America West Airlines has again illustrated the cost of fast growth. While other US airlines enjoyed an average increase of 22 per cent in third quarter net profits, the Phoenix-based carrier returned a $53 million operating loss at the same time as it happens to be the only US carrier in the middle of double-digit growth.
Unlike the helter-skelter expansion of its pre-bankruptcy days, the airline is now growing to a plan, which is mostly designed to expand its Phoenix hub. But some recent problems suggest failures in that planning process.
On the income side, William Franke, president and CEO, concedes senior management made some 'untimely revenue decisions.' America West overestimated its ability to attract business travellers. 'A big part of their problem was poor yield management. They blocked off too many seats for higher fare passengers and the traffic didn't materialise,' says Raymond Neidl, analyst at Furman Selz.
Business travellers have also been scared off by the carrier's poor on-time record, which also stems from management oversight. A year ago America West closed its Phoenix hangar and outsourced all heavy maintenance to Tramco, a unit of B F Goodrich. 'We didn't handle that as well as we should,' concedes the carrier. The result: Tramco failed to meet the airline's maintenance schedule. 'That caused us operational problems because we had airplanes coming back late,' says America West. As a result, America West turned to United Airlines to handle the overload and is now asking other third parties to help tide it over until 'Tramco can get their schedule back on track.'
America West may well have selected Tramco for its prices, which are the lowest rates of any US maintenance base. 'They're probably even lower than Haeco in Hong Kong,' notes one source.
The problems with its outsourced maintenance drew the attention of the Federal Aviation Administration, which concluded that the airline needed to boost its maintenance oversight. Ron Aranimi, former manager of Continental's maintenance base, has since been appointed senior vice president for maintenance, and is also hiring more technical support. The carrier sacked its 500 machinists in December last year in preparation for the outsourcing of its maintenance and was dubbed 'Air Scrooge.'
Meanwhile, Franke remains bullish, predicting a better fourth quarter profit than last year. His airline's poor third quarter was aggravated by a one-off $65 million charge, partly due to cancelling an order for 24 A320s. America West has since reordered the same jets, but with more options to cancel individual aircraft, add A319s or A321s, and obtain better financing. Franke does not expect the airline's problems to slow it down. 'We expect to continue our double-digit growth.'
David Knibb
Source: Airline Business
