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- Aug 20, 2002
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Posted on Sun, Mar. 09, 2003
On course, on schedule to end of bankruptcy
Industry watchers say US Airways has methodically reduced its costs and debt since it entered Chapter 11 in August.
By Tom Belden
Inquirer Staff Writer
GERALD S. WILLIAMS / Inquirer
US Airways ticketing at the Terminals B-C complex at Philadelphia International Airport. To emerge from bankruptcy, the carrier needs to find the right mix of business and leisure fares to attract customers.
US Airways is flying smoothly at the moment, poised to emerge from bankruptcy by March 31, on schedule and with its best chance in years to make money again.
While US Airways'' much larger marketing partner, United Airlines, is struggling with its own bankruptcy reorganization, industry watchers say the smaller carrier has methodically reduced its costs and debt since it entered Chapter 11 in August. Much of the success, the experts say, is a result of moves made by David N. Siegel, who''s been president and chief executive officer for only a year.
From the beginning, the way US Airways has done it was the right way to do it, said analyst Ray Neidl of Blaylock & Partners in New York. The charm of the CEO, Neidl said, persuaded US Airways employees, creditors and aircraft suppliers to get in line and all pull on the rope in the same direction.
But major obstacles - starting with a looming war with Iraq - remain for US Airways to be profitable again. And that makes the outcome of its trip through Bankruptcy Court of keen interest to Philadelphia-area business and leisure travelers.
Last year, the airline carried two-thirds of the 25 million passengers who flew out of Philadelphia International Airport. It employs 5,600 people in the region and has made more than $1 billion in capital improvements at the airport during the last decade. Were US Airways to go out of business, service to dozens of cities would probably be lost, at least for a few years.
It''s our link to the world, said Mark Schweiker, the former Pennsylvania governor who last month became president of the Greater Philadelphia Chamber of Commerce. We can''t do business without them. We need access to the global market, and US Airways is a lifeline.
The hurdles US Airways still has to clear are significant. Among them:
A war with Iraq that lasts more than a few weeks, and keeps oil prices high even longer, could doom the recovery of the whole airline industry, which lost $17 billion over the last two years. Because war would scare off travelers and affect airline fuel costs, it''s the wild card in everything airline-related this year, said consultant George Hamlin, senior vice president of Global Aviation Associates in Washington.
US Airways has to complete negotiations with its pilots'' unions over plans to drastically reduce and restructure the pilots'' pensions. The airline''s employees have paid a heavy price already, with the workforce cut by a third, to 33,000, since Sept. 11, 2001. The company''s labor costs have been reduced almost a third, by $1.1 billion a year, with most of it coming from workers'' paychecks. About 1,200 of the jobs lost were in the Philadelphia area.
Despite cost cuts, the Arlington, Va., airline still lost almost $99 million in January. Final figures are not available for the weather-battered month of February yet, but the airline''s revenue per passenger mile for the month, a key measure of financial health, declined from the year before. The airline''s post-bankruptcy recovery plan anticipates that its lower cost structure will enable it to start making money in 2004, for the first time since 1999.
US Airways has to find the right mix of business and leisure fares to attract customers. That is especially important in a hub such as Philadelphia, where US Airways'' dominance lets it charge higher-than-average fares on routes where it faces little or no competition. All the major airlines'' huge losses the last two years are due as much to a backlash by business travelers to high fares as they are to a weak economy and airport security hassles, say many in the travel business.
The part of US Airways'' journey that industry experts say has worked best is the way Siegel developed a strategic plan last spring, assembled a team of senior managers with experience at other airlines to help implement it, and convinced employees and creditors that they had to make sacrifices to save the company.
I think, unlike United, [US Airways] has managed to get through the Chapter 11 process extraordinarily well because of a better-focused management team, said Mo Garfinkel, president of GCW Consulting in Arlington, Va. Unlike United, they had a clear game plan and implemented the plan. I think, in the process, they earned the respect of the employees.
Terry Trippler, who runs the travel Web site CheapSeats.com, praised US Airways for being forthcoming about how dire its situation was.
They laid all their dirty laundry out in the beginning, Trippler said. US Airways gets straight A''s in public relations. From the moment they filed [for Chapter 11], it''s been nothing but professional.
In fairness to United''s management, restructuring US Airways was probably not as big a challenge, because US Airways is smaller and less complex, Neidl added. United is much larger and more unwieldy.
US Airways'' union leaders are not feeling as charitable toward Siegel and other managers as the analysts are. Pilots are especially upset that they made concessions to the company worth more than $600 million last year, only to be told in January that the airline would seek to replace their pension plan with a sharply reduced one.
Our membership is outraged at the situation, said Roy Freundlich, spokesman for the Air Line Pilots Association.
With a failure of US Airways becoming less likely, Philadelphia officials are breathing much easier. If the airline did go under, the economic fallout for the airport, the city and the region would be deep and long-lasting.
US Airways is called Philadelphia''s dominant airline for good reason. As of Jan. 1, it served 100 of the 103 nonstop airline routes from the airport. On 52 of the airport''s domestic routes and 19 international routes, US Airways or a US Airways Express commuter carrier had the only service. Sixteen U.S. and seven foreign cities had competing service by major airlines. Only six cities had service by two low-fare airlines: American Trans Air (ATA) serving Chicago and AirTran to Atlanta and five Florida cities.
Without US Airways'' using Philadelphia as a hub, other U.S. carriers might offer nonstop service to the biggest cities in Europe, including London and Paris, but not to, say, Amsterdam or Munich, Germany, as does US Airways.
Major U.S. cities would be served as they already are by other big airlines, but there would be little or no nonstop service to such cities as Altoona, Pa.; Charleston, W.Va.; Richmond, Va.; or Rochester, N.Y.
The $1 billion-plus that US Airways has spent at Philadelphia International since the early 1990s has given the airport a heart - the renovated and expanded Terminals B-C complex - and the new Terminal F, city officials said. The airline will be the main tenant in Terminal One, the new international concourse that is expected to open - almost a year behind schedule - this month.
We remain confident they will emerge from bankruptcy, said city Commerce Director James J. Cuorato. They intend to make Philadelphia a growth city in their future.
Philadelphia airport officials say that, were US Airways to disappear, the large population served by the airport means other airlines would start additional service.
But the other major carriers are in such financial distress themselves that it is anyone''s guess how long it would take for the others to expand. The analysts believe it could be years before Philadelphia would have nonstop flights again to cities that are not other airlines'' hubs, such as Seattle and San Diego, much less start commuter flights to places in the region such as Harrisburg or Salisbury, Md.
If US Airways did leave Philadelphia and no other airline moved quickly to take over gates and other airport facilities, the leading low-fare carrier, Southwest Airlines, could decide to start service here. But Southwest traditionally avoids congested airports such as Philadelphia, especially if they are hubs for other airlines.
Cuorato said that it would be good for Philadelphia travelers to have more low-fare airlines here, but added that having both low-cost carriers and a hub are not mutually exclusive.
I happen to think the strengths a hub brings to a city outweigh any negative impact, he said. And I still believe we can bring in low-cost carriers to fill certain niches.
--------------------------------------------------------------------------------
Contact staff writer Tom Belden at 215-854-2454 or [email protected].
On course, on schedule to end of bankruptcy
Industry watchers say US Airways has methodically reduced its costs and debt since it entered Chapter 11 in August.
By Tom Belden
Inquirer Staff Writer
GERALD S. WILLIAMS / Inquirer
US Airways ticketing at the Terminals B-C complex at Philadelphia International Airport. To emerge from bankruptcy, the carrier needs to find the right mix of business and leisure fares to attract customers.
US Airways is flying smoothly at the moment, poised to emerge from bankruptcy by March 31, on schedule and with its best chance in years to make money again.
While US Airways'' much larger marketing partner, United Airlines, is struggling with its own bankruptcy reorganization, industry watchers say the smaller carrier has methodically reduced its costs and debt since it entered Chapter 11 in August. Much of the success, the experts say, is a result of moves made by David N. Siegel, who''s been president and chief executive officer for only a year.
From the beginning, the way US Airways has done it was the right way to do it, said analyst Ray Neidl of Blaylock & Partners in New York. The charm of the CEO, Neidl said, persuaded US Airways employees, creditors and aircraft suppliers to get in line and all pull on the rope in the same direction.
But major obstacles - starting with a looming war with Iraq - remain for US Airways to be profitable again. And that makes the outcome of its trip through Bankruptcy Court of keen interest to Philadelphia-area business and leisure travelers.
Last year, the airline carried two-thirds of the 25 million passengers who flew out of Philadelphia International Airport. It employs 5,600 people in the region and has made more than $1 billion in capital improvements at the airport during the last decade. Were US Airways to go out of business, service to dozens of cities would probably be lost, at least for a few years.
It''s our link to the world, said Mark Schweiker, the former Pennsylvania governor who last month became president of the Greater Philadelphia Chamber of Commerce. We can''t do business without them. We need access to the global market, and US Airways is a lifeline.
The hurdles US Airways still has to clear are significant. Among them:
A war with Iraq that lasts more than a few weeks, and keeps oil prices high even longer, could doom the recovery of the whole airline industry, which lost $17 billion over the last two years. Because war would scare off travelers and affect airline fuel costs, it''s the wild card in everything airline-related this year, said consultant George Hamlin, senior vice president of Global Aviation Associates in Washington.
US Airways has to complete negotiations with its pilots'' unions over plans to drastically reduce and restructure the pilots'' pensions. The airline''s employees have paid a heavy price already, with the workforce cut by a third, to 33,000, since Sept. 11, 2001. The company''s labor costs have been reduced almost a third, by $1.1 billion a year, with most of it coming from workers'' paychecks. About 1,200 of the jobs lost were in the Philadelphia area.
Despite cost cuts, the Arlington, Va., airline still lost almost $99 million in January. Final figures are not available for the weather-battered month of February yet, but the airline''s revenue per passenger mile for the month, a key measure of financial health, declined from the year before. The airline''s post-bankruptcy recovery plan anticipates that its lower cost structure will enable it to start making money in 2004, for the first time since 1999.
US Airways has to find the right mix of business and leisure fares to attract customers. That is especially important in a hub such as Philadelphia, where US Airways'' dominance lets it charge higher-than-average fares on routes where it faces little or no competition. All the major airlines'' huge losses the last two years are due as much to a backlash by business travelers to high fares as they are to a weak economy and airport security hassles, say many in the travel business.
The part of US Airways'' journey that industry experts say has worked best is the way Siegel developed a strategic plan last spring, assembled a team of senior managers with experience at other airlines to help implement it, and convinced employees and creditors that they had to make sacrifices to save the company.
I think, unlike United, [US Airways] has managed to get through the Chapter 11 process extraordinarily well because of a better-focused management team, said Mo Garfinkel, president of GCW Consulting in Arlington, Va. Unlike United, they had a clear game plan and implemented the plan. I think, in the process, they earned the respect of the employees.
Terry Trippler, who runs the travel Web site CheapSeats.com, praised US Airways for being forthcoming about how dire its situation was.
They laid all their dirty laundry out in the beginning, Trippler said. US Airways gets straight A''s in public relations. From the moment they filed [for Chapter 11], it''s been nothing but professional.
In fairness to United''s management, restructuring US Airways was probably not as big a challenge, because US Airways is smaller and less complex, Neidl added. United is much larger and more unwieldy.
US Airways'' union leaders are not feeling as charitable toward Siegel and other managers as the analysts are. Pilots are especially upset that they made concessions to the company worth more than $600 million last year, only to be told in January that the airline would seek to replace their pension plan with a sharply reduced one.
Our membership is outraged at the situation, said Roy Freundlich, spokesman for the Air Line Pilots Association.
With a failure of US Airways becoming less likely, Philadelphia officials are breathing much easier. If the airline did go under, the economic fallout for the airport, the city and the region would be deep and long-lasting.
US Airways is called Philadelphia''s dominant airline for good reason. As of Jan. 1, it served 100 of the 103 nonstop airline routes from the airport. On 52 of the airport''s domestic routes and 19 international routes, US Airways or a US Airways Express commuter carrier had the only service. Sixteen U.S. and seven foreign cities had competing service by major airlines. Only six cities had service by two low-fare airlines: American Trans Air (ATA) serving Chicago and AirTran to Atlanta and five Florida cities.
Without US Airways'' using Philadelphia as a hub, other U.S. carriers might offer nonstop service to the biggest cities in Europe, including London and Paris, but not to, say, Amsterdam or Munich, Germany, as does US Airways.
Major U.S. cities would be served as they already are by other big airlines, but there would be little or no nonstop service to such cities as Altoona, Pa.; Charleston, W.Va.; Richmond, Va.; or Rochester, N.Y.
The $1 billion-plus that US Airways has spent at Philadelphia International since the early 1990s has given the airport a heart - the renovated and expanded Terminals B-C complex - and the new Terminal F, city officials said. The airline will be the main tenant in Terminal One, the new international concourse that is expected to open - almost a year behind schedule - this month.
We remain confident they will emerge from bankruptcy, said city Commerce Director James J. Cuorato. They intend to make Philadelphia a growth city in their future.
Philadelphia airport officials say that, were US Airways to disappear, the large population served by the airport means other airlines would start additional service.
But the other major carriers are in such financial distress themselves that it is anyone''s guess how long it would take for the others to expand. The analysts believe it could be years before Philadelphia would have nonstop flights again to cities that are not other airlines'' hubs, such as Seattle and San Diego, much less start commuter flights to places in the region such as Harrisburg or Salisbury, Md.
If US Airways did leave Philadelphia and no other airline moved quickly to take over gates and other airport facilities, the leading low-fare carrier, Southwest Airlines, could decide to start service here. But Southwest traditionally avoids congested airports such as Philadelphia, especially if they are hubs for other airlines.
Cuorato said that it would be good for Philadelphia travelers to have more low-fare airlines here, but added that having both low-cost carriers and a hub are not mutually exclusive.
I happen to think the strengths a hub brings to a city outweigh any negative impact, he said. And I still believe we can bring in low-cost carriers to fill certain niches.
--------------------------------------------------------------------------------
Contact staff writer Tom Belden at 215-854-2454 or [email protected].
