US Airways Incorporated

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US Airways Incorporated

founded: 1939

Contact Information:

headquarters: 2345 crystal dr.
arlington, va 22227 phone: (703)872-7000 fax: (703)872-5307 url: http://www.usairways.com

OVERVIEW

US Airways Incorporated is the chief subsidiary of its parent company, US Airways Group Inc., and accounts for about 90 percent of its operating revenues. In 1997 the airline flew almost 59 million passengers; it is the fifth largest domestic air carrier ranked by revenue passenger miles (RPM). That year, it operated 376 jet aircraft and provided service to 102 airports in 33 states, as well as service to Canada, Mexico, Germany, Italy, France, Spain, the United Kingdom, and the Caribbean. The company's operations are primarily centered east of the Mississippi; 84 percent of its departures and approximately 56 percent of its capacity (available seat miles or ASMs) are located there. It is the number one airline on the East Coast, where it has its major hubs (connecting points) located in Charlotte, North Carolina; and Philadelphia and Pittsburgh, Pennsylvania. It also has major operations at the Baltimore/Washington International Airport, Boston's Logan International Airport, New York's LaGuardia Airport, and Washington's Ronald Reagan Washington National Airport. The company has an arrangement with 10 smaller airlines, which form the US Airways Express, to provide "feeder service" (fly passengers from smaller airports to the major hubs) and serves 174 airports in 33 states. During 1997, the US Airways Express carried 10.9 million passengers.

COMPANY FINANCES

US Airways Group, Inc. (operating revenues of which US Airways Inc. accounts for about 90 percent) had $8.51 billion in operating revenues in 1997 and had a net income of $1.02 billion, with $12.32 earning per common share. In 1996 operating revenues were $8.14 billion and net income was $263.37 billion. In 1997, US Airways Inc.'s passenger transportation revenues increased $312.6 million over 1996 revenues, and 1996 revenues increased $531.7 million over 1995 revenues. US Airways Group Inc. attributes its earnings improvement over 1995 through 1997 to the booming domestic economy, improved airline operating performance, recent marketing efforts, and cost reduction measures it has taken.

ANALYSTS' OPINIONS

US Airways Inc., like the airline industry in general, has done very well since 1995. Analysts say that the six largest airline companies all have had record profits, largely due to the airlines taking advantage of the hub system, which has strengthened their hold on the nation's 600 million annual passengers. In early 1998, US Airways was called by one observer a healthy airline, sitting on a large, well-priced airplane order and $2 billion in cash. The company's stock value increase in 1997 was attributed to the cost-saving labor agreement it was able to work out with the union. Other factors that have been cited for the company's strong financial performance has been its management reorganization, adding Airbus planes to its fleet, and the carrier's position as the number one on-time airline among the five largest carriers, according to Merrill Lynch analysts Candace Browing and Michael Linenberg, as quoted in Brandweek in 1998. These analysts also point to the company's new ticket reservation system, its closure of some unprofitable facilities, and its acquisition of US Airways Shuttle. In April 1998, US Airways and American Airlines, formerly bitter rivals, announced a marketing alliance between their companies. This alliance allows the airlines' passengers to use both companies' international airport clubs and pool frequent flyer miles.

The move among the top airlines to merge or form alliances with other airlines has received much comment by both industry watchers and consumer groups. Consumer groups worry that, as competition in the industry shrinks due to mergers and alliances, airfares will go up, hurting consumers. Tom Belden, a business reporter writing in the Philadelphia Inquirer about the US Airways-American alliance, spoke to the president of a corporate lobbying group who worried that if all the major carriers are allowed to combine into just 3 or 4 very large, non-competing networks, business travelers will wind up paying higher fares, especially in cities where service is dominated by one group. But airline industry executives dispute this, pointing out that alliances especially help business travelers, because they create domestic and global networks where airline companies are able to code share, or issue tickets on one another's flights, coordinate schedules, merge frequent flyer programs, and use each other's hubs. An alliance has another big advantage over a merger: in a merger, whole departments or operations may be eliminated as the company seeks to cut redundancy, resulting in sometimes massive job losses. In an airline alliance, both companies basically retain their independence, while working jointly on some of their marketing arrangements and passenger operations. Given the advantages of alliances over mergers among the airlines, analysts have gone so far as to say that mergers no longer seem viable and that alliances are becoming an industry trend. Wall Street also appears to like airline alliances. Discussing the US Airways-American agreement, airline consultant Michael Boyd of the Denver-based Boyd Group was quoted in the Philadelphia Inquirer as saying that Wall Street looks favorably on these kinds of alliances because it means less competition and higher profits.

HISTORY

In 1939, All American Aviation, the first air-mail service delivering to small western Pennsylvania and Ohio Valley communities, debuted. Nine years later another air carrier, Piedmont Airlines, began operations. In 1949, All American Aviation became All American Airways and changed from air-mail to passenger service with the introduction of the DC-3. Pacific Southwest Airlines also began operations that year between California cities. In 1953, All American's route system had grown and the company changed its name to Allegheny Airlines. Fourteen years later, the first Allegheny Commuter service began between Hagerstown, Maryland, and Baltimore/Washington International Airport by Henson Aviation, forerunner of Piedmont Airlines. In 1968, Allegheny merged with Indianapolis-based Lake Central Airlines, expanding the route network beyond Pittsburgh to the Midwest and into Dayton, Columbus, and Cincinnati, Ohio; Indianapolis, Indiana; and St. Louis, Missouri.

In 1972 Allegheny acquired Mohawk Airlines, a Utica, New York, airline with service to cities throughout New York and New England. With the merger, Allegheny became the sixth-largest airline in the world as measured by passenger boardings. In 1979, Allegheny changed its name to USAir to reflect its expanding network, including entry into Arizona, Texas, Colorado, Florida, and later, California. Seven years later, the airline acquired Empire Airlines and its Syracuse, New York, hub. In 1987 Piedmont introduced European routes, and Pacific Southwest Airlines of San Diego became a wholly owned subsidiary of USAir Group in May. Piedmont, the dominant carrier throughout the mid-Atlantic region of the United States, also became a subsidiary of USAir Group, in November 1987.

Piedmont was integrated into USAir Group Incorporated in 1989. It was the largest merger in airline history. The merger united Piedmont's international routes as well as its Charlotte, Baltimore, Dayton, and Syracuse hubs. In 1990, USAir expanded its international flights with service between Pittsburgh, Pennsylvania, and Frankfurt, Germany, complementing existing Charlotte-London service begun in 1987 by Piedmont; and in 1991, international expansion continued with the introduction of new nonstops between Charlotte and Frankfurt. The next year, Philadelphia-Paris was added to USAir's transatlantic schedules. Daily nonstops between both Philadelphia and Baltimore/Washington International Airport and London Gatwick Airport were introduced in May.

In 1993, USAir and British Airways announced an investment/alliance plan, under which USAir would give up its London route authority. Three years later, the airline challenged its relationship with British Airways in court, seeking rights to London Heathrow Airport from four U.S. gateways and to require British Airways to dispose of its USAir stock. By December 1996, British Airways announced it would sell its shares in USAir. On February 27, 1997, USAir Incorporated officially became US Airways Incorporated. The company began repainting its fleet of aircraft a deep blue and medium gray and added the airline's new symbol: a stylized version of the American flag. "These changes go much deeper than a new name and paint scheme," said US Airways chairman and CEO Stephen M. Wolf in a company statement. "We have made much tangible progress over the past year in our operations, in developing an expanded route structure and in improving financial performance."

FAST FACTS: About US Airways Incorporated

Ownership: US Airways Incorporated is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: U

Officers: Stephen M. Wolf, Chmn. & CEO, 56, 1997 base salary $500,000; Rakesh Gangwal, Pres. & COO, 44, 1997 base salary $428,846; Lawrence M. Nagin, Exec. VP Corporate Affairs & Gen. Counsel, 57,1997 base salary $351,538

Employees: 42,500

Principal Subsidiary Companies: US Airways Group Incorporated is the parent corporation for US Airways' mainline jet and express divisions.

Chief Competitors: Besides competing against the large carriers such as Delta Air Lines and United AirLines, it also faces the smaller, low-cost airlines like Southwest Airlines and ValuJet.

STRATEGY

The company's strategy is exemplified in a comment Wolf made to the Charlotte Observer in August 1997, when Wolf reiterated his company's emphasis on customer service: "How you present yourself is important." Wolf, an airline industry veteran for over 30 years and known for his no nonsense approach, defines customer service as anything from answering the phones quickly to ensuring his planes fly on time. According to the interview, he also places much importance on his airline having a vision and communicating this vision to his employees. Part of his vision is that the company must do some much needed cost cutting, which Wolf sees as essential to competitiveness in a very competitive business, buy new planes, and prevent downsizing and loss of jobs. Wolf and Rakesh Gangwal, the company's president and chief operating officer, even went so far as to have a series of meetings with groups of US Airway employees during the protracted union negotiations in 1997, to stress the importance of this message. Wolf and Gang-wal pleaded with their employees, saying that if the airline did not reduce labor costs, there was no way it could compete with the many low-cost airline companies springing up.

Another part of Wolf's "how you present yourself" strategy has been to change the company's image into a high quality airline. He has not only changed the airline's name, but had the planes repainted with a new logo and color scheme, changed the dishes and utensils onboard the planes, and provided new uniform design for the flight crew. Apparently, Wolf's strategy has worked. In a March 1998 interview he gave to Brandweek, he said: "We have made enormous strides in terms of operational integrity, financial performance, customer perception. All you have to do is look at the Department of Transportation measures for on-time performance, fewest bags lost, consumer complaints. We have moved from the middle of the pack to the top, a tribute to our employees. Financially, the results speak for themselves. And the fact that our load factors are setting records regularly says something about how customers view us."

INFLUENCES

By the third quarter of 1996, US Airways Group's subsidiaries began experiencing increased competitive pressure. That year, ValuJet reinstated service on September 30, Delta launched its low-cost, low-fare airline called Delta Express on October 1, and Southwest further expanded its East Coast presence on October 27. The company estimates that approximately 8 percent of US Airways' capacity directly overlapped with ValuJet's route structure prior to that company's service reduction. ValuJet, which operated 51 aircraft prior to its service reduction, operated 15 aircraft in late 1996. US Airways believes ValuJet's cessation of operations had a favorable effect on US Airways' passenger transportation revenues during the second and third quarters of 1996.

The company considers the presence of Delta Express and Southwest Airlines a serious competitive threat in markets served by its airline subsidiaries. In 1996, Delta Express operated between Florida and 10 Northeast and Midwest cities. That year, Southwest initiated service between Providence and Baltimore; Orlando and Tampa; and Nashville and Chicago. Southwest's service at Providence, which is about 60 miles from Boston, has resulted in some passenger traffic being drawn from Boston's Logan International Airport. US Airways and its regional airline affiliates have substantial operations at Boston's Logan International Airport. Southwest reported that its unit operating cost is approximately 7.5 cents per ASM, and US Airways estimated that Delta Express's unit operating cost will be about the same. US Airways' unit operating cost was 12.44 cents per ASM for the third quarter of 1996.

CHRONOLOGY: Key Dates for US Airways Incorporated

1939:: All American Aviation air mail service begins operation
1949:: All American Aviation adds passenger service and changes its name to All American Airways
1953:: All American becomes Allegheny Airlines
1968:: Allegheny Airlines merges with Lake Central Airlines
1972:: Acquires Mohawk Airlines and becomes the sixth largest airline by passenger boardings
1979:: Allegheny becomes USAir
1987:: Piedmont Airlines and Pacific Southwest Airlines become wholly owned subsidiaries of USAir
1993:: British Airways and USAir work an alliance under which USAir would give up its London route
1996:: USAir challenges the agreement in court seeking rights to London and asks British Airways to give up its stock of USAir
1997:: USAir incorporates and becomes US Airways Incorporated

The company estimated that its direct route overlap with Delta Express and Southwest was 2.4 percent and 2.3 percent, respectively (as measured by ASMs). However, the company expected that its route overlap with both competitors, as well as the intensity of the competitive pressure, will increase as Delta Express followed its planned doubling of operations by January 1997, and Southwest allocated more resources to its new Northeast operations. In the third quarter of 1996, US Airways' cost structure continued to be the highest of all major air carriers in the United States. Despite the company's favorable financial results through August 1996, the competitive threat posed by low-cost, low-fare air carriers presented a serious challenge to the company efforts to lower its cost structure, remain competitive, and ensure long-term financial viability.

CURRENT TRENDS

In an April 1997 article by the Bloomberg News wire service, chairman Stephen Wolf was quoted as saying, "[US Airways Incorporated] continues to experience significant losses in key markets" because of high labor costs and competition from low-cost carriers. The lack of progress, said Wolf, "leaves us no choice but to conclude that the company must promptly implement the appropriate steps to address the issue." The article also said Wolf had threatened to abandon the company's ambitious overseas expansion plans and shrink the company into a smaller regional airline if a labor agreement wasn't reached.

EMPLOYMENT

According to its web page, US Airways employs about 43,000 people in a variety of careers, including: pilots, flight attendants, mechanics, aircraft cleaning personnel, customer service agents, reservation sales representatives, administrative personnel, special assistance representatives, computer and finance professionals, information technology, and sales and marketing.

SOURCES OF INFORMATION

Bibliography

belden, tom. "cut labor costs or face downsizing, us airways chairman tells workers." philadelphia inquirer, 28 april 1997.

———. "us airways, american airlines form alliance." philadelphia inquirer, 23 april 1998.

mcdonald, michele. "airline alliances stir trade: aa, us airways reach accord." travel weekly, 30 april 1998.

mcmanus, john. "flying higher." brandweek, 23 march 1998.

reed, ted. "us airways becomes latest takeover target for airlines." charlotte observer, 28 january 1998.

———. "what does chairman stephen wolf plan for us airways?" charlotte observer, 27 august 1997.

securities and exchange commission, edgar archives, november 1996. available at http://www.sec.gov/archives/edgar/data/701345/0000701345-96-000044.txt.

"us airways has 1st-qtr profit, well above estimates." bloomberg news, 23 april 1997.

us airways home page, may 1998. available at http://www.usairways.com.

velocci, anthony l., jr. "market focus." aviation week & space technology, 6 october 1997.

zellner, wendy. "where are all those airline tie-ups headed?" business week, 11 may 1998.