Putting US Airways on a flight plan to profitability

OUTLOOK

Company needs to stress reliability, manage costs, refocus on its hubs

April 02, 2000|By Amanda J. Crawford

US Airways finally appeared to be putting its labor problems behind it last week after reaching a last-minute agreement with its 10,000 flight attendants. The tentative five-year pact marks the last hurdle for the recently troubled operation, which has operated in the red for three quarters. The airline, which still has the highest costs per mile in the industry, has cut some expenses by forming its low-fare subsidiary, MetroJet, and it has fixed the computer problems and resolved the maintenance schedule delays that troubled it earlier this year.

What does the company have to do to regain and maintain profitability? What is the outlook for the company?

James M. Higgins

Vice president and equity analyst, Donaldson, Lufkin & Jenrette Securities Corp., New York

I think to regain and maintain profitability they need to stabilize operations and send a strong signal to fliers that they are a dependable airline. It would certainly help if fuel prices come down; they are completely unhedged on fuel. They also need to make some tactical decisions about their root network. They have been growing their low-cost MetroJet in some markets where it is not clear it's an appropriate product. At the same time, they have been growing MetroJet at the expense of their established hub and spoke profitability. What they have to do is to get those two back into balance.

US Airways has a very strong franchise on the East Coast. They have strong frequent-flyer affinity in many markets in the East. That's a tremendous advantage.

Julius Maldutis

Managing director and global aviation analyst, CIBC World Markets, New York

In the weeks prior to the March 25 strike deadline, passengers in order to protect their travel plans booked on other carriers or had their travel agents rewrite their paid-for tickets from US Airways to another carrier. The important question, then, is what is US Airways' cash situation? Also, no airline can successfully operate without half of its passengers being business travelers. So, they have to win back the business travelers.

We have some good news that oil prices are coming down. But the flight attendants' contract has to be approved or else we'll be back in the drink again.

Richard. A. Henderson

Vice president of investment research, Pershing, Jersey City, N.J.

A couple of things have caused the company not to attain its full potential. First, it had operational problems earlier this year in terms of weather-related equipment and labor. Second, the company is in the process of reconfiguring its fleet to a more efficient and streamlined organization.

With the recent agreement with the flight attendants, we have hopefully put a cover on labor problems. Moving on, hopefully all of the labor will move in unison and the company will take advantage of the opportunities it has in terms of a favorable environment and the efficiencies of its new reconfigured fleet and new destinations.

Glenn D. Engel

Managing director and airline analyst, Goldman Sachs & Co., New York

First, they've got to run a reliable airline. They've started to do that again. It seems as if for most of the service issues, solutions are in place. In the industry, the strategy was to focus on their hub cities. But last year the industry did the opposite and added 15 percent capacity in nonhub cities. US Airways in particular with MetroJet was adding much more capacity away from their hubs. Because of their reliability issues, to fly MetroJet they had to take some of their capacity out of their hubs. This year, they seem to be refocusing back on their hubs and their MetroJet strategy seems more focused. US Airways' challenge is that it has much higher costs as well as much better yields than the industry. Their challenge is to bring the cost down without losing that yield advantage.

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