Dav8tor
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US Airways Seek Ways to Make Reductions
By BILL BERGSTROM
.c The Associated Press
PHILADELPHIA (AP) - In the ferocious world of airline competition, Philadelphia represents different prospects to different carriers: a land of opportunity for low-fare king Southwest Airlines, but a hard-fought last stand for struggling mainstream carrier US Airways.
Just a year after cutting costs dramatically and emerging from bankruptcy, US Airways is again looking for ways to make deep reductions in what still are the highest operating costs of any U.S. airline, on the basis of seats available and miles flown.
That's what it will take to survive when Southwest - with the lowest costs among U.S. airlines - commences Philadelphia service on May 9, according to David Siegel, US Airway's president and chief executive.
The race for low fares will become even more intense two weeks later when Denver-based Frontier Airlines begins flying from Philadelphia to Denver and Los Angeles on May 23.
The low-cost carriers - LCCs in industry jargon - see a gold mine. ``All the LCCs have lots of room to grow in Philadelphia, which is a very rich market,'' said Raymond Neidl, an analyst with Blaylock & Partners LP in New York.
That means a do-or-die struggle for US Airways. ``Philadelphia was its last great fortress of non-competition,'' said Michael Dyment, an expert in low-cost operations at the aviation consulting group Simat, Helliesen & Eichner Inc. in Arlington, Va.
``We can't run from Philadelphia. We're not going to run. It's going to be a battle for our lives,'' Siegel said in a March 24 Webcast to employees.
To do battle, US Airways will have to close a wide cost gap with its competitors.
Airplanes make money only by collecting fares for moving passengers from Point A to Point B. When planes aren't flying - during the time they spend sitting on a runway, at a gate, being maintained, or parked - costs like wages and debt payments continue while revenue from transporting passengers isn't coming in.
In flight, the number of seats determines how much revenue the plane can produce, so airlines measure operating expenses using cost per available seat mile, or CASM.
US Airways had the industry's highest such cost, more than 13 cents, while Dallas-based Southwest has the lowest at less than 8 cents, in a comparison prepared by Eclat Consulting, an aviation consulting company in Arlington, Va., based on figures from the third quarter of 2003.
``Southwest's cost structure is so advantageous that they can come into new markets and charge substantially less than what the incumbent is charging,'' Dyment said.
For the three largest U.S. airlines, American Airlines, United Airlines and Delta Air Lines, costs per available seat mile are in the 10- to 12-cent range. Frontier is nearer Southwest, about 8.5 cents.
Siegel said US Airways has no choice but to match Southwest's fares on routes they both fly. But the company is in a bind because it is already reporting losses - meaning any fare cuts merely increase losses.
``Last year our average fare was $125. Unfortunately, it cost us $140 to carry that passenger, so every time a passenger got on one of our airplanes last year we were paying them $15,'' Siegel said in his Webcast.
Labor accounts for the largest share of airline costs, followed by fuel. Siegel told employees US Airways needs new labor agreements this summer to battle Southwest and Frontier in Philadelphia.
But US Airways workers already made concessions during bankruptcy proceedings that saved the company about $1 billion a year, the largest part of an annual cost reduction of $1.9 billion.
US Airways unions were stung by the request, even though Siegel also offered to cut his own compensation. The US Airways unit of the Airline Pilots Association said the company wants to save on workers' pay rather than make structural changes needed to survive, and the union has called on Siegel to resign.
By BILL BERGSTROM
.c The Associated Press
PHILADELPHIA (AP) - In the ferocious world of airline competition, Philadelphia represents different prospects to different carriers: a land of opportunity for low-fare king Southwest Airlines, but a hard-fought last stand for struggling mainstream carrier US Airways.
Just a year after cutting costs dramatically and emerging from bankruptcy, US Airways is again looking for ways to make deep reductions in what still are the highest operating costs of any U.S. airline, on the basis of seats available and miles flown.
That's what it will take to survive when Southwest - with the lowest costs among U.S. airlines - commences Philadelphia service on May 9, according to David Siegel, US Airway's president and chief executive.
The race for low fares will become even more intense two weeks later when Denver-based Frontier Airlines begins flying from Philadelphia to Denver and Los Angeles on May 23.
The low-cost carriers - LCCs in industry jargon - see a gold mine. ``All the LCCs have lots of room to grow in Philadelphia, which is a very rich market,'' said Raymond Neidl, an analyst with Blaylock & Partners LP in New York.
That means a do-or-die struggle for US Airways. ``Philadelphia was its last great fortress of non-competition,'' said Michael Dyment, an expert in low-cost operations at the aviation consulting group Simat, Helliesen & Eichner Inc. in Arlington, Va.
``We can't run from Philadelphia. We're not going to run. It's going to be a battle for our lives,'' Siegel said in a March 24 Webcast to employees.
To do battle, US Airways will have to close a wide cost gap with its competitors.
Airplanes make money only by collecting fares for moving passengers from Point A to Point B. When planes aren't flying - during the time they spend sitting on a runway, at a gate, being maintained, or parked - costs like wages and debt payments continue while revenue from transporting passengers isn't coming in.
In flight, the number of seats determines how much revenue the plane can produce, so airlines measure operating expenses using cost per available seat mile, or CASM.
US Airways had the industry's highest such cost, more than 13 cents, while Dallas-based Southwest has the lowest at less than 8 cents, in a comparison prepared by Eclat Consulting, an aviation consulting company in Arlington, Va., based on figures from the third quarter of 2003.
``Southwest's cost structure is so advantageous that they can come into new markets and charge substantially less than what the incumbent is charging,'' Dyment said.
For the three largest U.S. airlines, American Airlines, United Airlines and Delta Air Lines, costs per available seat mile are in the 10- to 12-cent range. Frontier is nearer Southwest, about 8.5 cents.
Siegel said US Airways has no choice but to match Southwest's fares on routes they both fly. But the company is in a bind because it is already reporting losses - meaning any fare cuts merely increase losses.
``Last year our average fare was $125. Unfortunately, it cost us $140 to carry that passenger, so every time a passenger got on one of our airplanes last year we were paying them $15,'' Siegel said in his Webcast.
Labor accounts for the largest share of airline costs, followed by fuel. Siegel told employees US Airways needs new labor agreements this summer to battle Southwest and Frontier in Philadelphia.
But US Airways workers already made concessions during bankruptcy proceedings that saved the company about $1 billion a year, the largest part of an annual cost reduction of $1.9 billion.
US Airways unions were stung by the request, even though Siegel also offered to cut his own compensation. The US Airways unit of the Airline Pilots Association said the company wants to save on workers' pay rather than make structural changes needed to survive, and the union has called on Siegel to resign.
