The Brancatelli File



August 12, 2004 -- Sometime this weekend, NBC will get around to showing the opening ceremonies of the Summer Olympics from Athens. That will give us plenty of opportunity to ponder this cosmic question: Which is less relevant in today's world, the Olympic Games or the Big Six?

Even assuming everything goes swimmingly at the Games over the next two weeks, the return of the Olympics to Greece has already been a disaster. As late as Monday, three million tickets remained unsold and Athens, which has a woeful undersupply of beds in normal times, somehow has a surplus of empty rooms. Even the scalpers are complaining and slashing prices.

Of course, all this pales in comparison to the parlous state of the Big Six. Passenger traffic has lately returned to pre-9/11 levels, yet the Big Six is still hemorrhaging Olympic-sized pools of cash. Even the most optimistic observers--and experts wearing rose-colored glasses are increasingly hard to find these days--now admit that two or three of the Big Six may be irretrievably lost. And bad news is breaking faster than athletes are flunking drug tests.

Here's the gold, silver and bronze of this week's developments.

The shares of Delta Air Lines have posted 15 consecutive days of losses and that astonishing negative streak drove me to the calculator to run some market-capitalization numbers.

Delta, which closed yesterday at $3.51 a share, is now worth just $437 million and a few cents. US Airways closed at $2.53 a share. Total market cap: about $145 million. That's pretty awful considering that the Retirement Systems of Alabama ponied up $240 million for a 36 percent stake in the carrier just last year. Northwest ($680 million), Continental ($541 million) and American ($1.2 billion) aren't doing much better. United, of course, is 20 months into what now seems like an endless bankruptcy, so it has no market value at all.

Give or take a few million, that means you could pick up the entire Big Six on the open market for about $3 billion.

By comparison, JetBlue is selling for $24 a share these days and has a total market cap of $2.4 billion. Southwest Airlines is selling for $13.70 and is worth $10.8 billion--or more than three times the combined value of the Big Six.

US Airways announced yesterday that its retreat from Pittsburgh apparently will be faster and deeper than anyone imagined. Earlier this year, the airline was serving more than 100 nonstop destinations from its westernmost hub--US Airways has never realized that the United States pushed its boundaries beyond the Ohio River 200 years ago--but that number will drop to about 50 come November.

Among the 20 additional cities that US Airways said yesterday it would axe: London and Frankfurt; Montreal and Ottawa; and a mess of smaller destinations in New York, New England and states adjacent to Pennsylvania. US Airways previously announced that it was dropping places like Milwaukee, Minneapolis and Houston from the Pittsburgh map. And it turns out that US Airways can't even compete when it is the monopoly carrier in a market. It will drop Pittsburgh-Kansas City service this fall even though it is the only carrier on the route.

All of this may be irrelevant, however. The airline is skidding toward a second bankruptcy filing by the end of the summer. (That's not my observation, that's management's claim and no one disputes it.) After two rounds of deep givebacks, the airline's labor unions now seem willing to let the carrier go broke again rather than give back any more. And it's hard to argue with them: One new contract proposal from management not only includes a third, draconian round of concessions, but it also gives management the unquestioned right to farm out union jobs whenever the airline thinks it can find a better deal. With terms like that coming from the bosses, bankruptcy doesn't look all that scary to the airline's brutalized workforce.

And the airline's "transformation" plan, which includes more point-to-point flying to Florida and the Caribbean, has ominous precedent: Both Eastern and TWA tried to find salvation in the sun just before they disappeared.

United Airlines management is going before a bankruptcy judge next week to request four more months of exclusive control of the airline's reorganization process. At least one of the airline's unions says it will ask the court to appoint a trustee to take over the carrier.

Although the appointment of a trustee is rare, it isn't unprecedented. (A trustee is currently in place at Hawaiian Airlines, for example, and the carrier has returned to profitability under his guidance.) And a good case could be made that United's current management team, in place for almost two years now, has mangled the carrier beyond repair. Among its failings: three financially feeble and politically ham-fisted attempts to secure a federal loan guarantee; a consistent misunderstanding of the basic bankruptcy process (United once promised to be out of bankruptcy this past spring); a recent decision to skip required pension-fund contributions that the quasi-governmental Pension Benefit Guarantee Corp. says is illegal; and the fact that United has not yet presented the court with a reorganization plan even though it has already spent 20 months under Chapter 11 protection.

Worst of all, the clueless men now running United have all but destroyed the vast United network by layering it with costly fleet complexity that is confusing customers and running up losses. The announcement last week that it is simultaneously reducing transcon capacity and launching a dedicated three-class service on the all-important routes may be the ultimate folly. The dedicated Boeing 757s that are supposed to ply the New York-Los Angeles and New York-San Francisco routes beginning in October will offer a unique in-flight configuration of lie-flat beds in first, large seats in business class and Economy Plus in coach. That mini-fleet will join Ted (Economy Plus and coach); United's traditional two-class planes; a fleet of three-class (first, Economy Plus and coach) domestic planes; the one-class and two-class United Express regional jets that now fly as far as 1,500 miles; and a raft of international configurations.

Anybody know what they are booking anymore when choosing a United flight? Is there an airline in the world that can control its costs with that kind of fleet folly?

And what's going to happen the first time one of those specially configured transcon 757s goes out of service? What's United going to do when a passenger who paid $4,000 for a lie-flat bed on a red-eye to New York is told he has to fly some other plane or wait until tomorrow for a flight with the configuration he or she paid for? Do you think that traveler is going to be mollified by a 1,000-mile bonus for his or her inconvenience?

This column originally appeared at

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.