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August 24, 2004

FYI...IN THE NEWS

US Airways in precarious spot after talks with pilots break off

Tuesday, August 24, 2004
By Dan Fitzpatrick, Pittsburgh Post-Gazette

US Airways and its pilots union have broken off their do-or-die concessionary talks, dealing a major blow to the company's campaign for $800 million in labor cuts and increasing the likelihood of a bankruptcy filing this fall.

Low-cost competitors stepping up to challenge US Airways The setback, which came late Sunday, coincided with a risky Florida strategy unveiled yesterday by the nation's seventh-largest airline challenging American Airlines' South Florida hegemony with new flights from Fort Lauderdale to the Caribbean and Latin America.

To some, the two events looked like the last gasp of an airline that appears headed for a second trip through bankruptcy court and possible liquidation. "There is no plan," said Allegheny County Airport Authority Director Kent George. "There is no real direction."

The Florida strategy, which uses Fort Lauderdale as a U.S. gateway to the Caribbean and Latin America, would not take off until February, with flights and connections to 10 new international cities.

US Airways, though, may not make it to February if it cannot coax more concessions from its five major unions in the next three weeks. The Arlington, Va.-based company pushed for a new pilot accord last weekend, hoping it would put more pressure on the flight attendants, passenger service workers, machinists and dispatchers.

Without new agreements from all unions, the company may file for bankruptcy by mid-September ahead of several financial hurdles it faces next month.

The company, perhaps as a last resort, provided pilot negotiators Sunday with one last proposal and asked that it be forwarded to the union's 12-man governing body, the Master Executive Council, then to the rank and file for a ratification vote.

The council, controlled by pilot leaders who believe the union has been too conciliatory in prior negotiations, will meet tomorrow to review the proposal and "determine what further actions should be taken," pilot spokesman Jack Stephan told US Airways pilots yesterday via a telephone message.

Local airline analyst and investor Bill Lauer said he expects union leaders to send the offer out for a vote without endorsing it, asking 3,000 pilots to make the fateful decision. "If they conclude their jobs are really at stake, union politics be damned, they will probably ratify this thing," he said.

US Airways is seeking $295 million in concessions from the pilots, but the talks broke down over substantial disagreements on pilot furloughs, cuts in retirement benefits and a host of productivity changes, including the amount of sick and vacation time each pilot can take.

One big area of disagreement is a "no-furlough" clause requested by the union versus the company's request to furlough as many as 775 pilots.

In breaking off talks, the company informed the pilots that despite agreeing to a 16.25 percent pay decrease, the union's most recent proposal would not cut deeply enough for US Airways to be profitable, attract backers and compete with more aggressive low-cost carriers such as JetBlue Airways and Southwest Airlines.

Without more union cooperation, the company said, it reserves the right to file for bankruptcy by Sept. 10 and ask a judge to make the cuts.

Yesterday, the airline's management declined to engage in any verbal sparring, saying only that the pilots were aware of the company's financial problems. "We expect to hear from them soon," the company said.

The pilots were not as sanguine, unleashing a torrent of criticism from all factions of the union, ranging from moderates, who have reached accommodation, to hard-liners, who have suggested enough is enough.

"Since the beginning of these talks," said Stephan, a spokesman representing the view of moderate union chairman Bill Pollock, "we have witnessed a disturbing trend by the company to seemingly dismiss several significant proposals from our pilot negotiators. Instead, management has responded by 'piling on' additional demands."

Philadelphia union representatives Dan Von Bargen and John Crocker, two pilot leaders who believe the Air Line Pilots Association has been too conciliatory in years past, called the company's take-it-or-leave-it proposal "yet another step backwards" and said "it is apparent that the company feels the only way to an agreement is through ALPA's complete capitulation."

The company, they said, is to blame for the lack of progress at the negotiating table. Now that a $110 million pension payment is due Sept. 15, forcing a possible default on more than $700 million in federally backed loans, ALPA said, "we are being placed in the proverbial burning house by the very same people that only met with us at a lethargic pace for the past two months."

Von Bargen, Crocker, two pilot representatives from Pittsburgh and one from Boston are largely responsible for the firm stance adopted by the union's negotiating team. These same five union leaders, critical of a previous round of concessions that gutted the pilots' old pension plan, promised their members a more vigilant defense this time around.

They also control enough votes on the union's governing council to sway any vote, meaning they will decide tomorrow whether the company's last, take-it-or-leave-it proposal goes out for a rank-and-file vote.

As observers struggled to make sense of the negotiating impasse yesterday, they also scratched their heads at US Airways' new Florida strategy.

Florida is a market where brutal competition from Southwest Airlines and other low-fare discounters has hurt US Airways in the past. In the mid-1990s, in fact, US Airways lost $100 million a year in Florida even with full planes.

Yet in six months, US Airways intends to wade back in by using Fort Lauderdale Hollywood International Airport to connect eight U.S. cities -- including Pittsburgh -- to 10 international destinations, including Kingston, Jamaica and San Salvador, El Salvador. Passengers also will be able to access a more simplified fare structure on these flights, including the trip from Pittsburgh to Fort Lauderdale.

US Airways may be able collect more revenue in the Caribbean, but Fort Lauderdale is only 25 miles from an American Airlines hub at Miami International Airport.

Experts question if it can survive such competitive proximity, given that US Airways is already fighting one fare war in Philadelphia against fast-growing Southwest, which intends to increase the pressure on US Airways this fall by offering as many as 41 daily flights from Philadelphia International Airport by Oct. 31.

"It is kind of like competing with Southwest is not enough for them," said Lauer, the airline analyst and investor. "They have now decided they want to go head-to-head with American, which dominates Miami, the Caribbean and Latin America. It just doesn't make a lot of sense to me."

More than likely, any growth in Fort Lauderdale will come at the expense of Pittsburgh International Airport, where US Airways is eliminating a third of its flights this fall, leaving it with 240 daily flights to more than 50 cities.

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Associated Press

Southwest to Shift Flights to Philadelphia

08.23.2004, 01:31 PM

Southwest Airlines plans to cut 88 flights in October and shift planes to more profitable routes, mostly in and out of Philadelphia, officials said Monday.

The low-cost carrier said Monday it hopes the changes will increase revenue by $60 million.

"It's just taking the planes and redeploying them. The capacity remains the same," said Ed Stewart, a Southwest spokesman. "We should see increased revenue by putting planes in places where lots of people want to fly."

Stewart said the Oct. 31 schedule changes will result in 41 daily flights at Philadelphia, where Southwest began service in May. The Dallas-based carrier said Philadelphia has been its most successful opening ever.

The changes will affect about 3 percent of Southwest's schedule of 2,800 daily flights.

Southwest said it would reduce some round-trip flights between Kansas City and Chicago, Dallas and Tulsa, Houston and New Orleans, and many less-frequent routes.

For example, the company will cut daily departures at Dallas from 130 to 123 daily and reduce Kansas City flights from 70 to 61 each day. Among less-traveled routes, Southwest plans to trim Albuquerque-El Paso flights from four to three daily.

The changes were first reported by The Wall Street Journal.

Southwest has been hurt by rising costs for jet fuel and labor and saw second-quarter profits slide 54 percent.

The airline has partly insulated itself against fuel increase by buying about 80 percent of its supply under long-term deals with guaranteed lower prices, but still paid 21.5 percent more for fuel in the April-June period than it did a year earlier.

On the labor side, the company reached a deal last month that gave flight attendants average pay raises of 31 percent over six years.

Gary Kelly, who replaced James Parker as chief executive last month, said in a recent interview that Southwest was "pushing the boundary of what we can afford with our wages."

Southwest has said that earnings in the July-September quarter will beat last year's profit of $106 million. Kelly said bookings for July and August were strong.

Shares of Southwest were down 4 cents to $14.66 in afternoon trading on the New York Stock Exchange.

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Judge tells United to mend fences--or else

By Melissa Allison
Tribune staff reporter
Published August 21, 2004

A bankruptcy court judge warned United Airlines on Friday that he will let outsiders bid for control of the troubled carrier if management does not improve deteriorating relationships with its unions and others.

The airline's unions have been outraged at United's decision to stop paying into pension plans. They were further agitated this week after the carrier said it would "likely" terminate all four of its plans.

Judge Eugene Wedoff said a communications breakdown between workers and management seems to have occurred after United lost its bid for a federal loan guarantee nearly two months ago. He gave the airline until the end of September to repair relations with its increasingly bitter workforce.

If that does not happen, Wedoff said, he is prepared to "go the other route. I just hope I don't have to."

Throughout its 20-month bankruptcy, United's management has had the exclusive right to reorganize the airline.

Two United unions already had asked the judge to revoke the carrier's right to exclusivity, saying they no longer trusted management and wanted other investors, which often bring their own executive teams, to come to the table.

Despite the animosity, Wedoff approved United's new $1 billion financing package on Friday, which it needs to continue operating during bankruptcy.

Union leaders and the federal agency that insures pensions opposed the package because United indicated that the financing arrangement was the reason the carrier could no longer make contributions to its pension plans. Those plans are underfunded by $8.3 billion, according to government figures.

The carrier acknowledged Friday that the financing package included no such provision regarding pension payments. United said it had not included the payments in the business plan it presented to lenders.

Wedoff said it was "unfortunate that the message went out" that the financing package prohibited the carrier from making pension contributions.

Another "unfortunate communication" was the way United told its unions that it probably will terminate pension plans, Wedoff said. Union attorneys made it clear during the hearing that they were blindsided by the decision.

After the hearing, a spokesman for one of those unions said it hopes to work with United in finding "less drastic solutions" to the termination of the airline's pension funds.

"We have not been included in the process," said Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers.

Also Friday, Wedoff granted an injunction United sought against two lawsuits the machinists union filed against the airline's executives in other courts.

Wedoff said his court is the place to hear questions about how management has handled its duties.

"One of the unions has recognized that and has a pending motion for an independent trustee," Wedoff said of a machinists union motion scheduled for a hearing in September.

The union wants a bankruptcy trustee to whom current management, including Chief Executive Glenn Tilton, would have to report.

Copyright © 2004, Chicago Tribune

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US AIRWAYS ANNOUNCES FORT LAUDERDALE HOLLYWOOD AS CARIBBEAN AND LATIN AMERICA GATEWAY

GoFares Are a Hallmark of the Airline's Newest Focus City

ARLINGTON, Va., Aug. 23, 2004 - US Airways' today announced a major expansion at Fort Lauderdale Hollywood International Airport, more than tripling its daily flights and connecting 10 Caribbean and Latin American destinations with key cities in the Northeast and Florida, beginning in February 2005.

In the Caribbean and Latin America, US Airways will introduce new service in Guatemala City, Guatemala; Kingston, Jamaica; Panama City, Panama; and San Salvador, El Salvador, subject to foreign government approval. Additionally, the airline will begin nonstop service between Fort Lauderdale Hollywood and Nassau, Providenciales, Santo Domingo, and San José, subject to foreign government approval, and San Juan. Service to Cancun, which will begin on Oct. 16, 2004 as Saturday-only service, will increase to daily service in February 2005.

In the U.S., US Airways will link Fort Lauderdale Hollywood with nonstop service from Boston, Newark, and Key West, Orlando, and Tampa, Fla., introducing GoFares' on each new route. In addition, US Airways is also launching GoFares for the first time in Charlotte, N.C., and Pittsburgh, on flights to and from Fort Lauderdale Hollywood. Charlotte GoFares start as low as $89** each way, and Pittsburgh GoFares begin at $99* each way.

Recently announced Saturday flights from Baltimore/Washington International (BWI) and Hartford, Conn., to Fort Lauderdale Hollywood, which begin in November 2004, will increase to daily service in February 2005. New York (LaGuardia) service, also slated to begin in November, will gain additional daily frequency in February. All three are GoFares markets.

Combined with existing US Airways nonstop service to Ronald Reagan Washington National, Charlotte, Philadelphia, Pittsburgh and Providence, R.I., a total of 13 points in the U.S. will be conveniently connected to the Caribbean and Latin America via Fort Lauderdale Hollywood.

As part of the expansion, US Airways is introducing its first international GoFares to bring the most value to those travelers with ties between the U.S. and US Airways' newest Caribbean and Latin American destinations - what airlines call Visiting Friends and Relatives (VFR) travelers. GoFares will be available from Fort Lauderdale Hollywood to Cancun, Guatemala City, Kingston, Panama City, San José, San Juan, San Salvador, and Santo Domingo.

"The addition of a Caribbean and Latin American gateway in South Florida allows us to continue our expansion in the region by reaching beyond the leisure markets, which have become a strength for US Airways," said B. Ben Baldanza, US Airways senior vice president of marketing and planning. "We are committed to bringing low, simple fares and easy access for all customers to South Florida and major U.S. cities, a market that has been dominated by a single carrier for years. With this expansion, we are pleased to offer a value-added alternative to larger, congested airports."

SAMPLE EACH-WAY FARES TO/FROM FORT LAUDERDALE HOLLYWOOD

Destination Fares From*

Cancun $104

Guatemala City, Guatemala $149

Kingston, Jamaica $124

Nassau, Bahamas $ 81

Panama City, Panama $149

Providenciales, Turks & Caicos $184

Santo Domingo, Dominican Republic $124

San José, Costa Rica $149

San Juan, Puerto Rico $104

San Salvador, El Salvador $149

BWI $ 79

Boston $ 72

Hartford $108

Key West, Fla. $ 69**

New York (LaGuardia) $ 72

Newark, N.J. $124

Orlando, Fla. $ 49

Tampa, Fla. $ 49

**The lowest Charlotte and Key West GoFares require roundtrip travel and a one-night minimum stay.

*Additional taxes and fees - for domestic travel, a $3.10 federal excise tax is imposed on each flight segment of the itinerary (a flight segment is defined as a takeoff and landing); passenger facilities charges of up to $18 per itinerary; and the September 11th Security Fee of up to $10 per itinerary. The lowest domestic fares must be purchased seven or 14 days in advance, are one-way, and are nonrefundable. For travel to the Caribbean and Latin America, passengers are responsible for payment of U.S. International Departure and Arrival taxes of $27.40; passenger facilities charges of up to $18 per itinerary; the September 11th Security Fee of up to $10 per itinerary, U.S. inspection fees of up to $10.10; and foreign taxes and fees of up to $64.90. The lowest international fares are non-refundable and based on required roundtrip travel. Blackout dates apply, and other restrictions may apply. For more details, visit usairways.com.

US Airways has many other airline partners, and a part of a trip might be on one of the partner's airplanes. These GoFares are available for travel on the US Airways Express® carriers Air Midwest, Chautauqua, Colgan, Mesa, Piedmont, PSA, Shuttle America or Trans States, and MidAtlantic Airways. A flight also might be operated by our Star Alliance partner United Airlines®. For all of the details about GoFares, including a few other restrictions, please go to usairways.com.

US Airways is the nation's seventh-largest airline, serving nearly 200 communities in the U.S., Canada, Europe, the Caribbean and Latin America. US Airways, US Airways Shuttle and the US Airways Express partner carriers operate over 3,300 flights per day. For more information on US Airways flight schedules and fares, contact US Airways online at usairways.com, or call US Airways Reservations at 1-800-428-4322.