America West Airlines, Inc.

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America West Airlines, Inc.

founded: 1981

Contact Information:

headquarters: 4000 e. sky harbor blvd.
phoenix, az 85034 phone: (602)693-0800 fax: (602)693-5546 url: http://www.americawest.com

OVERVIEW

America West Airlines began service as a regional carrier in Phoenix, Arizona, in 1983. It grew steadily for eight years, endured three years of Chapter 11 bankruptcy (1991-94), then reemerged as a viable nationwide force in the airline industry. The company focused on a strategy of discount prices and alliances with other airlines. The company served 91 destinations, including eight internationally. Some destinations were served through "codesharing" agreements with other airlines. By 1996, America West ranked ninth in revenue among U.S. passenger airlines. However, the airline ranked number one for short flights (500 miles or less) in 1997 and 1998 in a Frequent Flyer Magazine J.D. Power And Associates Customer Satisfaction Study.

COMPANY FINANCES

America West's 1997 annual revenues were $1.9 billion, up 7.8 percent from $1.7 billion in 1996. Fourth quarter 1997 revenues alone increased 7.5 percent to $472.9 million from $440.0 million the previous year. Net income rose to $75 million, up 781 percent from $8.5 million in 1996. Of 1997 revenues, the airline's passenger division showed the largest increase, rising from $46.5 million in 1996 to $51.7 million in 1997, an 11.1 percent increase.

The company's stock price was around $29 per share in mid-1998, and ranged from $12 to $31 during the first six months of the year. America West stock's 52-week high was $31.31, and its 52-week low was $12.00. Diluted earnings per share (EPS) for the year were $1.63 versus $.21 in 1996, a 700 percent increase.

The consensus among analysts at Zack's Investment Research was a moderate buy rating for America West, with a few advising a "hold" rating. They did expect stable growth for the company, projecting increased earnings per share of $2.40 for fiscal year 1998, and $2.45 in fiscal 1999.

ANALYSTS' OPINIONS

America West's new prosperity and expansion plans did not go unnoticed by industry analysts. The 1997 edition of Hoover's Handbook of American Business described America West as "climbing toward complete recovery" from its bankruptcy years. However, in a New York Times article, Adam Bryant suggested that America West might be trying too hard to recover. He predicted that all major airlines in general would soon return to their historic competitiveness; he noted that America West, in particular, had been criticized for resuming its efforts to expand.

After the ValuJet crash in 1996, the U.S. government did a thorough inspection of several discount airlines, including America West. According to Michael A. Dornheim in Aviation Week & Space Technology, the inspectors concluded that America West's maintenance staff was too small and was over-worked—a situation that could have resulted from over-ambitious expansion plans. Ambition aside, America West's geographic location should help boost its growth in the years ahead. Moody's Transportation Manual noted that both Phoenix and Las Vegas (America West's main hubs) ranked among the world's 25 most popular air travel destinations; both seem poised for significant population growth and both provided ideal connections to popular West Coast destinations.

HISTORY

Airline consultant Edward R. Beauvais founded America West in 1981, following the deregulation of the airline industry in 1978. Beauvais saw a need for better air service between California and other southwestern states, especially for business commuters. After spending two years establishing a financial base and gathering facilities and equipment, America West began airline service in 1983, with 3 aircraft and 280 employees. The company offered flights from Phoenix to 5 southwestern cities. By 1986, it had expanded to 34 cities, and by 1990 it was flying to 62 cities and earning more than $1 billion annually.

From the beginning, America West borrowed large amounts of money to meet ambitious expansion goals. This debt, plus an industry-wide slowdown and an increase in fuel prices led America West to file Chapter 11 bankruptcy in 1991. Chapter 11 bankruptcy allows a company to stay in business without immediately paying all its creditors, as long as it can convince the bankruptcy court that it intends to eventually pay them.

Beauvais resigned as chairman in 1992, during an industry-wide price war. A year later the company hired William Franke to help it recover from bankruptcy, and he soon became the company's president. By 1994, America West had emerged from bankruptcy. And in 1997, America West was the major air passenger carrier in Phoenix. Its other major hub was in Las Vegas, while a smaller hub in Columbus, Ohio, enabled it to serve the eastern United States. In 1997 America West flew to 84 cities in 36 states, as well as 6 cities in Mexico and 1 in Canada. It had a fleet of 101 planes and employed more than 11,000 people.

STRATEGY

According to its 1997 mission statement, America West's goal was to be a "low-cost, full-service, nationwide airline." Its leaders defined four "strategic imperatives" to help it reach that goal. These were to "maintain a low unit cost, focus on the customer, build financial power and market strength, and create a high-performance culture." The first two of those imperatives were reflected in America West's matching the low fares of other discount carriers while still offering "full-service" amenities such as advance seat assignments, first class seating, in-flight meals, in-flight movies, and complimentary copies of the Wall Street Journal.

During 1997, America West's on-time performance improved by 10 percentage points as measured by the U.S. Department of Transportation (DOT) and flight cancellations decreased by 50 percent. The airline ranked number one in baggage handling as recorded in the DOT's 1997 Air Travel Consumer Report. These and other initiatives were part of America West's focus on customer service and operational reliability throughout the company. Their "Pride in All We Do" campaign was designed to get employees' help defining and meeting company goals. America West employees held sessions known as "WorkOuts" to come up with ideas and make recommendations on how to improve the company's operational performance.

Both before and after its years of bankruptcy protection, America West sought greater "financial power and market strength" by buying or leasing additional aircraft, seeking new routes, and forming alliances with other airlines. Its alliance with Mesa Air Group allowed the company to provide extensive service in the Southwest region, while its alliance with Continental Airlines helped it reach more eastern cities. America West continued its strategic growth by adding service from Phoenix and Las Vegas to Cleveland and Washington Dulles, increasing frequency to key markets, and increasing available seat miles by 9 percent. They also expanded the company's codeshare agreement with British Airways to include connections at its Las Vegas and Columbus hubs—an agreement was already in place for the company's hub in Phoenix. "Codesharing" meant the two companies used the same identifying information for flights they shared. This makes it easier for travel agents to book America West flights, making it more likely that agents would steer customers their way.

A central part of America West's strategic growth plan was the expansion of its Nite Flite service at the Las Vegas hub. This program, whose operations primarily take place between 10 p.m. and 2 a.m., helps the carrier maximize its revenue potential. Approximately 15 percent of the company's revenues came from its Nite Flite service, as it takes place during a time period when most domestic carriers' fleets are not in operation.

To increase the company's profile, America West teamed up with resorts to offer special vacation deals. It sometimes painted its aircraft and gave them names like "Tribute to Nevada," to appeal to specific groups of customers. It signed deals to be the "official airline" of various athletic events. It was also the official airline of the Phoenix Suns professional basketball team and was a corporate sponsor of the team's sports facility, which was therefore named America West Arena.

FAST FACTS: About America West Airlines, Inc.

Ownership: America West Holdings Corporation is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: AWA

Officers: William A. Franke, Chmn., 59, $584,504; Richard R. Goodmanson, Pres. & CEO, 49; Ronald A. Aramini, Sr. VP, Operations, 51; W. Douglas Parker, Sr. VP & CFO, 35, $211,667

Employees: 11,000

Principal Subsidiary Companies: America West Airlines is a wholly owned subsidiary of America West Holdings Corporation.

Chief Competitors: As a major airline primarily serving North America, America West's competitors include: Alaska Air; American Airlines; Delta; Flight Safety; Mexicana; Northwest; Reno Air; Southwest; TWA; United; and USAir.

INFLUENCES

Industry deregulation in 1978 had to do mainly with the business aspects of the airline industry, such as the number of routes available and the price of fares. Such regulations made it hard for newer or smaller airlines to compete. Then, just as the major airlines began using larger jets such as the 747, the energy crisis of 1974 led to skyrocketing fuel costs, which naturally meant higher costs for air travel. Many people felt that a lessening of government control would mean cheaper tickets, so in 1978 the airlines were deregulated. Deregulation enabled entreprenuers like Beauvais to find plenty of financial backing for their new airlines. But it also meant fierce competition right away as the number of interstate airlines increased from less than 40 in 1978 to 125 by 1984.

Deregulation brought several innovations now taken for granted by air travelers, such as "frequent flyer" programs and the "hub" system. Like spokes converging on the hub of a wagon wheel, flights come in to a hub airport from various directions at approximately the same time. Connecting flights then leave in the opposite directions a short while later. The airlines found this arrangement to be more efficient and cost-effective.

Adam Bryant, writing in the New York Times, described the years following deregulation as a time when "the nation's skies were viewed as a battleground, and bigger airlines operated on the premise that it was possible to drive their weaker rivals out of business and dominate the industry." By 1997, however, after a decade of bankruptcies and sagging stock prices, airlines were beginning to focus more on cost-effectiveness: lowering travel agent commissions; using electronic ticketing; forming alliances with other airlines; and using computers to analyze when and where people preferred to travel. America West was among those that followed this cost-cutting pattern.

One challenge especially for smaller airlines like America West was obtaining and retaining landing rights at larger airports. The government assigns "slots" to various airlines, which must maintain a certain number of flights at each slot in order to keep it.

CURRENT TRENDS

In 1998, America West Airlines and EVA Airways announced a new codeshare agreement, which, subject to government approval, would connect passengers from EVA's daily nonstop Taipei service to Los Angeles and San Francisco to America West hubs in Phoenix and Las Vegas. Pending U.S. Department of Transportation approval, the agreement was scheduled to begin during the summer of 1998. "This codeshare agreement will enhance service for our customers to Asia making travel to and from popular destinations easier and more convenient," said Mike Smith, senior vice president, marketing and sales, America West Airlines. America West's strong established service from Los Angeles and San Francisco was a key factor in the codeshare arrangement. Expansion through the use of codesharing services appeared to be an adopted strategy for America West's expansion in the late 1990s.

Another focus the company adopted was focusing corporate growth on the Phoenix hub, the backbone of its route system. As a result of the downsizing precipitated by corporate restructuring during its bankruptcy period, the Phoenix hub became undersized relative to overall air travel demand, which grew substantially over the same time period (1991-1994). During 1996 alone, daily departures from Phoenix increased from 175 to 188—that number was expected to grow to approximately 200 by 1998. Growth at Phoenix would focus on mid- to long-haul markets.

CHRONOLOGY: Key Dates for America West Airlines, Inc.

1981:: Founded by Edward R. Beauvais
1983:: Begins service in Phoenix, Arizona as a regional carrier to the southwestern United States
1985:: Takes delivery of its first 737; first year to show a profit
1987:: Initiates FlightFund, its frequent flyer program
1990:: Department of Transportation reclassifies America West as a major airline
1991:: Files for Chapter 11 bankruptcy
1992:: Beauvais resigns as chairman and William Franke takes the CEO position to help the company recover from bankruptcy
1994:: America West emerges from bankruptcy
1996:: Western Athletic Conference names America West their official airline
1997:: Becomes the major air passenger carrier in Phoenix, Arizona
1998:: America West Airlines and EVA Airways announce a new codeshare agreement

PRODUCTS

America West's product and service offerings include FlightFund(r), America West Airlines' frequent flyer program, which allows customers to earn at least 750 miles, even on short flights, plus through participating hotel and rental car partners, FlightFund Visa cards, and long distance telephone partners. The Phoenix Club(r), at the airline's main hub Sky Harbor International Airport, provides customers with club-sharing privileges in 15 major cities, domestic and international. Amenities such as private conference rooms, PCs, phones, and fax machines, as well as snacks, beverages, newspapers, and bonus miles were included. Other basic services offered by America West included baggage handling, convention and meeting services, passenger assistance, pet transportation, special needs passenger services, and services for unaccompanied minors.

CORPORATE CITIZENSHIP

America West donates air travel to various charitable organizations. The America West Airlines Foundation, a nonprofit organization funded mainly by employees, provides educational assistance to disadvantaged children and to children of America West employees. Airline employees receive special training for helping physically challenged customers. Special phones are available for the hearing impaired.

America West addresses environmental concerns related to its operations. Scrap metal and waste oil are recycled, and wash water is recycled through the hangar's cooling system. Paper, cardboard, plastic, and aluminum items from offices and planes are recycled. And unused individually wrapped food items are donated to food banks.

EMPLOYMENT

For every pilot and flight attendant it employs, an airline requires nearly a hundred "operational" employees such as ticket clerks, office workers, and maintenance staff. America West trains most of its operational staff to do several jobs, rotating them as needed. Good work is rewarded by incentive bonuses. The company provides prenatal, child, and elder care, as well as mental health, substance abuse, and legal assistance. It has a medical clinic and a 24-hour child-care facility in Phoenix. Working Mother magazine included America West on its list of "Best Companies for Working Mothers" five years in a row.

America West's pilots, flight attendants, mechanics, and dispatchers are represented by labor unions. As of 1997, the company was negotiating with unions to represent its other employees as well.

SOURCES OF INFORMATION

Bibliography

"america west airlines and eva airways expand service with new codeshare agreement." prnewswire, 21 april 1998.

"america west holdings corporation." hoover's online. available at http://www.hoovers.com.

"america west holdings corporation reports best financial results in company history." prnewswire, 20 january 1998. available at http://prnewswire.com/cgi-bin/stories.pl?acct= 105&story=/www/story/1-20-98/397179&edate=.

bryant, adam. "u.s. airlines finally reach cruising speed." new york times, 20 october 1996.

dornheim, michael a. "america west undergoes first post-valujet inspection." aviation week & space technology, 26 august 1996.

hoover's handbook of american business 1997. austin, tx: hoover's business press, 1996.

moody's transportation manual. new york: moody investors service, 1996.