Six months into the US Airways-America West merger, company executives have nicknamed their efforts to become the nation's dominant low-cost carrier "Extreme Makeover: Airline Edition."
Another reality TV show might better describe the merger and six months of success: "Survivor."
However you view it, Chief Executive Doug Parker's slow, methodical approach to melding the laid back, casual style of America West with the button-down collar, suit-and-tie ways of US Airways is garnering applause.
"I have a huge amount of respect for what Parker has done," said Michael Miller, a partner in the Washington, D.C., airline consulting firm The Velocity Group. "He is creating what could be the best merger in the airline industry, managing the merger as well as any airline has done in recent memory."
One major contributing factor to US Airways success, surprisingly, is high fuel costs -- which are causing many carriers to reduce the number of seats flying, according to both US Airways executives and airline analysts.
Fewer available airline seats, along with continued strong demand, allows airlines to charge more and increase revenue. And US Airways has increased its revenue, on a percentage basis, more than than all other major airlines, compared to a year ago, according to the airline's figures.
"Fuel prices are up sufficiently that they are putting enough financial stress on the system to force a capacity decline," said J. Scott Kirby, US Airlines executive vice president, sales and marketing, during a meeting with reporters on March 10. "And because of the capacity situation, carriers are able to pass through higher fuel costs."
For the final three months of 2005, US Airways lost $138 million, excluding special items. Much of the red ink was because the company paid $197 million more for fuel than one year earlier, said Derek Kerr, US Airways chief financial officer, addressing reporters at US Airways' Tempe, Ariz., headquarters.
Higher ticket prices increase the amount of revenue spread over available seats.
As an example, during the fourth quarter, US Airways revenue per available seat-mile year-over-year was up 16 percent, tieing low-cost carrier AirTran for best in the industry. Kirby said January's revenue per available seat-mile was more than 20 percent better than in January 2005, and in February, more than 25 percent, "well in excess of our merger plan," Kirby said.
"The revenue side is better all around, a consequence of capacity being cut out of the system, with Delta and Northwest in bankruptcy and robust growth generally," said William Lauer, an airline analyst and head of Tarentum-based Allegheny Capital Management.
The merged company is also benefitting from $1-plus billion in pre-merger pay givebacks by employees and expense cuts, aircraft returns and renegotiated leases, plus a very healthy flying climate.
Another reason is Parker's careful steps in melding two very different employment cultures is also said to be a key in making the merger work.
"Most airlines move too fast in a merger," The Velocity Group's Miller said. "Speed is not as critical as efficiency."
"Integral to what we have to do is recognize that we must put together an amalgamation of cultures," Parker told reporters.
"Combining two incredibly disparate cultures has a horrible record in every industry," said Ron Kyhlmann, vice president of Unisys Transportation, San Francisco. "If they figure it out, they should patent the process because they will make more money with that than with the airline."
The old US Airways acquired carriers, but never assimilated cultures when it bought Pacific Southwest Airlines in 1988 and Piedmont Airlines one year later.
"The lack of resolving the cultural issues in the Piedmont deal is THE textbook case on how not to do a merger," Miller said. "The Piedmont people never felt ownership in USAir," the predecessor to US Airways.
Miller said Parker wisely has chosen not to get involved in turf fights between competing unions that are battling to represent personnel at both airlines. Some union-blending is moving quickly. Others, like the International Brotherhood of Teamsters and the International Association of Machinists battling to repesent mechanics, aren't.
"Parker correctly told the unions, 'You figure it out,' putting the onus on union management to work it out," Miller said.
"Unions don't give in easily," said Mike Boyd, president of Evergreen, Colo., airline industry consulting firm The Boyd Group. "It's going to be ugly, and Parker can't do much about it but negotiate with the winner."
Moving forward, Parker and his management team must plan as best as they can for fuel price volatility, although Parker maintains he can make money even with oil at $60 a barrel. CFO Kerr said US Airways wants to always maintain at least half its fuel needs hedged against higher fuel prices six months into the future. The strategy is expected to help absorb unforeseen fuel price spikes. Before the merger, US Airways did not use fuel hedging, Kerr added.
There are off-the-wall circumstances that could put a crimp in US Airways' continued success.
"In the unknown category, if a pigeon drops over dead from avian flu, there are some dire quarantine ideas floating out there, that could have dire consequences on the industry," said Robert Mann Jr., with R.W. Mann & Co. Inc., of Long Island.
Rick Stouffer can be reached at [email protected].
Another reality TV show might better describe the merger and six months of success: "Survivor."
However you view it, Chief Executive Doug Parker's slow, methodical approach to melding the laid back, casual style of America West with the button-down collar, suit-and-tie ways of US Airways is garnering applause.
"I have a huge amount of respect for what Parker has done," said Michael Miller, a partner in the Washington, D.C., airline consulting firm The Velocity Group. "He is creating what could be the best merger in the airline industry, managing the merger as well as any airline has done in recent memory."
One major contributing factor to US Airways success, surprisingly, is high fuel costs -- which are causing many carriers to reduce the number of seats flying, according to both US Airways executives and airline analysts.
Fewer available airline seats, along with continued strong demand, allows airlines to charge more and increase revenue. And US Airways has increased its revenue, on a percentage basis, more than than all other major airlines, compared to a year ago, according to the airline's figures.
"Fuel prices are up sufficiently that they are putting enough financial stress on the system to force a capacity decline," said J. Scott Kirby, US Airlines executive vice president, sales and marketing, during a meeting with reporters on March 10. "And because of the capacity situation, carriers are able to pass through higher fuel costs."
For the final three months of 2005, US Airways lost $138 million, excluding special items. Much of the red ink was because the company paid $197 million more for fuel than one year earlier, said Derek Kerr, US Airways chief financial officer, addressing reporters at US Airways' Tempe, Ariz., headquarters.
Higher ticket prices increase the amount of revenue spread over available seats.
As an example, during the fourth quarter, US Airways revenue per available seat-mile year-over-year was up 16 percent, tieing low-cost carrier AirTran for best in the industry. Kirby said January's revenue per available seat-mile was more than 20 percent better than in January 2005, and in February, more than 25 percent, "well in excess of our merger plan," Kirby said.
"The revenue side is better all around, a consequence of capacity being cut out of the system, with Delta and Northwest in bankruptcy and robust growth generally," said William Lauer, an airline analyst and head of Tarentum-based Allegheny Capital Management.
The merged company is also benefitting from $1-plus billion in pre-merger pay givebacks by employees and expense cuts, aircraft returns and renegotiated leases, plus a very healthy flying climate.
Another reason is Parker's careful steps in melding two very different employment cultures is also said to be a key in making the merger work.
"Most airlines move too fast in a merger," The Velocity Group's Miller said. "Speed is not as critical as efficiency."
"Integral to what we have to do is recognize that we must put together an amalgamation of cultures," Parker told reporters.
"Combining two incredibly disparate cultures has a horrible record in every industry," said Ron Kyhlmann, vice president of Unisys Transportation, San Francisco. "If they figure it out, they should patent the process because they will make more money with that than with the airline."
The old US Airways acquired carriers, but never assimilated cultures when it bought Pacific Southwest Airlines in 1988 and Piedmont Airlines one year later.
"The lack of resolving the cultural issues in the Piedmont deal is THE textbook case on how not to do a merger," Miller said. "The Piedmont people never felt ownership in USAir," the predecessor to US Airways.
Miller said Parker wisely has chosen not to get involved in turf fights between competing unions that are battling to represent personnel at both airlines. Some union-blending is moving quickly. Others, like the International Brotherhood of Teamsters and the International Association of Machinists battling to repesent mechanics, aren't.
"Parker correctly told the unions, 'You figure it out,' putting the onus on union management to work it out," Miller said.
"Unions don't give in easily," said Mike Boyd, president of Evergreen, Colo., airline industry consulting firm The Boyd Group. "It's going to be ugly, and Parker can't do much about it but negotiate with the winner."
Moving forward, Parker and his management team must plan as best as they can for fuel price volatility, although Parker maintains he can make money even with oil at $60 a barrel. CFO Kerr said US Airways wants to always maintain at least half its fuel needs hedged against higher fuel prices six months into the future. The strategy is expected to help absorb unforeseen fuel price spikes. Before the merger, US Airways did not use fuel hedging, Kerr added.
There are off-the-wall circumstances that could put a crimp in US Airways' continued success.
"In the unknown category, if a pigeon drops over dead from avian flu, there are some dire quarantine ideas floating out there, that could have dire consequences on the industry," said Robert Mann Jr., with R.W. Mann & Co. Inc., of Long Island.
Rick Stouffer can be reached at [email protected].
