile which they say will drop to around 15-16 cents per mile with increased utilization. So they need to make in excess of 15-16 cents per mile to make money. Makes sense up to here, but here's where the train goes off the track IMO. Who the he!! is making that kind of yield today? Especially on domestic routes. Fine they may not put their carrier head to head with other LCC's, but they still in fact trying to become a low COST carrier. There is nothing low about 15-16 cents per mile, most LCC's are in the neighborhood of 6-7.5 cents per mile. The mainline carriers like UA that they are distancing themselves from all have lower CASM's then ACA. They also have lower RASM on ticket prices that are in excess of what ACA claims it will charge. Granted the CASM will fall with the addition of larger A/C, but the system wide CASM will still likely be higher than all of their competitors as long as the RJ's are in the fleet and it's unlikely that ACA will get enough financing to replace them all in short order. The larger A/C will likely have to subsidize losses on the smaller ones just like biz pax did for leisure pax for so many years. ACA was no doubt in a corner, and this is likely the best thing for them to try, but I can see no amount of spin that makes this look like a good idea. All the same best of luck to ACA in making it work and proving us haters wrong!

 

[Marko Ramius]

Another thing that is interesting to me is the blind faith in ACA upper management. Granted they have an outstanding 14 year run, but they do have some culpability in this situation as well. While part of the reason UA took a hardball stance with ACA likely has to do with their UsAir codeshare, this situation has been brewing pre-BK. UA management was extremely unhappy with how ACA pushed for and won fee per departure hikes in early 2002. Interim CEO Jack Creighton admitted to employees that the deal was basically highway robbery but that there was little that could be done about because they couldn't afford to lose the feed at a critical time. There were quite a few aritcles at the time about this if anyone remembers. They applauded ACA for using it's leverage over a UAL that was in a cash conservation/downsizing mode, but cautioned that the move had considerable risks should UA's situation worsen or end up in BK. Well they went BK, the tables turned and now UA management has leverage. Not many people outside of the majors cared when the whipping stick was applied heavily to airports, aircraft lessors, and employees. Those things were all about "economic reality." It was only inevitable that they would do the same to their regional afilliates, and it's not surprising that UA management hasn't forgotten what ACA management did a year ago. I must tip my hat to Fast Eddie in all of this though, be it the blue meatball, palm, or blue ridge he's always out the door long before the flag falls.