News Article - August 20, 2007

US Air Hopes for Friendlier Philly  
  CHARLOTTE, N.C. -- For US Airways (LCC - Cramer's Take - Stockpickr), the summer of 2007 stands out for a flurry of events that epitomize all that has gone wrong and all that could go right with its long-tortured hub at Philadelphia International Airport. In June, only 60.4% of the airport's departures left on time, the second-worst performance among 32 major airports. Last month, President Scott Kirby decried a plan by the airport to deprive US Airways of international gates so that other carriers could operate domestic flights. Then this month, the carrier had to fire 50 baggage handlers because they falsified overtime records.

   But there are reasons to be hopeful. US Airways filed in July for approval to provide Philadelphia-to-Beijing service, and more recently, Standard & Poor's upgraded its rating on the airport's debt to A-plus, which should allow it to get funding on more favorable terms. Additionally, the Federal Aviation Administration has now published the final version of its study of an airspace redesign project that should reduce delays. Meanwhile, the airport is contemplating building as many as eight new international gates over the next three to five years and is extending one runway. At the same time, the extension of another runway is being considered, as is the construction of a new runway by 2012.

   In the 18th century, when seaports made cities great, Philadelphia was the nation's capital and most populous city. In the 21st century, when airports with global access make cities great, US Airways wants Philadelphia to be one of a handful of locations with nonstop flights to China, India and Tokyo, as well as perhaps two dozen European cities. The current trouble centers on an airport plan to move Delta (DAL - Cramer's Take - Stockpickr) flights to four gates on a concourse where US Airways offers international flights. The move frees up space for Southwest (LUV - Cramer's Take - Stockpickr), which will temporarily lose four gates to a construction project that will eventually provide it with 11 gates.

   The battle for gate space reflects the airport's newfound position as a key point for two financially sound carriers. Five years ago, on Aug. 11, 2002, US Airways filed the first of its two bankruptcies after losing $2.6 billion during the preceding year and a half. Three years ago, Southwest began service to the City of Brotherly Love, and it's now Philadelphia's second-largest airline. "High demand is not a bad problem for an airport to have, but it is a challenge," airport director Charles Isdell said in an interview. "US Airways carries about 60% of our passengers, they bring us international reach, and they employ close to 6,000 people in our community. We're married to US Airways, and we have to make the marriage work. "But we are a public airport," he said. "We have to make sure there is access for other carriers, as well."

   S&P's recent move to upgrade the airport debt to A-plus after 10 years at single-A is a result of improved revenue sources. Southwest's arrival stimulated traffic, a stronger US Airways is committed to its hub, and the airport now includes parking and rental car income in its debt service revenue, said S&P analyst Joseph Pezzimenti. Meanwhile, the FAA's airspace redesign could take effect next year. That would create more pathways in congested New York-area airspace, partially by redirecting some flights over residential areas, and would enhance Philadelphia's priority for airspace allocation.

   "We are at the mercy of New York, [and] we get a reduced arrival and departure rate imposed on us when conditions affect airports up there," he said. "The airspace redesign includes some elements to make that work better for us." US Airways has long felt that Philadelphia officials were slow to respond to its needs, yet eager to respond to others.

   However, some US Airways problems have been of the airline's own making, a result of either limited financial resources or workforce problems. Years of suboptimal baggage-handling culminated in a meltdown over the 2004 Christmas holiday, when thousands of bags weren't turned over to passengers at the end of their flights. Last year, The Philadelphia Inquirer detailed the difficulties, blaming "a demoralized workforce, decrepit and scarce equipment, and revolving-door management."

   Since a 2005 merger with America West, US Airways has had more money to spend on hiring workers, upgrading facilities and adding flights. "Short-term we have issues, [but] we think there's a lot of opportunity in Philadelphia to grow," said US Airways Senior Vice President Andrew Nocella, in an interview. "We want to achieve a lot more than what you see today."

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