Friday, Dec. 5, 2003 | 10:52 a.m.
TEMPE, Ariz. -- Encouraged by the results of its pricing and financial restructuring strategy, America West Airlines is forging ahead with plans to grow 10 percent a year into the foreseeable future.
But the No. 2 commercial passenger carrier at McCarran International Airport with 92 inbound and outbound flights a day to and from 42 markets is still facing challenges on the labor front and the company, fresh off a profitable third quarter, will have to begin paying back a loan guaranteed by the federal government beginning next year.
America West Chief Executive Douglas Parker, during a company media day Thursday, said the airline has successfully positioned itself as the nation's No. 2 low-cost carrier behind Dallas-based Southwest Airlines, but much of the flying public still identifies it as one of the nation's legacy carriers.
"I'm a little sick of seeing all these stories about Southwest Airlines and JetBlue (Airways)," Parker said to reporters at the airline's headquarters. "So you guys work on that."
Parker said that by slashing business fares by 40 percent to 70 percent below those of traditional airlines in March 2002 and removing fare purchasing restrictions, like Saturday-night stay requirements, America West has removed itself from the list of "sad face" legacy airlines -- Northwest, Delta, US Airways, Alaska, American, Continental and United -- and put itself in with the "happy face" low-cost group -- JetBlue, Frontier, Southwest, AirTran and American Trans Air.
Parker said the airline also cut costs dramatically. It closed its Columbus, Ohio, hub, in favor of beefing up service in its western hubs of Phoenix and Las Vegas, and has financially restructured the company by reducing aircraft rents by $50 million a year and has strengthened its cash position by obtaining a federally backed loan of $429 million following the Sept. 11 terrorist attacks.
Those measures, nearly two years old now, have positioned the company to embark on a growth strategy that includes rolling out more flights to Las Vegas.
By early next year, America West will have 100 daily flights to and from Las Vegas, where the company currently serves about a half-million passengers a month.
Scott Kirby, executive vice president of sales and marketing, said the first phase of the airline's growth plan came in identifying ways to further utilize its existing fleet of 142 jets.
Virtually all of America West's flying has been hub-and-spoke operations -- every flight either left from or was departing to one of the company's two hubs.
"For example, if we had a flight from Phoenix to San Jose, (Calif.), the plane would land there (San Jose) and stay on the ground for maybe 2 1/2 hours," he said. "That's a $3 million asset that we're not using for 2 1/2 hours, not counting the flight crew or the ground staff. We found that maybe we could squeeze in a round trip between San Jose and Las Vegas in that time."
Through finding gaps in the schedule, America West found it could add service to Las Vegas and Phoenix, and also test the waters on a new product -- point-to-point transcontinental flights.
America West began service between Los Angeles International Airport and Boston's Logan International Airport and New York's John F. Kennedy International airports in October. Later this month, the airline will fly between San Francisco International and New York JFK with San Francisco-Boston flights planned beginning March 1.
So far, the new non-hub transcontinental flights have been profitable with 59 percent of the seats on December's flights already sold.
"We analyzed hundreds of possible routes with our new fare model and determined we could be profitable," Kirby said.
America West's transcontinental rivals responded competitively -- not by lowering their own coast-to-coast routes, but by cutting fares on routes to Phoenix and Las Vegas in which they competed with America West.
Kirby said the California markets appear to have promise because the company has customer loyalty there with more participants in its frequent-flier program in California than it has in its home state of Arizona.
Kirby said America West's 10 percent growth plan for next year would be comprised of about 40 percent of the expansion to the hub cities and 60 percent to new point-to-point service. The initial focus of point-to-point routes, he said, would occur in West Coast markets, with the company looking at new regional jet flights on its commuter partners, including Mesa Airlines, which operates as America West Express.
The airline also acknowledged that it is seeking U.S. Department of Transportation approval to fly between San Francisco and Cabo San Lucas, Mexico. America West and America West Express already fly 10 routes to Mexico and to San Jose, Costa Rica, mostly through its Phoenix hub.
Now that America West is completing its 2003 growth through better fleet utilization it will grow capacity in 2004 by taking delivery of between five and seven new jets.
But Parker said he was hoping to receive better news this week from the airline's 1,700 pilots.
The Air Line Pilots Association on Tuesday rejected a proposed three-year contract that would have included 14 percent raises over the life of the deal. The new deal contract would have improved the pilots' retirement package and incorporated new job protections. Union leaders said the rank and file still had issues with retirement, job protection and work rules.
Parker said the vote on the contract was so close -- 725-720 -- that the union may consider voting again before the end of the year.
"Anecdotally, we've heard some say that if they had known it was going to be so close, they would have gone for it," Parker said.
Approval of the contract by the end of the year is crucial because stipulations of America West's loan payment package would require the company to remove $18 million from its offer -- which was to be given to the pilots in the form of signing bonuses. Parker said the airline would be able to raise a similar amount of money in a new offer to the pilots because it would save at least that much by not having to begin paying higher rates right away.
But loan documents stipulate that beginning in March, the airline would be responsible for 10 payments of $42.9 million a year to pay off its loan.
The federally backed loan, one of the few to be approved by the Air Transportation Stabilization Board, has helped put America West in the best cash position in its history. That has enabled the company to sign deals for new aircraft and implement the pricing policy that has put it in the low-cost carrier category.
In other comments, Parker said he doesn't expect the West Coast to become a low-fare battleground with Southwest bolstering its position in Las Vegas, United Airlines seeking to enter western markets with its Ted discount subsidiary and billionaire Richard Branson looking to invest in some kind of discount air carrier in Los Angeles. One reason why -- Parker isn't convinced that the airline-within-an-airline concept developed by United (Ted) and Delta (Song Airways) can be successful for the long term.
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