5 Key Quotes from US Airways on the Airline Industry

Here are five key quotes from US Airways' (LCC) recent conference call:

1. Impact of higher fuel prices

These are the results for the quarter. We reported this morning a loss of $567 million. Excluding special items the loss was $101 million, but we made $261 million profit in the second quarter of ’07. That change in here of course was driven higher fuel prices. Had our fuel prices remained unchanged year-over-year, our second quarter fuel expense would have been $390 million lower.

2. Cutting capacity to reduce costs

During 2008, we planned to retire 21 older aircraft and are adding 19 new ERJ-190s and A321 aircraft. ASMs [available seat miles] are now projected to be 74.1 billion for the year 2008, which is down 2.3% versus 2007. For the quarters, in the third quarter it will be at 19.3 billion down 1.6% and in the fourth quarter it will be at 17 billion, which is 6% down from 2007. We are still working on our 2009 plan at this point. Preliminary ASM numbers project domestic ASMs down 8% to 10% for the full year with total ASMs down 4% to 6%... Starting in the middle of August we’ll see industry capacity begin to decline and expect that it will be down 9% in the fourth quarter and into 2009.

3. New airplane orders

Throughout the year we will continue to replace older aircraft with new fuel-efficient aircraft ending the year with 354 aircraft. This will continue over the next few years as we continue our fleet modernization.

4. Charging for bags and drinks, aka "a la carte pricing"

On the revenue side we’ve taken aggressive steps to mitigate the impact of record high fuel costs. During the quarter we implemented in a la carte pricing model, which includes the first and second bag charge, new choice seat option and sale of beverages... We are increasing our estimate of the annual benefits of this program by $100 million to $400 million to $500 million per year.

5. Higher fuel prices means no more... movies

Fuel conservation continues to be the top priority for us in 2008. We continue to replace older aircraft with more fuel efficient aircraft have added wing widths to all long-haul 757 aircraft and we will remove nonessential weight from all of our aircraft. We recently announced that we will remove our in-flight entrainment system, saving over $10 million in expenses per year primarily due to lower fuel burn.

The quotes are taken from the US Airways transcript which was published on Seeking Alpha a few hours after the call ended. If you think I missed something more important than these quotes, feel free to copy and paste your quote from the full transcript and leave as a comment below.

Comments

[grewjac:]

Haven't these people heard of price elasticity of demand? "Ala carte pricing" is still pricing: raising rates to bolster, or at least increase the hope of profitability is strictly limited by the market's (fliers') willingness to pay.

Another lesson Continental learned by observing how well letting the bean-counters decide what service costs to cut. Greg Breneman said, "They ruined the product. Who wants to fly in a hot, dirty aircraft with seating cannibalized from planes with six different color schemes?" Eliminating in-flight entertainment to save fuel sounds "green," but they will lose "folding green" from business travelers who can only tolerate so much time trying to use a laptop sitting in coach.

2008 Jul 23 01:12 PM

[DM226:]

I agree about the "ala carte pricing" but who's not going to fly a particular airline because of a lack of in filght movies? Read a book, listen to your MP3 players, or take a nap...coach isn't that bad unless you are either extremely tall (then I understand your pain) or you are overweight.

2008 Jul 23 02:06 PM

[mbacapitalist:]

I would expect more "ala carte pricing" in the future. I did notice one thing that could potentially save a substantial amount of fuel for airlines in the future. On an American Airlines flight to Dallas recently, the attendants asked that all window passengers closer their window shades before deplaning. Given that its extremelly sunny and hot at DFW, the blocking of the suns rays will prevent heat from building inside the aircraft while it is parked (greenhouse effect - pretty popular in the 80's and currently making a come back!). Since the airplane will require less fuel to run the A/C, it'll save on gas. This is especially effective at extremelly hot airports where planes have long waits in between flights (ATL, MEM, CLT).

2008 Jul 23 03:37 PM

[User 229640:]

"have added wing widths to all long-haul 757 aircraft"

That makes no sense as written. Probably a transcription error. Given the context is fuel economy, it probably should have been "winglets", which are small extensions which curve up from the wingtips and reduce energy lost in vortexes created as air slides sideways off the end of the wing.

2008 Jul 23 05:58 PM

[PastTense:]

What are the economics of new airplanes to save fuel costs? How much fuel can you save?...

2008 Jul 23 11:01 PM

[drmalaka:]

Did he mention a specific date they would be filing for bankruptcy? I hope he replaces the plane I flew on last week, it sucked. I thought they were going to ask us to get out and push.

The official slogan of all the airlines should be "a crappy product with crappy service made in America by your trusty unions."

2008 Jul 24 02:25 AM

[Yellowhair148:]

Hey Dr.M. Do you even know what type of aircraft you were on? Remember also you can fly on the best made by USA union workers or you can fly on a plane built by EU union workers in the 100+ seat catagory. These are your only choices. Maybe a nice pair of Nike's would be better for you and just walk!!!!!!!!!!!

2008 Jul 24 11:12 AM

[notmyrealname:]

Airlines will need to keep costs down to keep travelers in their seats. The way to do that is by reducing the number of flights but not the number of travelers. You can fly one bigger new fuel effiecient airplane cheaper than two. Newer bigger planes means less fuel, less crew, less maintenance, less airtraffic. Expect to see Boeing Dreamliners to fly NY - Houston - LA. As bad as this economy is for the airlines it's still a go for Boeing (BA).

2008 Jul 24 01:32 PM

[susi_mg8:]

Bigger planes doesnt mean LESS crew. It actually requires more of a crew as far as flight attendants go. People can complain as much as they want about airlines but the truth is, despite the "crappy" service u will all be flying in them. They have become a necessity for us. Esp when you cant drive to the place u need to get to.

Allegiant air is one of the few airlines i know that charges FOR EVERYTHING. If u want a certain seat u pay for it, a checked bag, u pay for it. Any refreshment/snack on the plane u pay for it. People may not like it because they are use to getting these for free, but it works for them very well. They have been doing this for years and their flights are doing well. In order for the airlines to survive they need to do this, im sure a lot more airlines will be adopting this.

Travelers need to think smart. If u dont want to be charged for a Checked bag then pack a bag good enough to carry on with u. Yes that means no extra items on that bag, just what you need. Your toiletrees have to be on that under 3oz rule or get them when u get to ur destination. Everyone (airlines included) is trying to save money and survive, with this economy is the only thing we can do.

2008 Jul 27 01:17 PM