US Airways Group, Inc. (LCC): This May Be the Worst Company… Ever!

Page 1 of 2

I’ve seen some pretty bad companies come and go over the years. The dot-com era brought to light some extremely horrible ad-based business models – eToys, Webvan, DrKoop.com, to name a few – and even previously well-to-do names like Eastman Kodak have discovered that if you don’t innovate, your business dies!

But, there’s one combination that’s threatening to put them all to shame as possibly the worst company of all time. In April of last year I suggested that the combination of American Airlines parent AMR, and US Airways Group, Inc. (NYSE:LCC) would create the worst airline in history. Well, I’m ready to retract that statement and enhance it by proclaiming a prospective merger between these two would create the worst company, ever! Logistically, financially, and based on history, this may wind up going down as one of the worst mergers in history – if it goes through, of course.

US Airways Group Inc (NYSE:LCC)

From a logistics perspective, I’ve been quite clear about my stance that national airlines are doomed to lose share to more nimble regional airlines. Regionals are more easily able to reduce or stop unprofitable routes and can afford to undercut national carriers on price since they rely on large ancillary fees like baggage and, in some cases, carry-on baggage fees, to drive up their margins.

Two such companies are Allegiant Travel Company (NASDAQ:ALGT) and Spirit Airlines Incorporated (NASDAQ:SAVE) which both sport net cash positions (a rarity among airline companies) and charge exorbitant “optional fees” to drive profits. Allegiant purchases older planes in order to keep its costs lower than its peers while Spirit focuses on keeping its routes elastic in order to maximize passenger headcount. An AMR-US Airways merger would boast hubs in seven of nine major cities but make it nearly impossible for the company to reduce or change a route if headcount or fuel costs make a destination unprofitable.

From a financial perspective, the combined entity will be a ticking time bomb. Although AMR has maintained its $4.7 billion in cash through its ongoing bankruptcy proceedings, and US Airways boasts $2.4 billion in cash, I’d project the combined debt between the two still would likely outweigh the available cash. Also, as my Foolish colleague Adam Levine-Weingberg pointed out yesterday, even a 17% reduction in labor costs savings achieved on AMR’s end won’t help because US Airways’ employees are due for a sizable pay hike soon, pitting the two sides at a potential standstill. Based on operations, between 2002 and 2011, the two companies have combined for a staggeringly bad free cash outflow of $12.8 billion.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!