US Airways announces plans to start service from Philadelphia to Tel Aviv in 2009

August 19, 2008

NEW YORK (Associated Press) - US Airways announced Tuesday plans to operate nonstop service between its Philadelphia hub and Tel Aviv, Israel, as the carrier moves to expand its international service.

The service, which is set to begin in July 2009 with the first tickets sold early next month, is in response to strong demand, said Michelle Mohr, a spokeswoman for US Airways.

"What's being cut is unprofitable flying in light of ultra high fuel costs," she said. "With Philadelphia-to-Tel Aviv we've known the demand is there. We've talked about adding this for quite some time."

The service is subject to approval by the U.S. Department of Transportation and Israeli government.

Shares of US Airways fell $1.35, or 15 percent, to $7.64 Tuesday.

Airlines emerge from profit-killing oil slick

By Dan Reed,
USA TODAY

8/21/0

In early July, U.S. airline stocks were so battered you could buy one share each of five big airlines for less than the cost of checking a single bag.

With oil prices then approaching $150 a barrel and air travel demand sinking, Wall Street's view was that most of the USA's airlines were destined for bankruptcy reorganization — some for liquidation — when their cash ran out within 18 months. One or two, the thinking went, would be toast by spring.

Now the summer season's end is approaching with an eight-day Labor Day travel period for which the airlines' trade association forecasts a sobering 6% drop in demand from a year ago. Yet conventional wisdom about airlines' survivability is changing rapidly, thanks in large measure to a $30-plus drop in the price of a barrel of oil.

Don't get too excited yet — airlines' financial health is notoriously volatile. But a combination of factors could help most, maybe even all, of the USA's big airlines dodge the bankruptcy filings and liquidations so widely predicted only a few weeks ago.

Over the last five months airlines have laid in deep capacity cuts, boosted fare prices by unprecedented amounts, and begun generating lots of new revenue by charging fees for services that used to be included with the ticket price. They've also refinanced debt, sold assets, and issued new stock to build up extra cash in hopes of surviving long enough for one or more of their competitors to fail — an event that presumably would greatly improve the surviving carriers' health overnight. Airlines, however, may not have to wait for one of their number to fail in order to get healthy financially.

Oil prices, which triggered the crisis in the first place, have fallen even faster over the last five weeks than they rose during the first half of this year. Since peaking above $147 a barrel on July 11, oil has fallen to $115. That's the fastest, most dramatic decline in history.

And though most carriers still can't turn a profit at existing jet fuel prices, they're getting close to the break-even point.

Another $10 to $15 drop in the price per barrel, which some oil experts now say is possible, will have most of them back in the black. Analysts at both Morgan Stanley and JPMorgan Chase even are suggesting that the haggard industry could be profitable in 2009.

As a result, investors are jumping back into airline stocks. The AMEX Airline index has almost doubled, to 23.67, after bottoming out at 12.66 on July 15. Shares of UAL, United's parent, have risen nearly 350% in five weeks, while shares of Continenta and AMR, American's parent, have gone up about 150%.

Morgan Stanley's William Greene calls the drop in oil prices a "game-changing event" and says investors now are beginning to focus on airlines' improved liquidity and their surprising access to the capital markets.

Oil price retreat is a relief

JPMorgan analysts Jamie Baker and Mark Streeter told investors in an Aug. 12 report that the "industry today is a significantly different one than that which gave us pause last March."

It's not just because jet fuel prices have fallen by more than $1 a gallon from their early summer peak, though that change by itself will save the industry more than $13 billion annually. The carriers' recent capacity cuts, decisions to ground old, fuel-inefficient planes and to boost revenue via higher fares, and the imposition of new and larger fees are likely to be long-lasting changes, Baker and Streeter wrote.

That means that instead of focusing on "the potential magnitude of the fuel-induced cash burn, capital and liquidity options, and who might disappear, and when," as Baker and Streeter did during the first half of this year, they now are "assessing who might first return to annual profitability, and when."

The JPMorgan duo now project that the USA's seven so-called legacy carriers — conventional network carriers whose histories extend decades back into the era when airlines were deregulated in 1978 — will end 2009 with about $20.3 billion in liquidity. Previously they had expected American, United, Del, Continental, Northwest, US Airway and Alaska to end 2009 with a total of just $12.4 billion in cash and short-term investments.

Worries about Frontier

Still on the critical list: Denver-based Frontier, the USA's 11th-largest airline.

That struggling low-cost carrier entered Chapter 11 bankruptcy in April to avoid having the credit card processing company that handles its credit transactions soak up the majority of its dwindling cash pile as protection against the carrier's possible collapse.

To stay aloft, Frontier this month received the first $30 million of what could become a $75 million loan from several of its largest shareholders. It will get that extra $45 million only if management can win contract concessions from workers who already are at or near the bottom in industry pay. Further complicating the survival picture, Frontier is caught in a squeeze at its home base. Denver is both a United hub and a major growth market for mighty Southwest, the juggernaut discounter that hasn't reported a quarterly loss since 1991.

Still, with the exception of Frontier and perhaps one or two other very small or undercapitalized carriers, the talk of airline liquidations in the near future was "overblown" even before oil prices pitched downward last month, says Roger King, a veteran airline debt analyst at CreditSights. Yes, he says, airlines face some monumental financial issues, including oil prices that remain higher than they ever were before this year.

"But people need to realize that these big airlines have big resources," King says. "They have horrible income statements and balance sheets. But they have what I call inertia."

Mining rich revenue streams

Millions of travelers remain steadfastly loyal to their airlines, King says, don't seem to be fazed much by rapidly rising fares, and will continue flying almost no matter what. That means airlines will continue to have large, predictable streams of revenue that will be highly valued by lenders and creditors, even when revenue doesn't cover operating costs. Those lenders and creditors would rather keep airlines flying and generating cash than repossess collateralized assets such as airplanes that would be idled for months, or even permanently, by a repossession.

"Airlines also can pull all these hidden assets out of every little nook and cranny and sell them to keep going," King says.

He points to the experience of Pan American World Airways, which lost money for more than 20 years before finally shutting down in 1991. Pan Am managed to stay in business all those years by slowly selling or refinancing all sorts of assets and subsidiaries, including its aircraft, many of its international routes, its landmark headquarters building in Manhattan, its inventory of spare parts, and even a subsidiary that did the turnaround processing on the Space Shuttle under contract to NASA.

"Small carriers may not be able to do that, but these really big airlines have tremendous underestimated staying ability," King says. "People talk about bankruptcy and liquidation, but they don't understand how deep these big airlines' resources really are."

That's not to say that U.S. airlines suddenly have become pictures of financial health. They have not.

The highest-scoring U.S. carrier among 32 conventional network airlines from around the globe recently ranked by Aviation Week & Space Technology magazine in regards to its financial health was, somewhat surprisingly, Alaska Airlines. Aviation Week's team of aviation financial consultants and analysts considered carriers' liquidity, fuel costs, earnings performance, asset utilization, operating profile and overall financial health. The latter included debt-to-equity ratios, cash balances, access to capital, operating margins and cash flow. Alaska's score was 56. Top-rated Singapore Airlines scored 93.

Southwest, the only U.S. carrier with an "A" credit rating, ranked fifth among 28 discount carriers from around the world, and second among all U.S. carriers, behind Alaska. But as highly regarded as Southwest is in the USA for its consistent profits, its score of 54 was only a little better than average and good enough only for the 20thposition among the total of 60 carriers ranked by Aviation Week.

"The health of the industry remains in question," says Calyon airline analyst Ray Neidl, a member of Aviation Week's team of advisers.

Lower cash reserves

Lower fuel prices and the carriers' recent dramatic operational and financial maneuverings have helped ease the crisis, but it has not entirely passed.

Delta and US Airways are moving close to what Neidl calls the bankruptcy/liquidation danger zone based on their cash and short-term investments at the end of June as a percentage of their revenue over the previous 12 months. The danger zone, he says, is a ratio of 10% or less. Delta's cash-to-revenue ratio on June 30 was 16.1%, while U.S. Airways' was 17.4%. Both are addressing that issue.

Balance sheets expected to improve

Delta, where operating costs and performance have improved significantly as a result of its bankruptcy reorganization, should see its ratio rise above 20% upon completion of its pending merger with Northwest, which has a cash-to-revenue ratio of 24.5%. US Airways last week issued $179 million of new shares to shore up its balance sheet.

United, though, remains the closest to Neidl's danger zone, with a 14.1% ratio of cash to revenue. That ratio will rise a few points after United picked up $600 million in cash in July by renegotiating its affinity credit card deal with Chase Bank. Neidl's also concerned that United's projected cash burn for the coming winter will be larger than at most other airlines.

Yet the outlook is not as bad as it was just over a month ago when oil was $147 a barrel and jet fuel was over $4 a gallon on the spot market.

Amazingly, after all they've been through, "airlines still have the ability to raise cash" by issuing stock, negotiating new lines of credit and selling assets, he says.

And they appear able to generate still more revenue.

"All 10 of the large, publicly traded U.S. carriers should be able to make it through this year without defaults (on their loan agreements and covenants), even in a weak economic environment with high fuel costs," he says.

US Airways conducts soda-cost comparison

Dawn Gilbertson
The Arizona Republic

Aug. 16, 2008

US Airways, which has taken plenty of flak for charging $2 for a can of soda, did a little cola comparison shopping to help put things in perspective.

The Tempe airline priced the per-ounce price of soda at 10 other service businesses and found its charge smack in the middle at 17 cents per ounce.

At the high end, according to the results published in its employee newsletter, was Irish carrier Aer Lingus, at 68 cents per ounce, or $7.48 per serving.

Next up was the Ritz-Carlton at 50 cents per ounce, followed by Scandinavian Airlines at 41 cents.

The least expensive in its informal fizz survey: Wal-Mart at 2 cents, followed by Subway and Circle K, each at 8 cents per ounce.

Sky Harbor International Airport came in at 13 cents an ounce.

Left out was the steal US Airways employees get at the company store in Tempe: 50 cents a can, or 4.2 cents per ounce

US Airways to sell 19M shares to Merrill Lynch

US Airways to sell 19M shares in public offering to Merrill Lynch, valued at $173.1M

August 14

TEMPE, Ariz. (AP) -- US Airways Group Inc. said Thursday investment bank Merrill Lynch & Co. will buy 19 million shares of its common stock in a public offering.

At Wednesday's closing price of $9.11, that implies US Airways would net $173.1 million from the sale.

US Airways said it plans to use the proceeds for general corporate purposes. The company said it asked the New York Stock Exchange to halt trading of its shares to allow distribution of the new shares, and will issue a statement when trading resumes.

As of July 16, US Airways had approximately 92.2 million shares of common stock outstanding, according to a filing last month with the Securities and Exchange Commission.

Shares of US Airways gained 35 cents, or 3.8 percent, to $9.46 before trading was halted.

US Airways ranks first for on-time performance in first half, second in June

The Business Journal of the Greater Triad Area

August 5

US Airways Group Inc. says the U.S. Department of Transportation has ranked it the top carrier in on-time performance among the 10 largest airlines during the first half of 2008.

For the first six months of the year, 79.4 percent of US Airways' flights arrived within 14 minutes of their arrival time. During the month of June, US Airways ranked second with 76.3 percent of flights meeting the on-time criteria.

"Our first-place ranking amongst the largest airlines for on-time performance for the first half of 2008 validates the remarkable turnaround our airline has achieved over the past year," said Scott Kirby, president of US Airways. "Our customers tell us that getting to their destination on time is very important, and our 35,000 employees are doing their part to make sure that happens."

US Airways pays $50 to employees in months when its on-time performance makes the top three among the 10 largest U.S. airlines. June marks the seventh consecutive month for the bonus with a total of $12 million awarded since December.

Overall, U.S. airline performance showed an improvement this June compared with the same month a year ago, but timeliness slipped compared with May, the U.S. Department of Transportation reported.

Tempe-based US Airways operates 3,500 flights per day to more than 230 destinations in the United States, Canada, Europe, the Caribbean and Latin America.

US Airways cleans up bag-handling mess

Customer complaints and baggage-claim wait times have been drastically reduced.

By Linda Loyd
Inquirer Staff Writer

Aug. 3, 2008

Two years ago, getting a checked bag from a US Airways flight in Philadelphia was a nightmare.

Passengers routinely waited an hour or more at baggage claim. Last summer, lines of international passengers from Europe and the Caribbean with bags to be rechecked to connecting flights snaked back into the U.S. Customs area, causing gridlock, missed flights and flared tempers.

Today, US Airways is solidly on its way to fixing the mess.

The 45- to 60-minute wait at baggage claim at Philadelphia International Airport has been cut to 25 minutes or less from the time a plane hits the gate.

After years of complaints about delayed, lost or damaged bags, the airline cut in half its mishandled-bag reports in Philadelphia for the three months ended June 30 - 19 bags per 1,000 passengers, compared with 39 a year earlier, according to the U.S. Department of Transportation. Nationwide, its baggage handling improved to above average from below average.

Passengers picking up luggage last week said the bags arrived on carousels much faster than they used to.

"This was the quickest I've seen it," said Carmen Ferullo of Philadelphia, arriving on a 7:10 p.m. flight from Buffalo. "It took me six minutes to walk here. The bag was on the belt. Most of the time it's a 15- to 20-minute delay from when the plane lands."

Jeff Gordon and his wife, Cindy, of Southampton, Bucks County, flew home from Los Angeles and waited 10 minutes. "This was definitely much improved," said Gordon, who flies 25,000 miles a year on US Airways. "In the past I've waited two hours, or they lost my luggage coming back just from a simple flight from Boston. This is a very favorable experience. I've seen improvement."

City Director of Aviation Charles J. Isdell said he didn't get angry letters or e-mails about baggage anymore. "That used to be a pretty regular part of my life."

The Inquirer in October 2006 detailed US Airways' chronic baggage problems in an article showing that demoralized workers, decrepit equipment, and revolving-door management had crippled the baggage-handling system.

It was no small concern for either US Airways or the region. The airline carries two-thirds of passengers at the airport, which is one of the airline's largest hubs.

After the report, US Airways spent more than $20 million on everything from new baggage equipment to more airport service workers and managers.

And it began to attack the other part of the mishandled-baggage problem: chronic delays in flight departures and arrivals. When flights don't leave or arrive on time, luggage often gets lost or waylaid between planes.

In September, the airline brought in a new chief operating officer, Robert Isom, a Northwest Airlines veteran and most recently chief restructuring officer at GMAC L.L.C., to turn around the worst on-time-performance record among major airlines.

So far, it's working: US Airways went from worst among the seven largest U.S. carriers in on-time performance in the first six months of last year to best this year, federal data show.

Isom hired Bob Ciminelli, who had run American's operations at New York's LaGuardia Airport, to be US Airways' vice president of operations at Philadelphia International. He is responsible for getting 23,000 bags on and off planes each day and making sure the 451 departures leave on time from 87 gates.

Gentle-mannered and quiet-spoken, Ciminelli is employing strategies that worked at LaGuardia.

"I don't profess to be a miracle worker, but I hold people accountable," Ciminelli said in his airport office. "What was lacking here was accountability, direction. People needed to know, 'Where do you want us to go?' They needed someone to lead the way."

To reduce the international-baggage backlog, US Airways asked British Airways to swap ticket counters, which gave US Airways more behind-the-scenes bag-recheck capability. British Airways has two daily international flights; US Airways has 34.

US Airways worked with the airport to build a new baggage-screening area in the international terminal, with four additional screening machines for rechecking bags. More than half of US Airways' returning international passengers recheck bags to connecting flights.

US Airways in the fall will build a $6.5 million conveyor-belt "bridge" from International Arrivals in Terminal A-West to the new bag-screening machines in Terminal A-East.

One of Ciminelli's first moves was to change baggage handling so that suitcases for connecting flights are transferred by runners directly, instead of being mixed with local bags and cargo.

The runners' only job is to meet flights and take bags to connecting planes. A separate team of ground workers takes local bags, cargo and mail.

In addition, 30 ramp-information display screens have been installed at a cost of $2.2 million at gates outside Terminals B and C for baggage handlers and ramp workers to have more accurate information about an airplane's destination and departure time. The electronic display boards have countdown clocks so ground workers know how much time they have to load a flight.

Ciminelli said those two things - changing how handlers move luggage and installing ramp information - were the "main reason" for reduced domestic-luggage complaints.

It probably didn't hurt that the airline also began rewarding employees with cash when it gets good performance marks or even customer praise.

Ciminelli and another recent hire in Philadelphia, senior vice president Suzanne Boda, have latitude to make financial, hiring and operational decisions without getting prior approval from headquarters in Tempe, Ariz. Boda oversees international, cargo and East Coast operations.

After he took office in January, Mayor Nutter told top US Airways officials he wanted to see improvement in the airline's performance and, in particular, a better summer operation "because that's when we have had service problems in the past," Isdell said.

Since that meeting, Ciminelli and his team have met every Friday with city aviation officials and Transportation Security Administration, Homeland Security, and Customs and Border Protection representatives to talk about summer plans.

"We've been able to work through a lot of issues," Ciminelli said.

His strategy for getting planes out on time is to focus on the "first bank" of 20 to 25 morning flights between 6 and 9 a.m. The premise: If the first flights depart on time, the rest should fall in place.

At noon Monday to Friday, he meets with his directors, aircraft-maintenance personnel, and representatives of the flight attendants, pilots, vendors, and people who fuel and clean the aircraft - "anyone who could impact our departure," Ciminelli said.

"We review any delay. We tear it apart - what happened," Ciminelli said. "I'm not there to beat anybody up. The intent is to understand what happened, and what we could have done to avoid or minimize it."

He credits the noon meetings with a "dramatic improvement" in on-time departures of morning flights. The group also talks about the prior day's international flights. On Mondays, they talk about the Saturday and Sunday flights.

US Airways' managers spot-check baggage arrivals, do safety and performance checks of ground workers on the ramp, and monitor the 20 to 25 early-morning flights.

"If the manager's flight incurs a delay, he or she is asked to come to the noon meeting to share what happened," Ciminelli said. "A little accountability and direction, you put all that into the formula. It's working."

US Airways added 200 baggage handlers last year, raising the total to 1,250. It tripled the number of managers overseeing airport service from 30 to 90.

The airline bought new ground service equipment - tractors, tugs and carts. There's new sorting equipment for bags that are checked at ticket counters, and new software that reads bar codes on baggage tags so they are dumped on a conveyor belt to the proper flights.

In the fall, the airline also began offering financial incentives to employees. US Airways gives $50 to each of its 35,600 employees every month the airline finishes in the top three among the largest airlines in on-time performance, baggage handling or customer complaints, based on Department of Transportation data.

The airline also rewards employees who get compliments from customers or managers, and holds drawings each quarter to give away $265,000 in cash, including ten $10,000 checks and other $1,000 and $250 awards.

"We have come a long way, but we still have a long way to go," said Ciminelli, noting that while Philadelphia had 17 mishandled bags in July per 1,000 passengers, LaGuardia and Phoenix had six bag complaints each.

Indeed, there are still bag snafus. Jackie Baldwin of Villas, N.J., flew on US Airways to Washington's Reagan National Airport last Sunday. Her checked bag never made it.

"I still have no idea where my bag is," she said Tuesday, upon returning to Philadelphia with a borrowed suitcase. "It's funny now, but it wasn't at the time." Baldwin planned to file a lost-bag claim with customer services.

CLT keeping most flights

US AIRWAYS CEO: With a strong base of business travelers, the city's hub has the ‘ability to cover the cost of fuel.'

By Jefferson George
Charlotte Observer

Aug. 01, 2008

Thanks to a big chunk of business travelers and a smooth-running hub airport, Charlotte will see only a few flight cuts this fall as US Airways slashes service nationwide to offset high fuel costs, the airline's top executive said Thursday.

“Charlotte has been one of the real jewels of the US Airways system,” said Doug Parker, the company's chairman and chief executive, during a meeting with editors at the Observer. “In good times, we do well. In bad times like this, we do less badly than other places.”

Surging oil prices this year have forced smaller airlines to file for bankruptcy and larger ones to reinvent themselves.

Along with cutting flights and amenities, airlines are charging fees for services that used to be free. For instance, after eliminating free pretzels and pay movies on planes in recent weeks, US Airways will start charging for soft drinks and coffee today.

While Charlotte travelers will pay the same fees as anyone else, the lack of flight cuts could ease concerns in a region where US Airways dominates traffic, with nearly 90 percent of passenger flights at Charlotte/Douglas International Airport. Of the airport's roughly 670 daily departures, US Airways has more than 580, and local business leaders often tout the hub as key to attracting and retaining companies.

Nationwide, US Airways plans to reduce seats for sale by about 8percent this fall and make similar cuts in 2009.

The biggest cuts will come in markets with heavy leisure traffic and typically lower fares, such as Phoenix and Las Vegas. The latter is expected to lose a fourth of its flights.

“Our Charlotte hub doesn't have that type of customer,” Parker said. “It's a much stronger type of customer in terms of business traffic. … You have more ability to cover the cost of fuel.”

So far this year, he said, the only routes dropped were recent additions with little business, such as Sacramento, Calif., and Panama City, Fla. The airline says it plans to cut