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January Crucial for US Airways

January 3, 2005
The news for bankrupt US Airways is not getting any better. In the wake of a Christmas Weekend that saw massive employee absenteeism, cancelled flights and lost luggage, the airline faces a January of increased competition and creditor demands that could spell its demise.

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The airline faces one such test this week. It must show its creditors that it has secured at least $1 billion in labor savings by cajoling employees to give up some provisions of their union contracts. Much of the concessions have already been won, but as last month's Christmas debacle revealed, employees are less than thrilled.

Three unions, including the Airline Pilots Association, have already approved over $500 million in givebacks. Flight attendants vote Wednesday on a revised contract saving the airline about $150 million. That leaves the union representing mechanics, baggage handlers and fleet service workers, who are trying to agree on $350 million in contract reductions.

Assuming US Airways is able to cut its costs enough to satisfy its creditors, it still has to survive in the increasingly competitive airline sector. And major players have already signaled it's about to get even more competitive.

Newcomer JetBlue, which offers low fares and high service, is cutting its fares even more. This month the airline is rolling out a cross-country fare as low as $85. Southwest Airlines, another low fare competitor, has indicated that it will match the new low fares. Even one of the so-called "legacy" airlines, Delta, is reportedly poised to offer a new round of fare reductions as it tries to compete with JetBlue and Southwest.

Keeping its planes flying will also be a challenge for US Airways because of rising fuel prices. The airline has budgeted for fuel based on oil prices of $44 a barrel. Even though prices have fallen from recent highs, industry analysts say every dollar oil prices above $44 costs the airlines an additional $2 million a year.

In the first three months of the year US Airways is scheduled to make major aircraft lease payments and renegotiate $700 million in loans. If it falters in any of these steps, the nation's seventh-largest airline could face immediate liquidation.

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