US Airways Accelerates Business Model Transformation

TEMPE, Ariz., Jun 12, 2008 (BUSINESS WIRE) -- US Airways (NYSE: LCC) today announced that it is making additional domestic capacity reductions, reducing headcount and implementing several new revenue initiatives to help expedite the airline's return to sustained profitability in this new and challenging environment.

Major changes and initiatives announced today include:

  • Reducing fourth quarter domestic mainline capacity by six to eight percent on a year-over-year basis.

  • Returning 10 mainline aircraft in 2008 and 2009, canceling the leases of two A330 aircraft that were scheduled for delivery in 2009, and planning to reduce additional aircraft in 2009 and 2010.

  • Decreasing staffing levels by approximately 1,700 employees across the airline's system as a result of the reduced flying.

  • Introducing a first-checked-bag service fee of $15.

  • Introducing a new in-flight beverage purchase program.

  • Amending the airline's Dividend Miles frequent flyer program.

  • Increasing the fee associated with the airline's employee guest and parent discounted travel pass program.

US Airways Chairman and CEO Doug Parker said, "Our industry is profoundly challenged by the dramatic increase in fuel prices, and we must write a new playbook for running a profitable airline in this new and challenging environment. We are taking every action to operate a strong and competitive airline, while ensuring that our customers have continued access to competitively-priced air travel."

The airline cited the high cost of fuel as the primary force working against the entire U.S. airline industry and US Airways, of note:

  • The cost of jet fuel has increased more than 90 percent over the last 12 months (and more than 200 percent since 2000).

  • US Airways estimates its total annual fuel expense (mainline and Express) will be $1.9 billion more in 2008 than it was in 2007 when the airline reported a net profit of $427 million.

  • In 2008, fuel represents 39 percent of total (mainline and Express) expenses; in 2000, fuel represented 14 percent of the airline's total expenses.

  • At current fuel prices, US Airways will spend an average of $299 in fuel costs alone to carry one mainline passenger on a roundtrip journey, which is up from an average of $151 in 2007, and $70 in 2000.

Capacity Reductions

In response to the sustained surge in record high fuel prices, the airline will reduce its fourth quarter domestic mainline capacity by six to eight percent on a year-over-year basis. The airline had previously planned a two to four percent decrease in domestic mainline capacity in its fourth quarter 2008. Domestic mainline capacity for 2009 is planned to be reduced seven to nine percent from 2008 levels.

                     Available Seat Miles Year-Over-Year Change
              --------------------------------------------------------
                  2Q          3Q          4Q        FY08       FY09
              ----------- ----------- ---------- ---------- ----------
Domestic       -1% to -3%  -0% to -2% -6% to -8% -3% to -5% -7% to -9%
International  +6% to +8%  -0% to -2% +4% to +6% +3% to +5% +6% to +8%
              --------------------------------------------------------
Total         -1% to + 1%  -0% to -2% -4% to -6% -1% to -3% -4% to -6%
 Mainline
Express        +7% to +9% +9% to +11% -1% to +1% +4% to +6% +0% to +2%
              --------------------------------------------------------
Total System   +0% to +2%  +0% to +2% -3% to -5% -0% to -2% -3% to -5%

The airline is taking the following steps to achieve its capacity reduction goal:

  • Fleet Reduction: The reduced flying is accomplished by returning 10 aircraft to lessors and canceling deliveries of two additional aircraft in early 2009. Aircraft coming out of the fleet include the return of six Boeing 737-300 aircraft by the end of 2008, four Airbus A320 aircraft in the first half of 2009, and the cancellation of leases of two A330-200 wide-body aircraft that had been scheduled for delivery in the second quarter of 2009. The airline is also planning to reduce additional aircraft in 2009 and 2010.

  • Las Vegas Flight Reduction: Effective Sept. 3, the airline's Las Vegas night operation will be closed, except for limited night service to the East Coast. Historically, both pre-merger America West Airlines and today's US Airways have operated an extensive late-night operation in Las Vegas. However, due to the high cost of fuel, the revenue generated from the Las Vegas night operation no longer exceeds the incremental cost of that flying. As a result, the airline will park those planes overnight, as it does for the majority of its fleet in other markets. Overall, daily departures from Las Vegas, which were as high as 141 during Sept. 2007, will drop to 81 with the Sept. 3, 2008 schedule change. The airline's Las Vegas daily departures will drop further to approximately 74 by the end of 2008 as aircraft are retired from the fleet.

  • Employee Reduction: The reduced flying will require approximately 1,700 fewer positions across the airline's system including roughly 300 pilots, 400 flight attendants, 800 airport employees and 200 staff and management. For front line employees, the staffing reduction is expected to be handled through attrition throughout the summer. Any necessary furloughs following the summer travel season will be offset as much as possible by voluntary leaves of absence as permitted by the respective labor contracts.

Additional Cost Savings Measures: The airline announced plans to close the US Airways Clubs in the Baltimore / Washington International Airport and the Raleigh-Durham International Airport effective Aug. 6, 2008. In addition, the airline will no longer offer arrivals lounges in Munich, Rome, and Zurich. US Airways will also close its cargo stations in Burbank, Colorado Springs and Reno. The airline also revised its wholesale programs for cruise lines, tour operators and consolidators, including reducing the number of agency partners, decreasing discounts, adding tighter restrictions on travel rules, and reducing commissions.

Revenue Growth and Fee Initiatives

US Airways is also announcing several new revenue and fee initiatives. This includes a first-checked-bag service fee, a new beverage purchase program, implementation of processing fees for travel awards issued though the airline's Dividend Miles frequent flyer program, increases to the cost of call center / airport ticketing fees, and price increases to the airline's employee guest and parent discount travel program. These new services and fees combined with US Airways' previously announced Choice Seats and second-checked-bag carry programs could generate between $300 million and $400 million annually for the airline.

"While consumers are paying roughly the same for domestic airfares as they were in 2000, the same cannot be said for airlines' operating costs, especially fuel, which now costs us $299 per customer carried on average," said US Airways President Scott Kirby. "We simply must adapt to the current environment and transform our business by generating new sources of revenue and adding fees to better offset our costs. The 'pay for what you choose and use' model ensures that only the customers that want such services bear those costs. While new and different, this model ensures that competitive and affordable travel remains intact across our system.

"We have worked very hard to achieve our on-time performance turnaround and baggage handling improvements and are taking every necessary step to maintain our operational momentum. To ensure the continued quality of our operations during the initial implementation of these changes, we will deploy additional people in high volume markets, and improve technology with additional kiosks and gate scanners at various airports."

The airline's new revenue streams and fees will be generated through the following initiatives.

  • First-Checked-Bag Fee: The airline announced plans to implement a first-checked-bag service fee of $15. The new fee goes into effect for tickets booked on or after July 9, 2008, and will apply to all flights within the U.S., to/from Canada, Latin America, and the Caribbean. The airline will waive the fee for its most frequent customers including: all Dividend Miles Preferred members (Silver, Gold, Platinum and Chairman's Preferred), confirmed First Class and Envoy passengers at time of check in, and Star Alliance Silver and Gold status members. The following customers will also be exempt from paying the fee: military personnel on active duty, unaccompanied minors and passengers checking assistive devices.

  • In-Flight Beverage Purchase Program: In addition to current sales of alcoholic beverages on all domestic flights, US Airways will begin selling all non-alcoholic beverages (including sodas, juices, bottled water and coffee) in its domestic coach cabins for $2 effective Aug. 1, 2008. Alcoholic beverages will be available for $7 (currently $5). More details will be forthcoming and will include new premium beverage and hearty snack choices.

    Complimentary beverages will continue to be served in domestic First Class, US Airways Shuttle flights, trans-Atlantic Envoy and trans-Atlantic economy class. Unaccompanied minors will also receive complimentary non-alcoholic beverages.

  • Call Center Ticket Fees: US Airways has instituted a $25 service fee for domestic tickets and a $35 service fee for international tickets purchased through its call center reservations line (previous domestic and international ticketing service fee was $15). Tickets purchased at airport / city ticket offices will be assessed a $35 (domestic) and $45 (International) service fee. Prior to this change, the airport / city ticket office service fee (domestic and international) was $20.

  • Dividend Miles Changes: A new award redemption processing fee will be assessed to all Dividend Miles award tickets issued on/after Aug. 6, 2008. The fee will be based on destination ($25 for domestic/Canada tickets, $35 for tickets to Mexico / Caribbean, and $50 for Hawaii / international). US Airways is also eliminating its bonus miles program for Preferred status Dividend Miles members. Preferred members currently receive mileage bonuses based on their status level. The Preferred bonus program will be discontinued for tickets purchased on/after Aug. 6, 2008.

    The airline's frequent flyer program continues to be one of the best programs in the industry and presents the most generous upgrade opportunities. Dividend Miles Preferred members are eligible for unlimited complimentary upgrades up to seven days prior to departure versus five days, often accompanied by a fee, in other airlines' frequent flyer programs.

  • Employee Guest Pass Price Increase: While US Airways employees and their eligible dependents will continue to enjoy free travel throughout the airline's domestic and international network, the airline has increased fees paid by employees' guests and parents, who travel on a standby basis. These changes go into effect for travel on/after June 12, 2008.

Navigating the Present and Investing in the Future

In addition to the capacity reduction, revenue growth and fee initiatives announced today, US Airways will maintain its focus on operational excellence and its investment in its Reliability, Convenience and Appearance program.

  • Navigating the Present: US Airways will continue to invest in the operational turnaround initiatives that have vaulted the airline from the bottom of the Department of Transportation's (DOT) on- time performance charts in early / mid 2007 to industry-leading on-time performance. The DOT has ranked US Airways among the Top Three in on-time performance (among the ten largest U.S. airlines) for the past five consecutive months and number one in on-time performance (among the ten largest U.S. airlines) for the first quarter of 2008. The airline has also made substantial improvements in its baggage handling operations. According to DOT reports, US Airways has steadily improved over the past year to a better than industry average baggage handling performance in April 2008.

  • Investing in the Future: Despite the industry challenges related to fuel and economic uncertainty, US Airways will maintain its previously stated commitment to its Reliability, Convenience and Appearance (RCA) initiative. While reducing its 2008 capital expenditures from $240 million to $225 million, the airline will continue to pursue all of its previously stated RCA programs, including cabin refurbishments, improved and additional check-in kiosks, airport club refurbishments, facility upgrades, new gate- reading technology and the completion of the airline's next- generation Web site.

Parker concluded, "The actions we are announcing today, coupled with our strong relative cash position and no material debt payments until 2014, will help US Airways persevere through these unprecedented times for our industry. Although clearly one unfortunate outcome of today's announcement is the furlough of employees, I believe we are taking the right steps to adapt our airline to this new environment.

"We are building a new business model that can return US Airways to sustained profitability in these challenging times. I feel very good about our team's ability to lead our company, as we work together to provide safe and reliable transportation to our customers."

As a demonstration of his continued confidence in US Airways, Parker also announced his intention to invest an amount equivalent to his 2008 salary in LCC. He will conduct this transaction when the company's trading policy allows insiders to trade in the company's stock.

In conjunction with today's announcement, the airline will also update its investor relations guidance on its Web site (www.usairways.com). Information that will be updated includes cost per available seat mile (CASM) excluding fuel and transition expenses, fuel prices and hedging positions, other revenues, estimated interest expense/income and merger related transition expense guidance. The investor relations update page also includes the airline's capacity, fleet plan, and estimated capital spending for 2008.

About US Airways

US Airways is the fifth largest domestic airline employing more than 36,000 aviation professionals worldwide. US Airways, US Airways Shuttle and US Airways Express operate approximately 3,500 flights per day and serve more than 230 communities in the U.S., Canada, Europe, the Caribbean and Latin America. US Airways is a member of the Star Alliance network, which offers our customers 18,000 daily flights to 965 destinations in 162 countries worldwide. This press release and additional information on US Airways can be found at www.usairways.com. (LCCG)

Forward Looking Statements

Certain of the statements contained herein should be considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "could," "should," and "continue" and similar terms used in connection with statements regarding the outlook, expected fuel costs, revenue and pricing environment, and expected financial performance of US Airways Group (the "Company"). Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving America West Holdings Corporation and US Airways Group, including future financial and operating results, the Company's plans, objectives, expectations and intentions, and other statements that are not historical facts. These statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties that could cause the Company's actual results and financial position to differ materially from these statements. Such risks and uncertainties include, but are not limited to, the following: the impact of changes in fuel prices and significant disruptions in fuel supply; the impact of future significant operating losses; labor costs, relations with unionized employees generally and the impact and outcome of the labor negotiations; reliance on third party service providers and the impact of any failure or disruption by these providers; delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity; government legislation and regulation, including environmental regulation; the impact of global instability including the potential impact of current and future hostilities, terrorist attacks, infectious disease outbreaks or other global events; security-related and insurance costs; the ability of the Company to obtain and maintain commercially reasonable terms with vendors and service providers and reliance on those vendors and service providers; changes in prevailing interest rates; our high level of fixed obligations (including compliance with financial covenants related to those obligations) and the ability of the Company to obtain and maintain any necessary financing for operations and other purposes; costs of ongoing data security compliance requirements and the impact of any data security breach; the impact of industry consolidation; competitive practices in the industry, including significant fare restructuring activities, capacity reductions or other restructuring or consolidation activities by major airlines; the ability to attract and retain qualified personnel; interruptions or disruptions in service at one or more of our hub airports; the impact of any accident involving the Company's aircraft; weather conditions; the impact of foreign currency exchange rate fluctuations; the ability to use pre-merger NOLs and certain other tax attributes; ability to integrate management, operations and labor groups following the merger; the ability of the Company to maintain adequate liquidity; the ability to maintain contracts critical to the Company's operations; the ability of the Company to attract and retain customers; the cyclical nature of the airline industry; the impact of economic conditions; and other risks and uncertainties listed from time to time in the Company's reports to the SEC. There may be other factors not identified above of which the Company is not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. The Company assumes no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law. Additional factors that may affect the future results of the Company are set forth in the section entitled "Risk Factors" in the Company's Annual Report on Form 10-Q for the quarter ended March 31, 2008 and in the Company's filings with the SEC, which are available at www.usairways.com

-LCC-

SOURCE: US Airways

US Airways, Tempe
Media Relations, 480-693-5729