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 The Brancatelli File

joe TIME FOR A TRUSTEE
AT US AIRWAYS


BY JOE BRANCATELLI

September 16, 2004 -- It won't surprise you to learn that I think the men who crash-landed US Airways into bankruptcy court on Sunday for the second time since 9/11 are a passel of incompetent boobs who couldn't manage their way out of a carry-on bag.

But it may surprise you to learn that the incompetent boobs who run US Airways agree with me. In fact, they have written the single most damning critique of themselves--of any airline management--that I have ever read.

In an extraordinary, 33-page filing with the U.S. Bankruptcy Court, US Airways admits that its management got everything wrong since it exited its first stay in bankruptcy on March 31, 2003. They guessed wrong about pricing, about the competition, about routes, about the market, about revenue, about fuel costs and, as far as I can tell, about the directions for driving home from the bankruptcy court in Alexandria, Virginia.

Here's what US Airways management says about its own performance in three key areas during the past 18 months:

Fuel Costs According to the filing, US Airways' "plan projections for 2004" pegged jet fuel at 80.5 cents a gallon. The airline's net cost is currently $1.105 cents per gallon.

How US Airways management could have projected an 80.5-cent gallon of jet fuel this year is inexplicable given the fact that the Bureau of Transportation Statistics says jet fuel was already selling at 83 cents when US Airways exited bankruptcy. Moreover, the war in Iraq started almost two weeks before US Airways left bankruptcy. In other words, US Airways management not only expected fuel costs to decline this year, they also expected prices to drop even though we'd already launched the Iraq war!

Passenger Revenue In the plan that US Airways gave to the bankruptcy court before it exited last year, management pegged domestic revenue in 2004 at $4.974 billion dollars. The Sunday filing says the "current status" of 2004 revenue would bring it in at $4.472 billion.

How did US Airways get it wrong? "The growth of low-cost carriers over the past 18 months had a profound structural impact on the airline industry," the filing says. "US Airways did not accurately anticipate the magnitude of this structure shift." Moreover, "US Airways was wrong about the revenue environment in which it would have to compete." Those are astonishing admissions for an airline that had already been run out of both the intra-California and intra-Florida markets by Southwest, had its Baltimore-Washington hub destroyed by the arrival of Southwest and was withdrawing New York/LaGuardia-Florida nonstops due to the success of JetBlue at New York/Kennedy. If any airline should have known about the power of low-cost carriers, it was US Airways.

Southwest's Arrival in Philadelphia In October, 2003, Southwest Airlines announced that it would invade US Airways' fortress hub in Philadelphia in May, 2004. US Airways was stunned and didn't have a competitive response until a month before Southwest launched. Why? The filing says that US Airways management "predicted that Southwest would come to the Philadelphia area," but "expected Southwest to enter by flying into nearby Allentown." It says that US Airways management pinpointed Allentown because Southwest entered the Boston market with service to secondary airports such as Manchester, New Hampshire, and Providence, Rhode Island.

That argument is, of course, nonsense--especially for US Airways. US Airways had already been the victim of direct assaults by Southwest at Baltimore/Washington and Florida. In both cases, Southwest came straight at US Airways and US Airways fled.
Only a fool--or a top manager at US Airways--could imagine that Southwest would tiptoe around US Airways in Philadelphia.

What does the filing suggest as a curative for a management team that has gotten so much wrong after it exited bankruptcy with a clean slate, $240 million in new capital and almost $1 billion in federal loans? You guessed it: A vote of confidence for the existing bosses, who are pitching still another "transformation" plan. This new plan is a hazy hash of things that should have been done already (de-peaking hubs and increasing asset utilization) and things that can't be done (growing at already overcrowded airports like LaGuardia and adding more international flights in Philadelphia)--all funded by a third series of givebacks from US Airways' beleaguered and dispirited workforce.

Here's what's wrong with that last plank: Labor costs are already below the projections US Airways made last year. After wrenching two rounds of concessions worth $1.2 billion from its employees, US Airways estimated that this year's labor costs would be 4.2 cents per available seat mile. The airline's current labor costs? Just 4.1 cents per mile. Why would employees give any more to this particular group of management idiots?

And do you remember that Fort Lauderdale "focus city" plan that US Airways management announced just a couple of weeks back? The one where US Airways in February launches a series of flights to the Caribbean and Latin America and connects them with flights from key cities in the East? That strategy is nowhere to be found in the transformation plan as outlined in the Sunday filing. The glaring omission leads to some interesting conclusions: The crack managers at US Airways have already changed their minds or they never had any intention of growing in Fort Lauderdale or, worst of all, they simply forgot to mention it to the bankruptcy court.

It seems obvious to me that the corps of jejune fools running US Airways has to go. And since we all have a stake in this as taxpayers--US Airways still owes almost $750 million on its federally guaranteed loan--I have what seems like a rational suggestion: Unseat the current management. Send David Bronner, who gambled $240 million of Alabama state employee retirement funds on US Airways and bestowed the title of chairman on himself, back to Montgomery. Then appoint an independent trustee to run US Airways and assess whether it has any future.

US Airways may be a dead airline flying. Or some or all of it may be salvageable. But one thing is sure: The current management has proven its incompetence. They have to be shown the door if the airline is to have any chance of survival at all.

This column originally appeared at JoeSentMe.com.

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