Strategic Management Group Assignment

BUILD BRIGHT UNIVERSITY
Siem Reap, Cambodia

     
 

 
MBA PROGRAM Strategic Management U.S Airway Group, INC Group Exercise

Lecturer by: Mr. Rom Ra BBA, MBA,

 
Group member:

 

Mr. Phich Sokda Ms. Pen Kesornicole Ms. Ny Sandayvy Mr. Lim Seanghout Mr. Koet Vitiea Mr. Khoun Sokhemra Mr. Heang Mengho

092 991 005 012 595 921 012 800 311 012 505 853 097 9557 357 016 633 999 077 652 111

                       

TABLE OF CONTENTS

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I. Introduction 1.1 Firm Background ....................................................................................................... 1 1.2 Vision/Mission/Goal/Objective …………………………………………………………………………………… 12 1.3 Headquarter Office/Geographical Operation ……………………………………………………………….. 13 1.4 Firm Structure …………………………………………………………………………………………………………. 15 II External environment ( Opportunities & Threats ) (Socio-culture, economics, political, legal, and technological) ………………………………………. 16 III Internal environment (Strengths &Weakness) 4.1 Management (BOD and top management) …………………………………………………………………. 23 4.2 Marketing ………………………………………………………………………………………………………………. 28 4.3 Operation/Production …………………………………………………………………………………………….. 28 4.4 Finance …………………………………………………………………………………………………………………. 29 IV Critical success Factors/Firm strategies V Conclusion & Recommendation

I. Introduction
US Airways, along with US Airways Shuttle and US Airways Express, operates more than 3,000 flights per day and serves more than 200 communities in the U.S., Canada, Mexico, Europe, the Middle East, the Caribbean, Central and South America. The airline employs more than 32,000 aviation professionals worldwide and is a member of the Star Alliance network, which offers its customers more than 21,000 daily flights to 1,290 airports in 189 countries. Together with its US Airways Express partners, the airline serves approximately 80 million passengers each year and operates hubs in Charlotte, N.C., Philadelphia and Phoenix, and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport. US Airways was the only airline included as one of the 50 best companies to work for in the U.S. by LATINA Style magazine’s 50 Report for 2010 and 2011. For six years in a row, the airline also earned a 100 percent rating on the Human Rights Campaign Corporate Equality index. The Corporate Equality index is a leading indicator of companies’ attitudes and policies toward lesbian, gay, bisexual and transgender employees and customers. US Airways also ranked #1 among its competing hub-and-spoke network carriers for 2010 performance as rated by the Wichita State University/Purdue University Airline Quality Rating (AQR). For more company information follow US on Twitter @USAirways or at Facebook.com/USAirways. 1.1 Firm Background 1939 All American Aviation brings the first airmail service to many small western Pennsylvania and Ohio Valley communities with introduction of a unique 'flying post office service. 1948 Piedmont Airlines begins operations. 1949 All American Aviation becomes All American Airways and makes the transition from airmail to passenger service with introduction of the DC-3 and an expansion of its service. Pacific Southwest Airlines begins operations with service in California. 1953 All American's route system grows and the name is changed to Allegheny Airlines, recognizing the mountains and river of the same name that lie in the heart of the airline's network. 1965 Allegheny Airlines begins the transition to turbine-powered aircraft with introduction of the first Convair 580, its workhorse for the next several years.

 



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1966 The first jet, a DC9-10, makes its debut in Allegheny colors. It is replaced the following year by the first of what would eventually become a fleet of 62 larger DC9-30 jets. 1967 The first Allegheny Commuter service begins, between Hagerstown, MD and Baltimore/Washington International Airport by Henson Aviation, forerunner of today's Piedmont Airlines. It was the beginning of today's network of 10 regional airlines that provide US Airways Express service to 172 cities throughout the nation.

1968 Allegheny merges with Indianapolis-based Lake Central Airlines, expanding the growing route network beyond Pittsburgh to the Midwest including Dayton, Columbus and Cincinnati, OH; Indianapolis, IN; and St. Louis, MO. 1972 Allegheny acquires Mohawk Airlines, a Utica, NY airline with service to most cities throughout New York and New England. With the merger, Allegheny acquired Mohawk's BAC-1-11 jets to complement its DC9s and becomes the sixth largest airline in the world as measured by passenger boardings. 1978 Deregulation comes to the U.S. airline industry. Airlines have new freedom to expand their route systems and more flexibility to develop new and innovative pricing structures, but lose the protection of the fare- and route-setting authorities exercised by the Civil Aeronautics Board, which closes down by 1984. 1979 Allegheny changes its name to USAir to reflect its expanding network, including postderegulation entry into Arizona, Texas, Colorado, Florida and later, California. 1983 America West Airlines begins operations in Phoenix on August 1 with 230 employees and three 737s, serving Colorado Springs, CO; Kansas City, KS; Los Angeles, CA; and Wichita, KS. The airline’s schedule calls for 20 daily departures. 1984 USAir introduces its Frequent Traveler program, which provides travel benefits to USAir's most loyal customers. 1986 Piedmont acquires Empire Airlines and its Syracuse, NY hub.

 



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1987 Large-scale airline consolidation, a partial product of deregulation, continues. Piedmont introduces European routes in its system. Competition for the lucrative California market intensifies as local carriers are bought and merged into larger partners. Pacific Southwest Airlines of San Diego becomes a wholly-owned subsidiary of USAir Group in May. Piedmont Airlines, the dominant carrier throughout the mid-Atlantic region of the United States, also becomes a subsidiary of USAir Group in November 1987. 1988 PSA is merged into USAir. 1989 Piedmont is integrated into USAir, the largest merger in airline history. The merger brings with it Piedmont's international routes as well as its Charlotte, Baltimore, Dayton and Syracuse hubs. Baltimore and Charlotte remain hubs. The merger also brings USAir's first wide body jets, the Boeing 767-200ERs now used on its transatlantic and some transcontinental routes. 1990 USAir expands its international flying with service between Pittsburgh and Frankfurt, Germany, complementing existing Charlotte-London service begun in 1987 by Piedmont; and in 1991, international expansion continues with the introduction of new nonstops between Charlotte and Frankfurt. 1992 Philadelphia-Paris is added to USAir's transatlantic schedules in January. Daily nonstops between both Philadelphia and Baltimore/Washington International Airport and London Gatwick Airport are introduced in May. USAir and Trump Shuttle begin a marketing affiliation under which the service becomes the USAir Shuttle. The Shuttle provides hourly service between New York and Boston and between New York and Washington, DC. USAir's new terminal at New York LaGuardia opens, as does the new Midfield Terminal at Pittsburgh International Airport. 1993 USAir and British Airways announce an investment/alliance plan, under which USAir gives up its London route authority. 1994 USAir makes its largest expansion ever of its 10-year-old Frequent Traveler Program by becoming the exclusive U.S. domestic airline partner of LatinPass, which has 14 Latin American airlines sharing program benefits. 1995 USAir posts its first profitable year since 1988, with earnings of $119.3 million on sales of $7.474 billion. USAir introduces Priority TravelWorksSM, allowing bookings from personal computers.

 



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1996 Stephen M. Wolf is elected chairman effective January 22. Seth E. Schofield retires as chairman after 38 years' service to the company and three and a half years and chief executive. USAir continues its transatlantic expansion, winning the right to serve Munich, Rome and Madrid from Philadelphia beginning in 1996. USAir introduces ticketless travel. USAir, in a dramatic two-week period, announces what might in time be the largest single order for airliners; then announces a new name, image, identity designed to carry the airline aggressively into the next century. The airline ordered up to 400 new Airbus A319, A320 and A321 narrowbody twin jets for delivery starting in 1998 and continuing through 2009; then within days announced its new identity as US Airways. The airline challenged its relationship with British Airways in court, seeking rights to London Heathrow from four U.S. gateways and to require British Airways to dispose of its USAir stock. USAir notifies BA the codeshare between the two will end in March, 1997, and in December, British Airways announces it will sell its shares in USAir and that its three directors will resign. 1997 The name US Airways is put into use officially on February 27. Signs, stationery, ticket stock, business cards, advertisements, marketing materials, ticket folders and counters all start to sport the new US Airways blue, red, gray and white identity, and the first aircraft are painted in the new scheme as the changeover approaches. The US-BA codeshare expires in March. 1998 US Airways Inc., purchased Shuttle Inc., from a consortium of banks. The Shuttle has flown under the US Airways name since 1992, when US Airways became an investor in the Shuttle with a minority ownership stake. US Airways Shuttle flies 17 daily roundtrips between Boston and New York LaGuardia, and 16 daily roundtrips between New York LaGuardia and Washington Reagan. US Airways introduces Personal TravelWorks, an online travel reservation system. MetroJet by US Airways starts service, providing the airline with a low-fare unit to compete in the eastern United States. MetroJet's singleclass, using Boeing 737-200 aircraft, proves highly popular. US Airways Express introduces regional jets to its system. US Airways fleet transformation begins with the introduction of the first of as many as 400 Airbus A320-family aircraft. 1999 US Airways first Airbus A320 aircraft enters service with scheduled daily flights between Philadelphia and Los Angeles. The new 142-seat A320 is part of the US Airways plan to simplify and modernize the fleet by adding Airbus A319, A320 and A330-300 aircraft. US Airways expands its international route network by adding nonstop service between its Charlotte, NC hub and London Gatwick. Charlotte becomes the third US Airways transatlantic gateway. Colgan Air, Inc. joins the US Airways Express nine-carrier network, expanding service to destinations across the East Coast from Bar Harbor, ME to Atlanta, GA. The Sabre system becomes the platform for the majority of US Airways' computer operations, giving the airline the most modern computer technologies available

 



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and Y2K readiness. The fleet transformation continues with A320-family aircraft arriving at a rate of one per week in the second half of the year. The US Airways Shuttle begins its transformation to an all A320 fleet, retiring the venerable Boeing 727s. 2000 US Airways unveils its enhanced and redeveloped website, usairways.com, originally launched in 1996, offering customer-friendly features that include a streamlined process for checking fares, making reservations, purchasing tickets, checking flight status and accessing Dividend Miles account information. The site begins drawing more than 600,000 visitors a week. US Airways begins service to its eighth European destination with the introduction of Philadelphia-Manchester, UK service. US Airways opens an international reservations center in Liverpool, UK. US Airways takes delivery of its first A330-300 widebody aircraft, making the next step in its fleet transformation. Six A330s will enter the fleet by the end of the year. 2001 US Airways becomes the first carrier to fly the 169-seat Airbus A321. In addition to a common cockpit, which vastly simplifies pilot training and scheduling, US Airways' A320-family aircraft also have common cabin fittings, such as seats, overhead bins, galleys and lavatories, simplifying cabin service and maintenance. US Airways opens a 65,000-square-foot, seven-gate addition at Boston Logan, giving US Airways Shuttle passengers a dedicated ticketing counter, concessions and a special lower-level arrivals area for deplaning Shuttle passengers. It features a club-like atmosphere, individual workstations equipped with power outlets and phones with dataports. US Airways launches service to Amsterdam. The airline also introduces four new Caribbean destinations: Antigua, Barbados, Grand Bahama Island and St. Lucia. 2002 David N. Siegel takes over as US Airways president and CEO in March, naming other new members of the senior management team over the next several months and undertaking a proactive restructuring plan for the company. As part of the restructuring, US Airways enters Chapter 11 bankruptcy reorganization on August 11, with the stated goal to emerge as a leaner, more competitive carrier in March 2003. US Airways introduces service to six new Caribbean destinations, bringing the total to 35 destinations. With 21 mainline jet destinations, four US Airways Express Caribbean destinations and the additional nine islands served through the new GoCaribbean marketing relationship with Windward Island Airways and Caribbean Star Airlines in summer 2002, US Airways serves more Caribbean destinations than any other U.S. carrier. US Airways implements expanded check-in options for customers, rolling out both Web Check-in on usairways.com and nearly 250 self-service check-in kiosks at 46 airports across the U.S. and Puerto Rico. As a result, customers can book tickets, check luggage and obtain boarding passes in as little as 30 seconds. US Airways Express begins service out of a new 95,000-square-foot facility in Charlotte, having added approximately 64 percent more passenger seats at Charlotte since June 2000.

 



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2003 US Airways begins implementation of a codeshare agreement with United Airlines, introducing customers of both airlines to more than 3,000 codeshare flight segments in the first half of the year, reciprocal airport club use and simplified ticketing and baggage procedures. Midway Airlines joins the US Airways Express ten-carrier network, bringing expanded regional jet service to destinations such as Jacksonville, FL and Myrtle Beach, SC. US Airways launches service in May between Philadelphia and both Dublin and Shannon, Ireland, the airline's ninth and tenth European destinations. 2004 US Airways joins the Star Alliance network, an alliance of member airlines that share networks, lounge access, check-in services, ticketing and other services. US Airways Group, Inc. files again for reorganization under Chapter 11 of the United States Bankruptcy code on September 14, seeking to restructure operating costs in light of ever-increasing fuel prices and cutthroat industry competition. 2005 America West Holdings and US Airways Group, Inc. announce plans to merge on May 19. Former America West Airlines Chairman and Chief Executive Officer Doug Parker is chosen to run the combined airline. In August, America West and US Airways unveil the livery that will appear on the aircraft of the new US Airways. Employees of both airlines, some sporting 'retro' uniforms heralding back to various periods in the airlines' pasts, celebrate the new paint scheme as a freshly painted Airbus A320 makes its way across the country, stopping for special events with union leaders of both airlines. The merger transaction is officially complete on September 27, and US Airways Group, Inc. is no longer in bankruptcy. Stock of the merged airline begins trading on the New York Stock Exchange under the LCC ticker symbol. 2006 US Airways adds Lisbon, Stockholm and Milan to its expanding international route map with several domestic routes including Portland, OR to/from Philadelphia; Orlando to/from Key West, FL; and Sarasota, FL to/from Washington, DC. Throwback liveries are dedicated mirroring the schemes of PSA, Piedmont, Allegheny and America West. Events are held in the progenitor airlines’ hub cities. The airline posts profits for both the first and second quarters of the year, surpassing analyst expectations and contributing tens of millions of dollars to employee profit sharing programs. The airline employs more than 35,000 aviation professionals and its route map encompasses 3,800+ daily flights serving 239 destinations and 28 countries/territories. 2007 US Airways inaugurated new service from Philadelphia to Athens, Brussels and Zurich and announced the airline's first-ever service to London Heathrow from Philadelphia to

 



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begin March 29, 2008. US Airways announced a new codeshare agreement with Air New Zealand, giving passengers the ability to connect seamlessly between the United States, New Zealand, Australia and the Pacific Islands from Los Angeles and San Francisco. US Airways agreed to add seven Airbus A330-200s to the airline’s widebody fleet to be used to support the airline's international growth plans. The airline obtained a single operating certificate from the FAA, hired a new Chief Operating Officer (COO), Robert Isom, and announced plans to build a new 60,000square-foot flight operations control center in Pittsburgh. The airline migrated two reservations systems onto one platform, launched a mobile-device friendly version of usairways.com and became the first airline to implement text message technology that allows customers to receive on-demand flight status and enroll in the frequent flyer program via mobile phone or PDA.

US Airways introduced upgraded buy on board in flight meals and snacks and also launched upgraded First Class meals on flights in the U.S., Canada, Latin America and the Caribbean. US Airways was awarded an industry-coveted Freddie Award in the Best Promotion category for Dividend Miles' popular 'Everything Counts' program, which allows members to accrue miles through a variety of partners. 2008 US Airways was the #1 on-time airline in 2008 among the 'Big Six' hub-and-spoke airlines according to the U.S. Department of Transportation’s (DOT) monthly Air Travel Consumer Report. US Airways inaugurated its first-ever service to London Heathrow from its international gateway in Philadelphia. US Airways also announced plans to operate year-round, daily nonstop service to Tel Aviv from Philadelphia, scheduled to begin July 2009. US Airways announced three new transatlantic flights to begin spring 2009: Birmingham, UK and Oslo, Norway from Philadelphia; and Paris Charles de Gaulle from Charlotte. Transatlantic flights in 2009 will total 27 daily flights to 23 destinations. US Airways received final DOT approval to begin first-ever nonstop service between Washington Reagan and Akron/Canton, OH. Other new service agreements included a new codeshare with Swiss International Air Lines and Air China which allow for more convenient connections for US Airways customers to both Europe and Asia. The airline implemented an a la carte pricing strategy, charging for checked bags, inflight meals and Choice Seats, which was originally expected to generate approximately $300 to $400 million annually in incremental revenue; US Airways revised its estimates by $100 million based on positive results thus far. US Airways now anticipates it will generate $500 million in incremental revenue annually. In the fourth quarter, the airline completed a series of financial transactions which raised approximately $810 million in gross proceeds and included a $400 million paydown at par of the Company’s bank loan. US Airways successfully activated the airline’s new, state-of-the-art Operations Control Center in Pittsburgh where all flight control and dispatch functions for US Airways' 1,300 daily mainline flights are carried out.

 



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2009 On January 15, the crew of flight 1549, bound from New York LaGuardia to Charlotte successfully ditched their crippled aircraft in the Hudson River. All 155 passengers and crew survived. US Airways was awarded and began year-round service from its Charlotte hub to Rio de Janeiro, resumed its Charlotte to Paris service and began service from Charlotte to Rome. Also in 2009, the airline began nonstop flights from Philadelphia to Tel Aviv and from Phoenix to Montego Bay. During the year, the airline entered into codeshare agreements with Qatar Airways, ANA and TACA. The airline introduced its Power-Nap Sack™ pillow and blanket kits and reinstated complimentary nonalcoholic beverages in flight. US Airways also reintroduced complimentary house wine and beer in the US Airways Clubs and announced free Wi-Fi. The airline also announced the ability to prepay for checked bags online. During the third quarter US Airways unveiled its newest transatlantic, lie-flat business class cabin, the Envoy Suite. In the third quarter US Airways announced an airport slot transaction with Delta Airlines. Upon regulatory approval, US Airways will obtain 42 pairs of slots (roundtrip flights) at Washington Reagan and will acquire the rights to expand to Sao Paulo and Tokyo. US Airways will transfer to Delta 125 pairs of slots used to provide US Airways Express service at New York LaGuardia. US Airways also announced that, once the transaction is complete, the airline would provide service to 15 new destinations from Washington Reagan. The airline announced that the transaction is expected to improve profitability by more than $75 million annually. In October, US Airways announced a strategic plan to strengthen its core network by realigning its operational focus on its hubs in Charlotte, Philadelphia and Phoenix and its focus city Washington, DC. These four cities, as well as the airline’s hourly Shuttle service between New York LaGuardia, Boston and Washington Reagan will serve as the cornerstone of the airline’s network and will present 99 percent of the airline’s available seat miles, compared to the 93 percent in 2009, by the end of 2010. The airline completed a major liquidity improvement plan in November, reducing capital spending and deferring certain debt repayments, which improved the projected year-end 2009 liquidity by approximately $150 million and would generate, in aggregate, approximately $450 million of projected liquidity improvements by the end of 2010. 2010 In the first quarter of 2010, US Airways began a new bilateral codeshare agreement with El Salvador-based TACA Airlines, opening up new Central American offerings for US Airways customers at Managua, Nicaragua; San Salvador, El Salvador and Guatemala City, Guatemala. The airline also announced a new codeshare agreement with Brussels Airlines. The new codeshare, which began April 3, provides single-source booking, ticketing and baggage connections for more than 20 new destinations in Europe and Africa, including points in Gambia, Senegal, Cameroon and Kenya. In March, the airline launched wireless internet through Gogo® Inflight Internet on five of its Airbus A321 aircraft, with the remaining fleet of A321 aircraft outfitted by June. Gogo allows passengers to use their laptops or Wi-Fi enabled mobile devices to access

 



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the web, email, log in to corporate Virtual Private Networks (VPN) and access online entertainment options. In April, the airline moved to a cashless cabin on mainline domestic flights, accepting only credit and debit cards in flight to expedite cabin service and reduce back-end processing time and costs. From the airline’s largest hub, Charlotte, NC, US Airways launched year-round service to Melbourne, FL in February, began begin daily, year-round service to Ottawa on May 31 and on June 5, the airline began year-round service to Puerto Vallarta and Los Cabos, Mexico. The airline also initiated new transatlantic service from Charlotte to Rome Fiumicino Airport, inaugurated new nonstop, year-round service to Ottawa, Ontario in May and resumed service to Baton Rouge, LA in June. Nonstop seasonal summer service between Charlotte and Madrid, Spain and Dublin, Ireland was also announced, which will begin in May 2011. The new flights complement US Airways daily, nonstop yearround service to both destinations from Philadelphia, the airline's international gateway. In Philadelphia, the airline began operating both international and domestic flights at Philadelphia International Airport's Terminal A-East upon the relocation of Delta to Terminal D in April, giving the airline full or shared access to all international gates in Philadelphia, reducing operational challenges and providing a better airport experience for customers. The airline also launched its first-ever service to Halifax, Nova Scotia on June 1. In the summer of 2010, the airline announced a major expansion of its bilateral codeshare agreement with Star Alliance partner Spanair, giving US Airways customers seamless access to destinations within Spain, the Canary Islands, continental Europe and Africa. Also announced was a new bilateral codeshare agreement with Star Alliance partner, Turkish Airlines, giving customers access to Istanbul via Turkish Airlines service from Frankfurt, Munich and Zurich access to four new destinations including Adana, Izmir, Antalya and Ankara via Istanbul. In addition, US Airways customers may now opt for nonstop travel to Istanbul via Turkish Airlines service at New York John F. Kennedy International Airport and Chicago O'Hare International Airport. The company reported a net profit of $279 million for its second quarter 2010, or $1.41 per diluted share – the company’s second highest quarterly profit since its 2005 merger. In June, the airline paid out $150 to each employee for delivering top DOT rankings for the month of May in on-time performance, baggage handling and customer satisfaction among the five largest network carriers. US Airways also ranked #1 in on-time arrivals and customer satisfaction among major network carriers for Q2 2010 and has ranked #1 among its peers in baggage handling in May, July and August. US Airways launched FastPathSM – an expedited airport experience for customers traveling between Boston and Philadelphia. FastPath features dedicated facilities for curbside check-in and bag drop, ticket counter check-in, security checkpoint lanes, departure gates and baggage claim carousels. The airline received distinction as one of the 50 best companies for Latinas by LATINA Style magazine for 2010. US Airways was the only airline included among the top 50 companies. Also during the quarter, the Company received distinction as one of 'Best Places to Work' and earned a 100 percent rating on the Human Rights Campaign's Corporate Equality Index, which is a leading indicator of companies' attitudes and policies toward lesbian, gay, bisexual and transgender (LGBT) employees and customers.

 



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This is the sixth year in a row the airline has achieved a perfect score. In October, Mesa and US Airways signed a term sheet that outlines the terms and conditions beyond the current codeshare term, which ends June 2012. The term sheet reflects a 39-month extension, through September 2015, for Mesa to operate the 38 CRJ900 aircraft they fly for US Airways. In October, US Airways reported a net profit of $240 million for its third quarter 2010 – the highest third quarter profit in the company’s history. In November, US Airways announced the need to recall and hire an additional 500 crew members, 420 flight attendants and 80 pilots, for 2011 to cover retirements, attrition and international growth. The airline also announced record load factors for the month of October at 83.6 percent for mainline operated flights. The airline launched Star Alliance Upgrade Awards, an innovative and unique program that allows US Airways Dividend Miles members to use their miles to upgrade to the next class of service on Star Alliance partner operated flights. The program also allows frequent flyers with other Star Alliance carriers to use miles towards an upgrade when traveling on US Airways. The airline, in the fourth quarter, introduced electronic boarding passes in Las Vegas and Charlotte with plans to expand the program to the entire US Airways system in the first quarter, 2011. The new technology allows customers to receive their boarding pass electronically via their smart phone and to seamlessly pass through security and board the plane. For the fourth quarter, US Airways paid employees $50 three times for ranking #1 in baggage performance among the “Big Five” hub-and-spoke network airlines for the months of July, Aug. and Sept. as ranked by the DOT. Employees also received another $50 for surpassing the airline’s internal goals for on-time arrivals for the month of Oct, another $100 for top ranking in baggage handling and customer complaints for Nov., and an additional $50 for the airline’s #1 spot in baggage handling for the month of Dec., bringing the airline’s year-to-date companywide employee payouts to approximately $24 million, or $650 per employee. US Airways recorded a fourth quarter profit excluding special items of $28 million, the companies first profitable fourth quarter since 2006. It also recorded a full year 2010 net profit excluding special items of $447 million, the second highest profit in the company’s history, and an accrual of $47 million in the airline’s employee profit sharing program. 2011 US Airways, in January, announced the signing of a new multi-year partnership agreement with Expedia to continue offering its full range of products and services, including all fares and inventory, through Expedia®, Hotwire® and Egencia® sites around the world. In February, the Federal Aviation Administration (FAA) validated the airline’s fully functioning Safety Management System (SMS), making US Airways one of the first U.S. airlines to receive the FAA's validation of its company-wide implementation of this voluntary safety enhancement program. Also in February, the U.S. Department of Transportion (DOT) ranked US Airways #1 in baggage handling for 2010 among the major network carriers according to the DOT December 2010 Air Travel Consumer Report.

 



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US Airways announced that it will begin three daily flights from its hub in Philadelphia to Quebec City on June 2. For the first time since 2007, in March US Airways employees received profit sharing checks totaling $72 million for 2010 performance. US Airways achieved a number one ranking among the “big five” hub-and-spoke carriers in the annual Airline Quality Ranking (AQR) report, an industry benchmark that measures airline reliability and service. In April, US Airways announced the addition of First Class service to 110 US Airways Express regional jets - expanding the number of domestic flights with First Class and the availability of upgrades for the airline's Dividend Miles Preferred frequent flyer members. The Company also announced several enhancements to its domestic First Class and Envoy international business class experience. In May, US Airways begins seasonal service to Madrid and Dublin from its Charlotte, N.C. hub. The new flights brought the number of international destinations US Airways serves from Charlotte, its largest hub, to 31 - six cities in Europe and 25 in Latin America and the Caribbean. In May, Delta and US Airways announced a new agreement to transfer takeoff and landing rights at New York's LaGuardia and Washington D.C.'s Reagan National airports, which will enable Delta and US Airways to expand service and increase competition at two of the nation's key cities, and provide the opportunity for additional access to LaGuardia and Reagan National for new entrants and airlines with a limited presence at the airports. Under the agreement, Delta would acquire 132 slot pairs at LaGuardia from US Airways and US Airways would acquire from Delta 42 slot pairs at Reagan National and the rights to operate additional daily service to Sao Paulo, Brazil in 2015, and Delta would pay US Airways $66.5 million in cash. In addition, the airlines will divest 16 slot pairs at LaGuardia and eight slot pairs at Reagan National to airlines with limited or no service at those airports. The completion of the transaction is subject to certain closing conditions, including government and regulatory approvals. A slot pair is the authority to operate one takeoff and one landing. In June US Airways begins three daily flights from its hub in Philadelphia to Quebec City, Canada. The new flights brought the number of international destinations US Airways serves from its Philadelphia hub to 36 - 17 cities in Europe/Middle East, 14 in Latin America/the Caribbean and 5 destinations in Canada. Also in June, US Airways announced that it reached a tentative agreement, subject to ratification, on a new, four-year collective bargaining agreement with the Transport Workers Union (TWU) that represents the airline's 164 flight dispatchers. In July, US Airways announced a second quarter, 2011 net profit excluding special items of $106 million, or $0.56 per diluted share. Also in July, the Department of Transportation (DOT) tentatively approved the proposed slot transaction, announced in May, at New York-LaGuardia and Washington-Reagan National airports. For the second year in a row, US Airways was named one of LATINA Style Magazine’s 50 best U.S. companies for Hispanic women to work for. In August, the American Red Cross named US Airways as a 2011 Disaster Responder

 



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and recognized the airline for its support in disaster response. In September, US Airways operated its 200th Honor Flight, transporting veterans to visit the World War II memorial and other sites in Washington, D.C. The flight took 101 veterans from Raleigh-Durham International Airport in North Carolina to Washington National Airport. In October, Delta Air Lines and US Airways welcomed the decision by the Department of Transportation to approve the proposed slot transaction at New York-LaGuardia and Washington-Reagan National airports, subject to certain conditions. The DOT’s final order represents a clear recognition by the Obama Administration that the slot transaction is in the public interest because of the service benefits and efficiencies that would result in both New York and Washington, D.C. In November, US Airways announced it has returned work previously handled outside of the United States to its call centers in Winston-Salem, N.C., Phoenix, and Reno, Nev. The new positions meet a contractual requirement to handle all general reservations sales calls originating in the United States in U.S. call centers by Nov. 1, 2011. Also in November, US Airways announced two new routes from New York City and North Carolina. Beginning March 10, 2012, customers on the East Coast can take advantage of US Airways' first-ever flight beyond the 1,500 mile limit set by the perimeter rule at New York's LaGuardia Airport with Saturday service to the airline's Phoenix hub. Additionally, starting March 4, 2012 customers in Salt Lake City will have access to daily year-round service to Charlotte, N.C. 1.2. Vision/Mission/Goal/Objective US Airways, Inc. is a major airline based in the U.S. city of Tempe, Arizona. The airline is an operating unit of US Airways Group and is the sixth largest airline by traffic and eighth largest by market value in the country. US Airways operates major hubs in Charlotte, Philadelphia and Phoenix and maintains focus city operations at Ronald Reagan Washington National Airport. A member of the Star Alliance, the airline has a fleet of 340 mainline jet aircraft and 300 regional jet and turbo-prop aircraft connecting 200 destinations in North America, South America, Europe and the Middle East. In 2003 US Airways began exploring the availability of financing and merger partners, and after no financing was available US Airways filed for Chapter 11 bankruptcy again in 2004 for the second time in two years. The airline merged in 2005 with America West Airlines; The merger was treated as a reverse takeover of US Airways by America West Airlines under FASB rules and regulations. Under harsh financial conditions, America West initiated a merger with the larger carrier that took them out of bankruptcy and created what is today the 5th largest US based airline in terms of revenue. After the merger, the new airline retained the US Airways name. The name choice was based on studies indicating that the US Airways name had better brand recognition worldwide than the America West name. The carrier operates the US Airways Shuttle, a US Airways brand which provides hourly service between Boston, New York and Washington, D.C. Regional airline service is branded as US Airways Express, operated by contract and subsidiary airline companies.

 



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As of April 2012, US Airways employed 32,241 people worldwide and operated 3,208 daily flights (1,271 US Airways Mainline, 1,937 US Airways Express). Research completed through the case and the Internet has revealed that US Airways has no formal mission statement available to the public. Without a mission statement, US Airways will find it hard to form objectives and to answer the question “What is our business?”. An effective mission statement can lead a company, encourage investors, and motivate employees (Mission Statements, BUS 130, 230). To design a mission statement that will be effective, the majority of nine characteristics must be included. Customers, products, markets, technology, profitability, philosophy, self, public image, and employees are all components that should be incorporated into a mission statement (Vision and Mission Statements, BUS 485). An effective mission statement that US Airways could use follows: “Our mission is to offer competitive prices to our customers, while using the latest advances in technology to create a quality air travel experience. We strive to be the best in our workplace, our industry, and our community.” The above statement contains elements, which will help establish future objectives and offer focus to US Airways’ stakeholders. 1.3 Headquarter Office/Geographical Operation US Airways has its headquarters in Tempe, Arizona. The 225,000 square feet (20,900 m2) building was originally occupied by America West Airlines. Jahna Berry of the Arizona Business Gazette said in 2005 that the building "is one of the dominant buildings in downtown Tempe." The City of Tempe gave America West $11 million in incentives and tax breaks so it would occupy what is now the US Airways headquarters, which cost $37 million to construct. Construction of the building began in January 1998, although the official groundbreaking ceremony was held on February 19 of that year. As of 2006, over 700 employees work at the nine story building. Previously US Airways had its headquarters in Crystal Park Four, a Class A. mixed-use development in Crystal City, Virginia. Park Four is between Reagan National Airport, The Pentagon, and Washington, D.C. After the merger with America West Airlines, the company decided to close its Virginia headquarters and moved the employees into the former America West building in three to six months after the merger closed. Russell Grantham at the Atlanta Journal-Constitution said that the decision to move the headquarters to Tempe was not that difficult because the Crystal City facility "consisted of like two or three floors of people." US Airways operate 3,130 flights a day to 132 destinations in 31 countries from its hubs in Phoenix, Charlotte and Philadelphia. US Airways' routes are concentrated along the East Coast of the United States, Southwestern United States and the Caribbean, with a number of routes serving Europe and primary destinations along the U.S. West Coast. The airline's western U.S. presence has increased following the merger with America West. Code sharing with United Airlines has helped US Airways by enabling the airline to offer its customers service throughout the Midwest, Great Plains and Rocky Mountains states. Services to South America, Asia and Australia also are offered via the United Airlines codes share. Likewise, united passengers benefit from increased access via US Airways to the U.S.

 



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East Coast, Europe and the Caribbean. US Airways Express carriers operate a large number of domestic routes, primarily into US Airways' hubs and focus cities, but with some exceptions, particularly small markets where the regional express carriers operate service under the EAS program, as well as some point-to-point commuter routes in the northeast and mid-Atlantic regions and south through the Carolinas. In February 2007, the airline announced that its official operations center would be located in Pittsburgh, Pennsylvania. On November 11, 2007, US Airways announced nonstop service between Philadelphia and London Heathrow Airport, its first service to the airport. The airline will retain its existing nonstop service between Charlotte and Gatwick Airport. Also in 2007, the airline applied for flights to Bogotá, Colombia, however its application was denied by the U.S. Department of Transportation after the agency awarded Delta Air Lines, JetBlue Airways, and Spirit Airlines the routes from Delta's New York-JFK hub, JetBlue from Orlando, and Spirit from Fort Lauderdale. As of 2008, US Airways and other airlines have struggled with the price of fuel. Despite that, US Airways CEO Doug Parker said "It is our international gateway. We'd like to expand that". The airline has added three international flights during the summer of 2009, including to Tel Aviv from Philadelphia. US Airways has also started year-round service between Charlotte and Rio de Janeiro. On June 1, 2010, US Airways inaugurated its new service to Anchorage, AK from Philadelphia. In 2009, US Airways and Delta have reached an agreement to exchange landing/takeoff slots at both LaGuardia Airport and Ronald Reagan Washington National Airport. Also, US Airways plans to purchase flying rights to Tokyo and São Paulo from Delta. The airline plans to begin service to Tokyo from its Phoenix hub with Airbus A330 aircraft; however it plans not to begin service until 2012 or later. US Airways has announced they will use United Airlines dormant Brazil slots to begin nonstop service to São Paulo from Charlotte. The route has been approved by the United States government and US Airways is waiting for approval from the Brazilian government to begin the route. Service is expected to start December 2012.

 



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1.4 Firm Structure

 



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II. External environment (Opportunities & Threats)
Opportunities The airline industry is one that is affected by many external factors. A change in fuel prices, by mere pennies, can force companies into bankruptcy. Even with the amount of debt that US Airways has acquired, it has many opportunities available. With strategic planning, help from the government, and a little luck, US Airways could once again see profits, market dominance, and growth internationally. Point-to-Point One opportunity that is available to US Airways is the use of point-to-point flying instead of their already established hub-and-spoke flight patterns. There are many positive outcomes from this change. Customers prefer to get on one plane and arrive at their destination, rather than have a layover. There would be more profit from this type of system because less fuel would be needed, fewer employees, and fewer airplanes. Costs would be lowered, therefore; ticket prices could be lowered. Fewer layovers and the lowered ticket prices could increase the number of customers flying with US Airways. The hub-and-spoke system worked for US Airways when it was seeing profits and there was more people flying. Today, it is costly, inefficient, and more of a burden on timeconscious travelers. This change will not happen overnight. It will take up to a year to change the type of system used. Changing one flight at a time can do this. Changing from a hub-and-spoke system to a point-to-point system is an internal opportunity. However, it’s highly dependant on many external factors. Some of these factors include money from the government and investors, the views and attitudes of the customers, the cost of fuel, and the economy. One downside to this change is the transition of the employees. Many employees are trained and prefer the already established system. “Resistance to change can be considered the single greatest threat to successful strategic implementation” (D 254). Partnerships Another opportunity that would improve US Airways’ current condition is a partnership with a financially stable company (Partnerships, BUS 130). There are many companies that could become a partner with US Airways, one such company is FedEx. There are many obvious benefits from this action. The greatest advantage would be financially. With some solid financial backing, US Airways will be able to get back on its feet quicker. The idea of a partnership would prove beneficial for US Airways. If the government wants to keep perfect competition and avoid monopolies, then they would grant more funding and loans to US Airways. Government Without governmental funding, US Airways would have been another business that failed. When US Airways was in the middle of hard times in July 2002, the government granted them a federal loan of $900 million (See Appendix D, pp. 48-50). One downside to governmental funding is company image (Consumer Perception, BUS 340). If they keep receiving outrageous amounts of money, consumers will start to see US Airways as a money pit. After the September 11 tragedies, the government aided the airline industry

 



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monetarily. Following the aftermath of September 11, people were upset that their tax dollars went to independent companies. Without airline companies, our country would simply shut down. Another governmental opportunity is the fact that John McCain is proposing a change to the Railway Labor Act. This new proposal would make it hard for unions to get wage increases (See Appendix E, p.51). The proposal would lock union members in at a certain wage. The wage freeze would help to keep US Airways’ labor costs down. Consumer Confidence An opportunity for every business today is the increase in consumer confidence (Consumer Confidence and Buying Power, BUS 341). Without consumers’ spending money, no company would survive. With the poor economy and September 11 tragedies, consumers are watching where they spend their money. As we move further and further away from September 11, people are starting to forget about terrorism and some risks that are involved with flying. Another opportunity that US Airways can take advantage of is the fact that bond rates are high and interest rates are low right now. This would allow US Airways to refinance some of its debt to lock-in lower rates. US Airways could take advantage of high bond rates by selling bonds to investors. This would be a great opportunity because bonds are safer than stocks; in that they are secured and have a maturity date some years down the road (Corporate Bonds and Stocks, BUS 361). Technology Another industry wide opportunity is technology. US Airways can take advantage of outside technology. Simple advances, such as making reservations by the Internet, will help boost sales. New accessories are becoming available as well; these accessories would make flying more convenient. An example of a newly added accessory would be the complete workstation. More personal televisions, along with satellite radio, would be a welcomed attraction for flyers. This is extremely important to US Airways right now because with the addition of new accessories and technology, business travelers will insist on traveling with US Airways. Not long ago, US Airways filed for Chapter 11 bankruptcy. To fulfill this, US Airways had to file a report on its debt and its expected courses of action. The continuation of this filing is a huge opportunity for US Airways to get its feet back on the ground. While filing for bankruptcy, US Airways will be protected from creditors. Along with the completion of this filing, US Airways will have some of their debt forgiven (Chapter 11 Bankruptcy, BUS 371 / ACT 162). This gives US Airways an upper hand when negotiating with the union. US Airways’ employees are among the highest paid in the industry (See Appendix D, pp. 48-50). With the approval of their Chapter 11 filing, the pilots union will be forced to work with lower salaries because of the condition that the company is in currently. A final opportunity for US Airways is the promise of money after bankruptcy. The Texas Pacific Group has promised to provide US Airways with a $200 million investment in the new equity of the airline on its emergence from bankruptcy (See Appendix C, pp.46-47). This is money that US Airways does not have right now. However, if everything goes smoothly, it will have this money to further its investing. This allows leverage when

 



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finalizing finances. US Airways can take money away from investing and use it to pay off some debt because that money will be replaced upon the end of its bankruptcy. A strategic plan is one thing that US Airways does not have, and because of that, US Airways is suffering. Opportunities in the airline industry are very uncertain. No one really knows if gasoline prices or consumer confidence will increase. Looking at US Airways’ past actions, it seems as if US Airways is going with a hit or miss theory. The company cut benefits and laid people off, that did not free up enough funds. So, now, US Airways is starting to cut some unprofitable flights. With all of its opportunities, even if it takes advantage of them, US Airways needs to be aggressive and regain market share. With spring and summer approaching, competition in the airline industry is only going to get tighter. The companies who take advantage of their opportunities and plan strategically will prove most profitable. Threats Economy One of US Airways’ most important external threats is the current state of the world economy. The U.S. economy, which is believed to be in a recession, is one of the primary external forces that a company needs to focus on, especially if the business is one that has difficulty producing revenues in a downturn (External Forces, BUS 130, 230, 380). Demand for Air Travel As a subset of economy, the demand for air travel is a large threat currently facing US Airways. With the economy slowed, consumers with low disposable income or fixed income are unable to afford ticket prices, which drives the number of people willing to fly (demand) down (Discretionary Income, ECN 101). Demand becomes a threat because when demand is low US Airways will still incur high fixed costs with little revenue to cover the cost. The demand for business related travel has also fallen as businesses try to save cash during the downturn. “Business traffic comprises 50 percent of airline traffic but generates 65 percent of ticket revenue”. Employers are sending employees to fewer seminars, or sending one delegate to attend and teach the material upon returning instead of sending multiple employees. “An economy in recession requires less business travel,” and businesses are using cheaper methods in response to cash crunches. Web conferencing allows businesses to conduct meetings across the nation without having to fly employees to the site. Possible War with Iraq War with Iraq is an important threat because customers will be less likely to travel to international destinations for fear of being civilian targets. War with Iraq, a member of OPEC, will cause Iraqi oil exports to decline and supply to drop. In addition, the military will be using more oil to fight a war, affecting supply. The result of both a decline in exports and an increase in usage will be a rise in oil prices, and fuel expenses for US Airways (Supply and Demand, ECN 102). Any company that competes internationally must focus on the current political issues abroad that may hinder business in the future. Businesses should develop contingency

 



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plans on how to operate internationally when political instability occurs in other areas of the world (Contingency Planning, BUS 230). Oil and Oil Producing Exporting Countries Oil and OPEC can be a threat to US Airways whether or not the United States goes to war with Iraq. OPEC has the ability to control production of 13 oil-exporting countries. This allows OPEC to move oil and, subsequently, fuel prices as it chooses. As stated before, because OPEC can control supply, they can cause the price of fuel to increase, costing US Airways more in fuel expenses (Supply and Demand, ECN 102). Possible Acts of Terrorism Possible terrorist activity will greatly affect the number of people willing to travel domestically and internationally. The airline industry is still being affected by the September 11 terrorist attacks, which resulted in a large drop in air travel demand. If terrorist activity, across the globe, starts to become a problem again, US Airways will likely see a drop in ticket sales, which will cause revenues to decline. Union Strikes US Airways’ most costly expense is the amount of money it pays for personnel. Unions have strong negotiating positions inside companies because of their ability to stop production or services with walkouts and strikes (Organized Labor’s Rights, BUS 372, 420, DSP 326). A potential strike by union workers at US Airways is a critical threat to the company’s success. Strikes by the pilots union, flight attendants union, and mechanics union can cause stoppages on many of US Airways’ flight routes. These unions will strike if they feel they are not receiving fair pay, benefits, safe working conditions, and other possible rewards (Compensation Packages, Union Grievances, BUS 420, DSP 326). Air Line Pilots Association Region Flight Cap The Air Line Pilots Association currently has a cap on the number of flights their pilots can fly on long region routes. The ALPA has limited the flights to address the pay equality of pilots who run these routes, which are on US Airways Express. The ALPA poses a threat if they continue to put pressure on US Airways Express, US Airways’ only current profitable division, because the higher labor costs will only add to US Airways’ cash problems. Government Assistance and Stoppage of Federal Aid The United States government, if they choose not to assist the airline industry any further, may be a threat to US Airways’ ability to turn the company around. Federal aid has been given to the industry in relief from the outcome from the September 11 terrorist attacks, which grounded all aircraft for a number of days causing the industry to lose billions in revenues. A stoppage in government aid may prevent US Airways from being able to emerge from Chapter 11 bankruptcy.

 



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Cut Throat Competition The current state of the economy has had similar effects on all major United States air carriers. All carriers have been using fare reduction pricing strategies to lure customers from rival airlines. This poses a threat because some carriers may have lower breakeven points allowing them to use a price leading strategy when pricing tickets (Price Leading Strategy, Breakeven, BUS 340, ACT 161). US Airways may not be able to cut fares as low as its competition because of its high breakeven point, caused by its large amount of overhead. Therefore, competitive forces could force US Airways out of business. US Airways can try to affect only a few of these external threats. Any action taken by the company will not have any impact on the economy, but US Airways does have the ability to affect demand for air travel in some instances through fare reduction activities. US Airways also has the ability to negotiate with their unions, which they have minimal control over. The only other threat that US Airways can have a chance at eliminating is how the competition affects the company. The other threats are largely out of US Airways’ control, but still need to be watched to help US Airways with contingency planning.
 

III. Internal environment (Strengths &Weakness)
Strengths US Airways owns a variety of planes: 767s, 737s, and 727s, A330s, and A320s. The variety of aircrafts allow for more flexibility, versatility, mobility in passenger load options, and operating costs. A wide variety of planes provide the flexibility of matching the load capacity with the area of demand. The company attempts to match the aircraft to seat supply and route demand to increase the load factor. “This type of aircraft offers great flexibility since it has smaller capacity, is significantly more efficient to operate, and has a shorter turnaround time than larger aircraft”. If a route has less demand, a smaller aircraft can be used to increase capacity in order to meet the breakeven point of the aircraft. This helps US Airways reach their primary goal: “to move load factor above the breakeven point into the profit range”. The wide variety also allows for expansion and exploration into other routes because different size planes are readily available. The agreement between US Airways and Airbus allows modernization of their old aircraft to the new A320s. The new A320s are more fuel-efficient and replace the older aircraft with younger assets. The average age of US Airways’ planes as of 2001 are 9.1 years to 9.6 years. The younger assets require less expenditure for repair and maintenance (Assets, ACT 161). Another benefit of having a variety of planes and excessive assets is to use the excess as leverage to free up money. The planes can be sold along with their lease in order to free up cash to pay debts and relieve some of the current expenses and costs (Leases, Debt, Expenses, ACT 161). 
 

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Weaknesses US Airways acquired approximately 400 Airbus planes since 1999. Some of these planes were purchased and others leased. Although excessive assets can be considered a strength for most airlines, for US Airways, it is a weakness. US Airways is paying a large amount of money for its leased planes, most of which are not being used. This directly affects the load factor, the percentage of filled seats on any given flight. However, US Airways’ main goal “is to move “load factor” above the breakeven point into profit range”. US Airways’ inability to fill the seats is unprofitable for the company. The company is unable to produce at the breakeven point and, as a result, supply will not equal demand on the flights that they are trying to use (Supply and Demand, ECN 101). This causes the company to have a high overhead. The high overhead was a result of the growth of the company. The company grew too big in a short amount of time, which caused its supply to exceed its demand. US Airways has an excessive number of planes to use for the few passengers that are boarding its planes. The load factor below breakeven causes most of the flights to be unprofitable. US Airways merged and acquired too much property within a short amount of time. However, the cancelled merger with United Airlines in 2000 caused the airline to put a stop to its growth. However this turned out to be a good idea for the airline, which was already experiencing problems in the financial area. Most airline companies use a hub system that allows them to carry passengers around the globe. However, the hub system has changed and now causes passengers to make stops at various hubs and board transfer flights. US Airways follows this type of system, but its hubs are smaller than other airline hubs. Not as many planes can fit into them, which creates a bottleneck for the transfer of passengers. Another weakness of US Airways’ hub system, is its East Coast locations, some of these include: Baltimore, Washington, D.C., Philadelphia, and Pittsburgh. These hubs are located too geographically close to one another on the East Coast. By using this type of hub system, US Airways cannot defend itself and its route system from competitors. If US Airways relocated some or most of its hubs, it would be able to create a more efficient hub system. This allows the company to possibly move off the East Coast and expand into the West, which would allow US Airways to compete more efficiently with its major competitors. If they decided on this course of action, it would require the company to create a different strategy of both management and marketing. Rakesh Gangwal’s unexpected resignation in 2001 is a weakness of US Airways. Gangwal’s chief strengths under the current conditions were his attention to detail, airline industry, economics, and critical requirements. Stephen Wolf, a master dealmaker, replaced Gangwal. Gangwal was unable to make the company more successful and financially stable. Looking at the daily operations of the company was not one of Wolf’s strengths. This could be the main reason why US Airways does not have a contingency or vision plan. If the company is unable to look into the future or see the outlook of how its decisions will directly affect the company, it will be unable to choose any course of action that will create a stronger company. Not only did US Airways have to deal with the unexpected resignation of CEO Gangwal, but with poor employee morale as well. After the September 11 incidents, and with business already declining, US Airways laid off 25 percent (11,000) of its employees. After the layoff, most of the employees still

 



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working lost many of their benefits and other incentives for working hard. In the end, this created a team of employees that had lost their desire to work hard for a company that they knew was having problems surviving. There are various reasons why US Airways has been losing customers for a couple years. One major reason is that, after September 11, it stopped flights to numerous locations. Without a variety of locations that a customer can fly to and depart from, the customer base began to decrease because other competitors had the locations and flights customers wanted. Also, without these locations, US Airways is unable to compete with the airlines that were flying to more locations. US Airways is failing to use an aggressive approach to compete with other airlines. Without a stronger approach, many customers choose to take other airlines because their names are more recognizable, and they have more locations to which they can fly. An example of this is with Southwest Airlines, US Airways’ major competitor. Since US Airways has locations only on the East Coast, Southwest took over most of the West Coast. Southwest has non-stop flights, which most customers enjoy more. “Southwest forced US Airways to essentially abandon its service to north-south California routes”. They also entered the market in Baltimore, one of US Airways’ hubs. This caused US Airways to eliminate 51 of its 75 mainland routes. If US Airways had been more aggressive against its main competitor, these routes would never have been abandoned. Although plane crashes do not occur very often, there is still a chance one will happen. With all the problems that US Airways has been experiencing over the last few years, an unexpected plane crash of any sort would put the company out of business. While there is no way of ensuring that US Airways will never experience a plane crash, it is in its best interest that they should not. Not only would US Airways lose an asset, but they would also lose many of their repeat customers and many new ones as well. Since September 11, many people are still anxious about flying and watching another plane crash would push most people over the edge. This would cause many people to drive to their destinations, or cause them to just stay at home. If this happened, it would cause US Airways to lose more money, pushing them further into bankruptcy or out of business all together. Each of the weaknesses explained above has been a direct influence on US Airways’ filing for Chapter 11 bankruptcy (Bankruptcy, BUS 371). Since 2000, after the failed merger with United Airlines, they have lost a total of $7.81 billion in assets and $7.83 billion in liabilities, most of which occurred in 2001 after the September 11 incident; a total of 2.11 billion in 2001(Appendix C, pp. 46-47).

 



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4.1 Management (BOD and top management)

BIOGRAPHIES W. Douglas Parker Mr. W. Douglas Parker is the Chairman of the Board, Chief Executive Officer of US Airways Group Inc. Mr. Parker has served as Chairman of the Board and Chief Executive Officer of US Airways Group and US Airways since 2005. Mr. Parker also served as President of US Airways Group and US Airways from 2005 to 2006. Mr. Parker served as Chairman of the Board and Chief Executive Officer of America West Holdings Corporation (“America West”) and America West Airlines, Inc. (“AWA”) from 2001 to 2007, and served as a director of America West and AWA from 1999 to 2007. Mr. Parker joined AWA as Senior Vice President and Chief Financial Officer in 1995. He was elected President of AWA in 2000 and Chief Operating Officer of AWA in 2000. Mr. Parker serves on the Board of Directors of Pinnacle West Capital Corporation, a publicly traded company.

 



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Bruce Lakefield Mr. Bruce R. Lakefield is the Vice Chairman of the Board, President, Chief Executive Officer of US Airways Group Inc. Mr. Lakefield served as President and Chief Executive Officer of US Airways Group and US Airways from 2004 to 2005. After this, Mr. Lakefield served as Vice Chairman of the Board of US Airways Group and US Airways. Mr. Lakefield served as Chairman and Chief Executive Officer of Lehman Brothers International from 1995 until 1999. He has served as a Senior Advisor to the Investment Policy Committee of HGK Asset Management from 2000 to 2004. Mr. Lakefield served as a member of the board of directors of Magic Media, Inc., a privately held company, until 2008 and currently serves as a member of the board of directors of Norman Broadbent PLC (previously Garner PLC), a publicly traded company on the AIM market of the London Stock Exchange. Mr. Lakefield has served as a director of US Airways Group and US Airways since 2003. J. Scott Kirby Mr. J. Scott Kirby is President of US Airways Group, Inc. He joined America West Airlines, Inc. (“AWA”) as Senior Director - Schedules and Planning in October 1995. In October 1997, Mr. Kirby was elected to the position of Vice President - Planning and in May 1998, he was elected to the position of Vice President - Revenue Management. In January 2000, he was elected to the position of Senior Vice President - E-Business and Technology of AWA. He was elected as Executive Vice President Sales and Marketing of AWA in September 2001. Mr. Kirby served as Executive Vice President - Sales and Marketing of US Airways Group and US Airways from the effective date of the merger with America West Holdings on September 27, 2005 until his promotion to President of each entity on October 1, 2006. Derek Kerr Mr. Derek J. Kerr is Chief Financial Officer, Executive Vice President of US Airways Group, Inc. Mr. Kerr joined AWA as Senior Director — Financial Planning in 1996. He was elected to the position of Vice President — Financial Planning and Analysis in 1998. In 2002, Mr. Kerr was elected Senior Vice President — Financial Planning and Analysis. He was elected Senior Vice President and Chief Financial Officer of AWA and America West in 2002. Beginning in 2005, he served as Senior Vice President and Chief Financial Officer of the Company. In 2009, Mr. Kerr was appointed as Executive Vice President and Chief Financial Officer. In 2010, Mr. Kerr’s responsibilities were expanded to include Information Technology. Robert Isom Mr. Robert D. Isom, Jr. is Chief Operating Officer, Executive Vice President of US Airways Group, Inc. Mr. Isom joined AWA as Senior Director — Financial Planning and Analysis in 1995. He was elected to Vice President — Operations Planning for AWA in 1997. In 2000, Mr. Isom was elected to the position of Vice President — Revenue Management. Mr. Isom left AWA in 2000 to serve as Vice President — Finance for Northwest Airlines, Inc. In 2001, he was appointed Vice President — International for Northwest Airlines, and in 2003 he was appointed Senior Vice President — Ground

 



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Operations and Customer Service. Mr. Isom left Northwest Airlines in 2005 to serve as Chief Operating Officer for GMAC, Residential Finance Group, GMAC ResCap. He was appointed Chief Restructuring Officer of GMAC in 2006. In 2007, Mr. Isom was elected Executive Vice President and Chief Operating Officer of the Company. Elise Eberwein Ms. Elise R. Eberwein is the Executive Vice President - People, Communications and Public Affairs of US Airways Group Inc. Ms. Eberwein joined AWA in 2003 as Vice President — Corporate Communications. From September 2005 through October 2005, Ms. Eberwein served as Vice President — Corporate Communications of the Company. She served as Senior Vice President — Corporate Communications from 2005 to 2006, when she was appointed as Senior Vice President — People, Communication andCulture. In 2009, Ms. Eberwein was appointed as Executive Vice President — People and Communications, and in 2010, Ms. Eberwein assumed the Public Affairs responsibilities. Prior to joining AWA, Ms. Eberwein held various communications positions for three other airlines, including Frontier Airlines where she served as Vice President, Communications from 2000 until she joined AWA. Stephen Johnson Mr. Stephen L. Johnson is the Executive Vice President - Corporate and Government Affairs of US Airways Group Inc. Between 1995 and 2003, Mr. Johnson held a variety of positions with America West and AWA, including Senior Vice President — Corporate Affairs and Executive Vice President — Corporate. From 2003 to 2009, Mr. Johnson was a partner at Indigo Partners LLC, a private equity firm, which specializes in acquisitions and strategic investments in the airline, aircraft finance and aerospace industries. In 2009, Mr. Johnson was appointed Executive Vice President — Corporate of the Company. In 2010, Mr. Johnson’s responsibilities were expanded to include Government Affairs. Paul Galleberg Mr. Paul Galleberg has served as Vice President - Legal Affairs of Us Airways Group Inc since July 8, 2011. He is responsible for overseeing the Company’s corporate and business legal work. Prior to his appointment, he was most recently General Counsel and Chief Operating Officer and Principal at Berylian Capital. John McDonald Mr. John McDonald has served as Vice President - Corporate Communications of Us Airways Group Inc since July 8, 2011. He leads the Company’s internal and external communications and its social media initiatives. Prior to his appointment, he was a Director of Operations and Hub Communications at United. William Post Mr. William J. Post has been appointed as Director of US Airways Group Inc., effective September 06, 2011. He currently serves as Chairman of the Board of Swift Transportation, and as a director of First Solar and Blue Cross Blue Shield of Arizona. In addition to serving as Chairman and CEO of Pinnacle West, Post also previously served as Chairman of Suncor Development Company, Stagg Information Systems, Nuclear

 



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Assurance Corporation, Nuclear Electric Insurance Limited, the Institute of Nuclear Power and El Dorado Investment Company. He also was a Director of Phelps Dodge Corporation (currently Freeport McMoRan). In addition to his corporate work, Post has been a leader in the community, serving as Chairman of the Boards of the Business Coalition, Greater Phoenix Leadership, Greater Phoenix Economic Council, Greater Phoenix Chamber of Commerce, and the United Way Campaign. He currently serves on the Boards of Translational Genomics Research Institute and the Thunderbird School of International Management. He is also Chairman of the Board of Trustees of Arizona State University, where he received a Bachelor of Science Degree in 1973. Herbert Baum Mr. Herbert M. Baum is an Independent Director of US Airways Group, Inc. Mr. Baum served as Chairman of the Board, President and Chief Executive Officer of the Dial Corporation, a manufacturer and marketer of consumer products, from 2000 until his retirement in 2005. Mr. Baum served as President and Chief Operating Officer of Hasbro, Inc., a manufacturer and marketer of toys, from 1999 to 2000. Mr. Baum also served as Chairman and Chief Executive Officer of Quaker State Corporation, a producer and marketer of motor oils and lubricants, from 1993 to 1999. From 1978 to 1992, Mr. Baum was employed by Campbell Soup Company, a manufacturer and marketer of food products, and, in 1992, was named President of Campbell — North and South America. Mr. Baum was a director of Meredith Corporation, a public company, from 1994 to 2009. Mr. Baum became a director of Whitman Corporation in 1995 which through a buyout became PepsiAmericas, Inc. He continued to serve on the Board of the merged corporation until it was acquired by Pepsico in 2010. He also serves as Chairman of the Board of Directors of the Safe Harbor Animal Sanctuary and Hospital and as a director of Petsmart Charities, Inc. Mr. Baum served as a director of America West and AWA from 2003 to 2007 and became a member of the Boards of US Airways Group and US Airways in 2005. Matthew Hart Mr. Matthew J. Hart is an Independent Director of US Airways Group, Inc. Mr. Hart was President and Chief Operating Officer of Hilton Hotels Corporation from 2004 until the acquisition of Hilton by the Blackstone Group in 2007. He served as Executive Vice President and Chief Financial Officer of Hilton from 1996 to 2004. Before joining Hilton in 1996, Mr. Hart was Senior Vice President and Treasurer of The Walt Disney Company from 1995 to 1996, and was Executive Vice President and Chief Financial Officer for Host Marriott Corp. from 1993 to 1995. He serves on the Boards of Directors of Great American Group, Inc. and Air Lease Corporation, each a publicly traded company, and is Chairman of the Board of Directors of Heal the Bay, a non-profit organization. Mr. Hart previously served on the Board of Directors of Kilroy Realty Corporation, a publicly traded company, from 1997 to 2008. Mr. Hart served on the Boards of Directors of America West and AWA from 2004 to 2005, and was elected to the Boards of US Airways Group and US Airways in 2006.

 



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Richard Kraemer Mr. Richard C. Kraemer is an Independent Director of US Airways Group, Inc. Mr. Kraemer is President of Chartwell Capital, Inc., a private investment company. Mr. Kraemer served as a director of America West and AWA from 1992 to 2007. He became a member of the Boards of US Airways Group and US Airways in 2005. Cheryl Krongard Ms. Cheryl Gordon Krongard is an Independent Director of US Airways Group, Inc. Ms. Krongard retired in 2004 as a Senior Partner of Apollo Management, L.P. Ms. Krongard was the Chief Executive Officer of Rothschild Asset Management from 1994 to 2000. She served as Senior Managing Director for Rothschild North America from 1994 to 2000. Additionally, she served as a director of Rothschild North America, Rothschild Asset Management, Rothschild Asset Management BV, and Rothschild Realty Inc. and as Managing Member of Rothschild Recovery Fund. She was elected a lifetime governor of the Iowa State University Foundation in 1997 and has served as Chairperson of its Investment Committee. Ms. Krongard is also a member of the Dean’s Advisory Council, Iowa State University College of Business. Ms. Krongard also serves as a director of Legg Mason, Inc., a publicly traded company. Ms. Krongard has served as a director of US Airways Group and US Airways since 2003. Denise O'Leary Ms. Denise M. O'Leary is an Independent Director of US Airways Group, Inc. Ms. O’Leary has been a private investor in early stage companies since 1996. From 1983 until 1996, she was employed at Menlo Ventures, a venture capital firm, first as an Associate and then as a General Partner. She serves as a director of Medtronic, Inc. and Calpine Corporation, each a publicly traded company. Additionally, she is a member of the Boards of Directors of Stanford Hospital and Clinics and the Lucile Packard Children’s Hospital and is the Chairwoman of the Board of Directors of the Corporation for Supportive Housing. Ms. O’Leary served as a director of America West and AWA from 1998 to 2007 and became a member of the Boards of US Airways Group and US Airways in 2005. George Philip Mr. George M. Philip is an Independent Director of US Airways Group, Inc. Mr. Philip is the President of the University at Albany, State University of New York. From 1971 to 2007 he served in various positions with the New York State Teachers’ Retirement System and retired after 13 years as Executive Director. He also serves as a member of the Board of Directors of First Niagara Financial Group, a publicly traded company; Vice Chair of the St. Peter’s Hospital Board of Directors; and Chair of the Catholic Health East Investment Committee. Mr. Philip is a member of the Kentucky Teachers’ Retirement System investment advisory committee and a director of Community Newspaper Holdings, Inc., a privately held corporation. In past years, Mr. Philip was President of the Executive Committee of the National Council on Teacher Retirement; Chair of the Council of Institutional Investors; Chair of the University at Albany Council, SUNY; a member of the Board of Saratoga Performing Arts Center; and a member of the

 



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NYSE Pension Managers Advisory Committee and the State Academy of Public Administration. 4.2 Marketing US Airways uses the hub system which “ideally allows any airline to fly passengers to any destination on the globe. The hub system also allows airlines to feed passengers from small markets into the carrier’s transcontinental and international routes, thus allowing competition in these markets as well”. The hubs are bunched together geographically on the East Coast allowing for market domination. The close market can promote lower expenses because ticket sales can be lowered with less interference from outside competition (Product Pricing, BUS 340). “By offering the lowest priced fares to a destination, an airline hopes to lure customers from competitors and even increase the amount of overall passenger traffic by attracting passengers who would not have considered air travel under a higher pricing structure”. Once market domination of the East Coast is prosperous, then the financial advantage can be used to integrate, expand and dominate westward. US Airways’ short international express flights are making the most profit for the company. The flights from Washington, D.C. to New York and Baltimore to Boston are convenient routes for East Coast businesses. “Revenue may be generated…by increasing profitability on the core routes to cover underperformance on other routes”. 4.3 Operation/Production US Airways Group, Inc. (US Airways Group) is a holding company whose primary business activity is the operation of a network air carrier through its wholly owned subsidiaries, US Airways, Piedmont Airlines, Inc. (Piedmont), PSA Airlines, Inc. (PSA), Material Services Company, Inc. (MSC) and Airways Assurance Limited (AAL). MSC and AAL operate in support of the Company’s airline subsidiaries in areas, such as the procurement of aviation fuel and insurance. It has hubs in Charlotte, Philadelphia and Phoenix and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport (Washington National). During the year ended December 31, 2011, it offered scheduled passenger service on more than 3,100 flights daily to more than 200 communities in the United States, Canada, Mexico, Europe, the Middle East, the Caribbean, and Central and South America. It also has an East Coast route network, including the US Airways Shuttle service. The Company had approximately 53 million passengers boarding its mainline flights in 2011. During 2011, the Company’s mainline operation provided scheduled service or seasonal service at 133 airports, while the US Airways Express network served 156 airports in the United States, Canada and Mexico, including 78 airports also served by its mainline operation. US Airways Express air carriers had approximately 28 million passengers boarding their planes in 2011. As of December 31, 2011, the Company operated 340 mainline jets and was supported by its regional airline subsidiaries and affiliates operating as US Airways Express under capacity purchase agreements, which operated 233 regional jets and 50 turboprops. The Company’s prorate carriers operated

 



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seven turboprops and seven regional jets at December 31, 2011. In May 2011, US Airways Group and US Airways entered into an Amended and Restated Mutual Asset Purchase and Sale Agreement (the Mutual APA) with Delta Air Lines, Inc. (Delta). Pursuant to the Mutual APA, Delta agreed to acquire 132 slot pairs at LaGuardia from US Airways and US Airways agreed to acquire from Delta 42 slot pairs at Washington National and the rights to operate additional daily service to Sao Paulo, Brazil. On December 13, 2011, the transaction contemplated by the Mutual APA closed and ownership of the respective slots was transferred between the airlines. During 2011, the US Airways Express network served 156 airports in the continental United States, Canada and Mexico, including 78 airports also served by its mainline operation. During 2011, approximately 28 million passengers boarded US Airways Express air carriers’ planes, approximately 44% of whom connected to or from its mainline flights. The Company competes with Southwest, JetBlue, Allegiant, Frontier, Virgin America and Spirit. 4.4 Finance US Airways is aware of their current market decline and financial instability. This is deemed a strength because the company is using their position to implement changes and new organizational plans to correct the situation. The government passed legislation that freed US Airways of some of its expenses by “federalizing security.” The September 11 terrorist attacks pushed Congress to pass legislation and provide $14 billion to the airline industry. Other actions that freed up cash are: consolidation of flights, a 23% cut in service, and decrease in routes. The postponement of shipping, and deferment of new A320s and A330s freed up cash. Also, the failed merger between United and US Airways provided $50 million to US Airways.

IV. Critical success Factors/Firm strategies
Despite hiring advisors to explore a potential merger with bankrupt American Airlines, executives at US Airways believe they have built a carrier to return consistent profits on a stand-alone basis, and remain steadfast in their belief that consolidation in the US airline industry is no longer imperative for the business to generate regular returns, even with fuel prices steadily climbing. After the official close of the US Airways-America West merger in 2005, the new US Airways enjoyed two years of profitability before bleeding more than USD800 million during the fuel price crisis of 2008. The global recession that ensued the following year triggered the worst downturn in the history of the aviation business, forcing US Airways and the industry at large to make structural changes to avoid a total collapse. For US Airways that meant joining the industry in new-found capacity discipline, creating new sources of revenue through ancillary products and an unflinching focus on cost containment and reduction. Specifically US Airways instituted a USD70 million cost cutting scheme and tapped the capital markets for USD1.2 billion in 2008 and an additional USD536 million in 2009 to stay afloat. Roughly USD800 million of that debt


 

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has to be repaid. US Airways president Scott Kirby concludes the “Great Recession” cost the carrier USD1.7 billion in total revenue. While Mr Kirby notes some pundits believed US Airways would be forced into bankruptcy or liquidation, he does acknowledge the carrier had to “borrow a lot and scrimp and scramble to survive”. But US Airways rebounded in 2010, posting a USD447 million profit as the effects of what company management believes are permanent structural changes in the airline business – capacity discipline, strict cost control and an expansion of ancillary revenues -- began to take effect. Profits at US Airways in 2011 plummeted 75% year-over-year to USD111 million. But the airline relishes the results as its fuel expense in 2011 increased USD1.3 billion versus the year prior. The difference between 2008 and 2011, according to Mr Kirby, was in 2011 85% of the USD1.3 billion fuel cost price increase was passed onto the passenger in the form of higher fares. At the same time US Airways and the industry recovered the expense of staggering fuel price increases in 2011, the carrier continued its mission to keep what it deems as a distinct cost advantage relative to its legacy peers. From 2007 to 2011 for a stage-length adjusted for 981 miles, US Airways estimates its cost grew 6.6% compared with an 18% hike at low-cost legend Southwest Airlines. Carrier executives realise US Airways cannot let the cost gap it has with other carriers shrink in light of the airline’s major hubs of Phoenix, Charlotte and Philadelphia producing lower revenues than the hubs of its major network peers. Mr Parker cautions US Airways needs to maintain the cost advantage to avoid the position the “old US Airways” found itself in prior to merging with America West and facing liquidation – no revenue advantage and a cost disadvantage. US Airways estimates its unit costs excluding fuel will increase roughly 1% in 2012 compared with other carriers offering guidance of a 3%-4% increase, says carrier CFO Derek Kerr. The airline’s mainline unit costs excluding fuel and special items for 2011 was USD 8.37 cents, USD 9.39 cents for the combined mainline and US Airways Express operation. Another element contributing to US Airways’ profit rebound is ancillary revenues, whose introduction is a “permanent and systemic change to the industry”, says Mr Kirby. The growth in ancillary revenues, largely stemming from baggage fees, helped US Airways grow its total unit revenues from USD 13.60 cents in 2008 to USD 15.06 cents in 2011. It believes the largest revenue generating potential lies in its “Choice Seats” offering, which allows passengers to select their preferred seating choice for a fee. Revenues from its Choice Seating option, which is allocated to roughly 7%-8% of its seats, should reach roughly USD100 million this year. US Airways is also introducing a preferred access offering through its website in April giving customers the option to pay extra for earlier boarding and expedited security. While US Airways’ merchandising efforts are not as aggressive as some of its legacy peers – Delta Air Lines aims for USD1 billion in merchandising revenue in 2013 – it recorded USD537 million in ancillary revenue during 2011. Mr Kirby believes if US Airways could increase annual revenue from the Choice Seats products to USD300 million to USD400 million per year once the product is available through third-party distributors including traditional and online travel agents. The carrier is working with

 



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global distribution system firm Sabre to offer its pay-for-a-preferable seat product and hopes to have one large online travel agency distributing the product for sale. Currently it is available through the US Airways website, kiosks and phone reservations system. All airlines are facing high levels of uncertainty in their modeling for 2012 due the precipitous rise in oil prices, and US Airways is no different. The carrier has not had any fuel hedging in place since 2008, ultimately determining locking in a set price was cost prohibitive. The strategy helped the carrier achieve record profits in 2010, but fuel costs crimped US Airways’ profits last year. At the moment US Airways is cautiously optimistic about demand patterns despite the run-up in fuel prices. Mr Kirby says both leisure and corporate demand has remained strong. He does acknowledge the carrier saw some weakness in February and the 7% year-over-year rise in unit revenue for the month was below 10% forecast in January. But he says as the carrier goes through March the month looks much like January when US Airways’ unit revenues grew 10% year-overyear. Mr Kirby comments that it is “remarkable to talk about 7% RASM [revenue per available seat mile] as a disappointment”. But Southwest Airlines has already warned of a first quarter loss almost solely driven by higher fuel prices, and has said fare increases seemed to less effective. Mr Kirby admits the year-over-year unit revenue comparisons become tougher going forward after there was essentially a fare hike every week during the first three months of 2011. In the worst case scenario, if fuel continues its rise, US Airways management believes carriers will cut capacity if the higher fuel prices depress demand. They believe the industry has shown it will decrease supply accordingly in the past when oil prices have risen to record levels. As for US Airways going forward, Mr Parker makes no apologies that its goals for 2012 are identical for 2011, and serve as the basis for the carrier’s longterm strategy going forward – reliable operations, maintain its cost advantage, maximise revenue and engage employees. Yet the consolidation pioneer does not rule out US Airways playing a role in future mergers. Mr Parker says it makes sense for the carrier to examine opportunities as they arise, and US Airways continues to investigate a tie-up with American. “I suspect that’s where we’ll be for quite some time as the bankruptcy unfolds,” he says.

V. Conclusion & Recommendation
US Airways, along with US Airways Shuttle and US Airways Express, operates more than 3,000 flights per day and serves more than 200 communities in the U.S., Canada, Mexico, Europe, the Middle East, the Caribbean, Central and South America. The airline employs more than 32,000 aviation professionals worldwide and is a member of the Star Alliance network, which offers its customers more than 21,000 daily flights to 1,290 airports in 189 countries. Together with its US Airways Express partners, the airline serves approximately 80 million passengers each year and operates hubs in Charlotte, N.C., Philadelphia and Phoenix, and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport. US Airways was the only airline included as one of the 50 best companies to work for in the U.S. by LATINA Style magazine’s 50 Report for 2010 and 2011. For six years in a row, the airline also earned a 100 percent rating on the

 



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Human Rights Campaign Corporate Equality index. The Corporate Equality index is a leading indicator of companies’ attitudes and policies toward lesbian, gay, bisexual and transgender employees and customers. US Airways also ranked #1 among its competing hub-and-spoke network carriers for 2010 performance as rated by the Wichita State University/Purdue University Airline Quality Rating (AQR). After our researching about the company profile, our team strong recommended all the customer to fly with US Airways as the best choice of travelling.

 



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