US Airways has seen many recurrences of its planes not being used to their fullest capacity. For example, US Airways has Boeing 767-200ERs that hold, on average, 203 passengers and it also has Boeing 737-300s that hold an average of 126 passengers (16). If US Airways is planning on sending out a 767 to take 100 passengers to a destination, it should reconsider its choice of plane to use. In this instance, a 737 should be used because it will be more fuel-efficient and will get the load factor to the breakeven point or over the breakeven point than if it was to use the 767 aircraft.
US Airways needs to implement a strategy to figure out which planes are needed at what times. The text states that “…strategy implementation is managing forces during the action” (D 236). If the strategy of switching planes, in order to help create growth and reduce fuel and maintenance costs, is implemented and continually followed through, the company will help to raise the load factor and decrease costs. The result of raising the load factor and decreasing costs will lead to long run growth and freeing up of cash.
There are two options that US Airways can choose from when deciding which plane should be used on which fight. It can put a cap on the flights or make a last minute decision about which plane would be flying for each flight. If US Airways puts a cap on each flight, it will know exactly how many people can be transported from one destination to another; therefore, the company will know which plane will be used for each flight. If US Airways waits until the last minute before the flight is due to take off, the company will have to have different planes available to be used, such as having both a 737 and 767.
Pros – If US Airways used this course of action; the company would be more efficient in the use of its planes and its money.
Cons – Ticket sales have decreased for US Airways; therefore, the bigger planes may not be needed and may be sitting, waiting to be used. This result will end with the company paying unneeded hanger, maintenance, and depreciation costs.
Build More Hubs and Expand Westward
There are many hubs in the eastern region. The major eastern cities that US Airways hubs are located in are Boston, New York-La Guardia, Pittsburgh, Philadelphia, Baltimore, Washington, D.C., and Charlotte (21). US Airways should try to build more hubs westward to expand its business to travelers in other parts of the country.
US Airways could conduct a feasibility study, which is a test to see if a company will have success at a new property and its main concentration is on location, guest demographics, the competition and financial analysis. If the study proves that US Airways will be profitable, it should open hubs in the West (Feasibility Studies, HTM 111). US Airways should also conduct a customer analysis, as well. Customer analysis is “…the examination and evaluation of customer needs, desires, and wants…” (D 133). The customer analysis “…involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmentation strategies” (D 133). If the company concludes that customers will use its services, it should proceed with opening the new hubs in the West.
US Airways can get new routes and hubs in the West. For example, US Airways could buyout smaller airlines that are dominant in the West in order to expand and gain more business in the West. US Airways will have to spend money in order to acquire the new hubs and flights, but if the feasibility study and customer analysis were completed accurately, the company should be able to get on its feet quickly.
Pros – Because US Airways has so many hubs on the East Coast, it may be able to dominate it and move westward to make the company stronger and grow faster.
Cons – Adding more hubs will cost money; US Airways will have to struggle with its finances, but to make money the company will have to spend money. The money that will be spent will be the cost of opening and operating new hubs in new areas of the country.
US Airways is not doing well by itself; therefore, a possible merger and cooperative arrangements with a financially secure company, such as Southwest or Delta, may be an option that the company can explore before taking on additional debt and possibly losing the company. “A merger occurs when two organizations of about equal size unite to form one enterprise” (D 180). After the merger occurs, the two companies that have now become one should take part in cooperative agreements, which are “…research and development partnerships, cross-distribution agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia” (D 177).
If these two companies can come to an agreement on all the important business decisions, they will be on a good starting ground for the newly merged company to begin. The two companies will have to agree on financial decisions, flight patterns, and employee retention and termination. When the two companies are on disagreeing terms about those decisions, problems can occur.
Pros – There are many reasons that companies merge, mainly to create advantages for both sides. The main reason that US Airways should merge with another company would be to improve capacity utilization (D 181). This way the right plane is used at the right time in order to conserve cash and gain profit. Other reasons that companies merge are “…to make better use of the existing sales force, to reduce the managerial staff, to gain economies of scale, to smooth out seasonal trends in sales…”(D 181). US Airways can also take advantage of those benefits of the merger.
Cons – The companies may not agree on terms, which may cause some problems. The two companies may not be able to help each other in ways that they thought they could.
Eliminating the Hub System
Southwest has a system of transportation that does not include hubs and they are very profitable. If US Airways partakes in benchmarking Southwest and how it maintains a profitable business without hubs, then perhaps US Airways could also try to work without a hub system. “Benchmarking simply involves comparing a firm against the best firms in the industry on a wide variety of performance-related criteria” (D 250). US Airways could compare how Southwest does without the hub systems and how other companies do with the hub systems. Although markets are different, in various parts of the country, US Airways can make decisions on whether it should do business in those parts of the country. If US Airways follows the way that Southwest runs its hub-free systems in various parts of the country, US Airways can adjust to the different markets depending on where in the country it is providing its services.
If US Airways discovers that Southwest’s system works the best, US Airways could eliminate the hub system and initiate point-to-point travel. If the point-to-point system will not be in the best interest for US Airways, it should create ways to improve its hub systems and flight patterns to possibly increase profitability.
Pros – If US Airways decides to take the point-to-point option, profitability can possibly occur. Also, US Airways will have to sell its hub locations; therefore, it will receive money, which will help to relieve some debt and free up cash.
Cons – The loss of the hubs, if the point-to-point system does not work, will destroy the company. The company will be without a hub system and flights that travel point-to-point; therefore, the company will not have many options in running its business without one of those two ways of providing customers with its business and service.
The Sale of Bonds
Because the stock share value decreased so much for US Airways, a possible solution for them would be to offer bonds from its company. The economy is in a lull right now; therefore, it would be a good option for the company to bring more cash flow into to the company (Bonds and Interest Rates, ECN 101). The bonds at this time in our economy would have an increased bond rate because of higher levels of risk. Although US Airways’ credit would likely be junk status, investors seeking large returns maybe interested in bonds because investors would be making more money. The result is that it would provide some cash for US Airways.
Pros – US Airways could have more cash on hand to relieve itself from debt, and buyers of the bonds would be gaining higher interest off the bonds because the interest rates, presently, are higher for bonds than they were in the past.
Cons – US Airways will have to pay back the buyers of the bonds eventually.
Partnerships with a Freight Company
US Airways could work in partnership with a company such as UPS or FedEx. US Airways could sell its planes to one of those companies so that they can use them for cargo and freight flights. If US Airways can create a deal with a freight company to sell the planes that are not used often enough to make a profit or not being used at all, then the company will decrease some of its major assets but gain more cash, which in turn can help to decrease the amount of debt that has been incurred (Assets and Cash On Hand, ACT 161).
Pros – US Airways will decrease the size of its fleet and get rid of the planes that are not contributing to making profits by selling them to a freight company. The company will free up cash from the sales of the planes, which can be used to pay off its existing debt.
Cons – US Airways will decrease in size.
Recruit Top Management from Another Company
US Airways could recruit top management from another airline company. If US Airways was able to recruit someone from another company that has good deal making and business skills, that individual could help US Airways recover from its financial problems. If US Airways recruits a top management person from the industry, the person may know information that US Airways does not about the industry and that information could contribute to US Airways becoming profitable (Recruiting, BUS 420). US Airways could hire a top management person from a financially successful company in the industry, such as Southwest. Their knowledge from previous experience in the industry can positively impact US Airways.
Pros – If US Airways has a top management person helping to fix its big financial problem, he or she can try to turn the company around and help it become profitable.
Cons – The person US Airways chooses may not be the best person for the job. The manager may try to sabotage US Airways in some way to help the other companies gain more business and profits.
With as much debt as US Airways has, it is hard to make one recommendation to solve its problems. The first thing that needs to be done is to raise capital. The fastest and easiest way to do this is to sell planes that are leased. US Airways leases 193 planes total. US Airways only owns 149 planes (16). Since express flying is efficient and profitable to US Airways, they should consider selling some of the larger and more costly planes. This will give US Airways more money to reinvest or pay back some debt.
If US Airways sells some of its leased planes, it will also be cutting its expenses. The downside to this, however, is the fact that some flights will need to be cut. With enough planning, US Airways can cut the least profitable flights and sell the planes that are used to make those flights. There is insufficient information available to say what exact flights should be cut. However, top management of US Airways should have this information at its fingertips. From the financial information presented to us, we strongly recommend cutting some of the unprofitable international flights. With employees, US Airways can ask them to relocate and keep them on the staff or make layoffs.
Since US Airways is dominant on the East Coast (due to the number of hubs), it should use this to its advantage. US Airways should have cut throat advertising starting in the East. Once it regains dominance in the eastern region, it can start to re-grow westward, at a rate that is controllable and not as costly. The number one recommendation that US Airways needs to follow, if it wants to survive, is the dismantling of their hub-and-spoke system. This system is outdated and proves too costly for longer flights. This system is no longer working because it is inefficient. With a point-to-point system, only one plane would be used for the trip. Fuel would also be saved with the point-to-point system. Along with fuel and the number of planes used, the number of employees needed would also be cut down. Customers would also welcome this new system because of convenience. Without a layover, consumers will experience quicker flights, less loss of luggage, and cheaper tickets. The hub system is sufficient for the shorter express flights, but for the longer flights, it is proving too costly. Delta just added a division, called Song, which uses the point-to-point flying. Their reason for doing this was to lower costs by relying more on their planes (See Appendix G, p.54).
One negative outcome of changing the system is time and money. It will cost money to move to the point-to-point system, but in the near future the profits would outweigh the costs. Even though US Airways would save money with the point-to-point system, it should switch over just to stay competitive. With other airlines (Southwestern and Delta) flying point-to-point, US Airways needs to keep competitive. As a consumer, I would fly with the company that flew me straight to my destination without layovers. Time is a problem because it is difficult to convert every hub, plane, and flight pattern into the point-to-point system overnight. The conversion needs to be done slowly and strategically to be most efficient and effective.