Yesterday was what is likely to be the last US Airways media day. Next year, the merger with American will be done, and we’ll all be heading to Dallas/Ft Worth for the first American media day. Since the merger has yet to close, there wasn’t a ton of news to break today, but I did have the chance to sit down and have some really good conversations.
Next week, I’ll have an Across the Aisle interview with US Airways Chairman and CEO Doug Parker. But today, I’m posting my interview with Andrew Nocella, Sr Vice President of Marketing and Planning.
While Andrew doesn’t even know if he’ll have a role in the new combined airline yet, in our talk, we discussed everything from what the new American might look like in LA and New York to what US Airways is going to do about those turboprops that are reaching the end of their useful lives.
Cranky: I’m curious about your views strategically on LA and New York in particular.
Andrew: Our strategy as US Airways is going to be different than our strategy as American Airlines; it has to be. We’re going to be changing in a lot of ways, as has Delta/Northwest and United/Continental, in my opinion. When you look at the business centers that LA and NY are, they’re economic engines for the country and for the airlines that fly there.
For US Airways, we had, I don’t want to say a boutique or niche approach, but I don’t know what the right word would be. We recognize where our strengths were, where we could deliver a great product at an efficient cost and make money and that wasn’t going to be in New York or LA as a US Airways standalone. But as the new American, we think it’s going to have a major presence in New York and LA. It needs to. And that’s where the corporate business is.
The corporate business in New York and LA will determine if we get the corporate accounts in Indianapolis and Chicago and Orlando and all those other cities. So we’re going from US Airways and now we’re gonna be one of four big airlines in the country. And at LAX, all four have a material presence. And in New York, three and JetBlue have a material presence. The dynamics of operating in an environment with that many airlines is different than we’re used to, but American is used to it.
Cranky: So it’s the corporate accounts that are going to drive this. It’s not, “we’re going to fly to Orlando because a lot of people want to go to Orlando from New York.” It’s, “well, we’ve got corporates, and they’re going to pay enough to make the flight work.”
Andrew: Yeah, I mean we’re going out there to compete hard against the new United and new Delta. We’re going to have to offer a product range in term of flight services and scope that allow us to do that and that means having a big presence in New York and LA. I’m so glad we still have the Shuttle and it’s going to mesh very well with American’s long haul opportunity in New York.
Cranky: Do you wish you hadn’t done the slot swap with Delta?
Andrew: I was afraid you were going to ask that question.
Cranky: How do you see JetBlue fitting into that in New York and Alaska in LA?
Andrew: In the case of Alaska, it’s a really great relationship and American has recently expanded it. We don’t know a lot of the details in terms of the economics but I’m very bullish with what it brings to American. In the case of JetBlue, we haven’t looked at any details to be honest. That’s something we just haven’t gotten to at this point.
Cranky: They seem pretty interested in continuing the relationship.
Andrew: I’ve definitely seen some quotes here and there.
Cranky: In a place like Phoenix, I see it certainly having a place in the airline. It’s the west hub, it’s the option you have. But how do you see it evolving because your costs are higher as American?
Andrew: I think Phoenix, and across the whole airline, we have some cost synergies and some cost dis-synergies and a lot of revenue synergies. As we spread this across the network, we see a positive P&L hit. We think that’s true of Phoenix too. We’re going to use these cost efficiencies and revenue efficiencies to make what we have better. All that being said, Phoenix’s performance has been outstanding over the last 12 months. Highest improving margin hub recently. I think we’ve made a lot of changes and the competitive environment in Phoenix is in a way that the hub is profitable.
Cranky: How do you view the regional market right now? You’re inheriting a lot of 50 seaters. Delta and United have walked away. Is there an opportunity?
Andrew: As an industry and as an airline we’re moving away from them. We just did a deal with Mesa where we took out 9 Chautauqua ERJs and replaced them with CRJ-900s. We’re working on another 4 for 4 swap this summer. My macro view is that the larger the supply of 50-seaters becomes, the lower the pricepoint. So things over time come to an equilibrium because the aircraft are not just going to the desert to sit. That being said, they’ll never be the same numbers as before. And I do think the one complication with my theory is the engine costs. Overhauling the engines is a very expensive situation. Unless we can find a way to do that, those aircraft are in danger of never flying again.
Cranky: How are you going to replace your props?
Andrew: That we don’t know.
Cranky: They’re old.
Andrew: They are old.
Cranky: And there’s nothing there.
Andrew: Every time a manufacturer comes to visit us, I ask for a small and slow prop. I don’t need a large and fast prop because that’s just like a regional jet with props. Nobody seems to want to produce it for a lot of different reasons. So there is no effective replacement at this point.
Cranky: How long can they keep going?
Andrew: I think you’ll see Dash-8s in our fleet through 2017/18/19/20.
Cranky: And you don’t know what’s going to replace them.
Andrew: No. It’s a dilemma for the small communities that we serve.
Cranky: I look at Chicago and I see a lot of nearby cities that American serves that United doesn’t and that seems perfect for a prop.
Andrew: Yeah, even from Miami to the nearby islands which used to be ATRs. They’re now on regional jets. The system is being subopimtized because there isn’t a viable 40 to 50 seat low cost slow turboprop available in the markepltace. It’s a frustration. We’d like to find a solution and we’d like to find a solution for our employees at Piedmont too.
Come back next week when I’ll post my talk with Doug Parker about how he spends his time these days.