What US Airways Plans for 2012

CHARLOTTE, N.C. ( TheStreet) -- Ancient airline history once made US Airways ( LCC) a major player in New York as it served destinations where air service was pioneered by predecessors Empire Airlinesand Mohawk Airlines.

But today's airline industry, with its emaciated profit margins, allows the carrier little room for sentimentality beyond the airplanes it has painted in the colors of four predecessors and the memorabilia in the lobby of its Tempe, Ariz., headquarters. So the biggest piece of US Airways' action plan for 2012, assuming the Justice Department does not move in opposition, is to further reduce its historic position at New York's LaGuardia Airport.

That reduction is part of a slot trade with Delta ( DAL), which will make Delta bigger at LaGuardia and US Airways bigger at Washington's Reagan National Airport. National, too, has long been important to US Airways. Predecessor Allegheny Airlines once had its headquarters in a National hangar. The CEO of US Air once overlooked National's runways from the window of his Crystal City office.

Looking ahead, at National US Airways "will have 42 more daily departures, which will enable us to broaden our network by serving cities we don't currently serve from DCA and to be more attractive to our customer base at DCA," said Michael Britman, managing director of strategic planning, in an interview.

The second most visible 2012 improvement will be completion of an effort to modernize the fleet that serves the Phoenix hub and is flown by pilots from the former America West. US Airways serves 80 markets from Phoenix, using about 110 Airbus jets as well as nine Boeing 757s, which fly to Hawaii. This month, US Airways, the world's largest Airbus operator, removed its last aging Boeing 737 from the Phoenix fleet. Over the next three years, it will retire all of its 737-300s and 400s from its eastern operations as well.

In Charlotte and Philadelphia, the two largest hubs, operations will generally be stable in 2012.

"Our major transformation began in 2006 when we started to focus on four cities" including the three hubs and National, Britman said. In 2006, 83% of US Airways capacity touched the four cities; now the number is 99%. Similar strategies are being pursued throughout the airline industry: American parent AMR ( AMR), for instance, said that 99% of its capacity now touches its five "cornerstone" cities.

The slot trade with Delta will enhance US Airways' bottom line by $75 million, mainly by enabling it "to get out of unprofitable flying in LaGuardia and put it into a place where we have strategic advantage," CEO Doug Parker said on the company's October earnings call. The carrier is "just getting out of some really bad stuff that we have going on at LaGuardia right now."

In a practice left over from days when slots at LaGuardia were extremely valuable and were provided to airlines under a "use it or lose it" mandate by federal regulators, US Airways Express carriers use the slots to fly small planes to small New York cities such as Albany, Ithaca, Rochester and Syracuse, as well as Harrisburg, Pa., and Louisville, Ky. But low-fare competition has been growing for years, even before the arrival of JetBlue ( JBLU) at Kennedy International Airport in 2000. US Airways LaGuardia traffic shrank 34% to 4.3 million in 2010 from 6.6 million in 2006.

"As competition increased, the value of slots diminished," said Kevin Healy a former executive at Piedmont, US Airways and AirTran, who now works for consulting firm Campbell-Hill Aviation Group. "That certainly has happened in New York -- it will be interesting to see if it also happens at National." The Transportation Department required Delta to divest some National slots to low-cost carriers in a slot auction.

"US Airways was in a bad position in New York, not quite big enough to be an effective competitor," Healy said. "But they have always been one of the largest at National, which has been a profit center." He said the auction provides "a unique opportunity for (newer) carriers to acquire, at either airport, the ability to get to critical mass for something approaching a competitive level of service, at least in one or two markets." Healy said AirTran started with 1.5 slots at National and gradually built to 18, enabling service to Atlanta; Fort Myers, Fla.; Milwaukee and Orlando.

Away from National, US Airways plans only a handful of new routes in 2012. One is a Saturday-only flight between LaGuardia and Phoenix. A LaGuardia perimeter rule, which prohibits most flights beyond 1,500 miles, does not apply on Saturdays. Phoenix service begins March 4, 2012 which, for airline geeks only, is the 23rd anniversary of the start of the Eastern Airlines strike.

US Airways also plans a Charlotte-Salt Lake City flight. It seems like a stretch to offer a daily flight on a 150-seat aircraft, on a thinly traveled route to the hub of another airline (Delta), but Britman contends it will work. He said that each day 80 passengers fly each way between the two cities, and the number will increase once US Airways begins to offer connections through Charlotte. "We expect the market to be stimulated with non-stop service, since we will connect over Charlotte to 90 destinations," he said.

-- Written by Ted Reed in Charlotte, N.C.

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