Siegel's USA Today Interview
President and CEO Dave Siegel was interviewed by USA Today on Jan. 23 for an article that appeared in the newspaper Monday, Jan. 26. The company recorded the conversation and is providing this transcript. You may find it to be of interest.
Q. Is it inevitable that the company will have to spin off assets?
A. Although it's not inevitable at all, everything is on the table. As we look at 2004 and beyond, we've got the same challenges as all the other legacy carriers, which is to deal effectively with the large structural changes brought on by the low-cost carriers. What we're doing now is evolving our business plan to make sure we meet this challenge.
Q. How far off your cost targets are you?
A. We actually are tracking at or near our cost targets. In 2003 we had the best cost and revenue improvements of any network carrier. Unit costs were down about 10 percent, even though we shrank the airline almost 10 percent and unit revenue grew about 5 percent. The challenge we have is a structural shift that is accelerating. Low-cost carriers are making money and growing and effecting some large, permanent structural changes. Just like we led the restructuring of all network carriers over last 18 months, we want to be the first network carrier to deal with this challenge as well.
Q What was the most important thing accomplished in bankruptcy?
A. Our bankruptcy was relatively efficient, and we were able to address a number of financial issues for the company, to de-leverage the balance sheet and to sort out the aircraft fleet. So that was a very effective process for us. Before bankruptcy and during bankruptcy, we were able to successfully renegotiate our labor agreements.
Q. Did the company miss some major opportunities in Chapter 11?
A. I think we effectively addressed the opportunities that we had by substantially reducing our costs, de-leveraging our balance sheet and raising new capital. What we are trying to contend with right now is the acceleration of the low-cost competitor threat. Within first few months of our emergence, the marketplace shifted very dramatically. The capital markets opened up to the low-cost carriers who have been able to raise hundreds of millions of dollars and ordered hundreds of aircraft. As we've seen the industry start to recover, it is the low-cost carriers that are reporting profits and it is the major network carriers that, minus one-time unusual items, continue to lose money.
Q. What will you need from employees now?
A. We are re-evaluating our entire business model again to try to continue to lead the transformation of all legacy carriers, and we believe we need to make changes in everything we do. It's not just about labor, it's about how we price the product, the product we deliver, and how we distribute our product to meet our customers' needs. Clearly, if you look at network carriers on a unit cost basis, they've got 10-cent unit costs, generally speaking, and the low-cost carriers have 6-cent unit costs. You have to deal with that cost gap, and when roughly 40 percent of the cost structure is labor, labor has to be a part of that. Clearly there are successful business models out there that consumer are responding to, but the only successful business model in the airline industry today is what the low-cost carriers are delivering in terms of their product, and what their cost structure is.
Q. Is it possible to make these kinds of changes at US Airways in time to avoid a default or without going back into Chapter 11?
A. I believe so. We are not going to allow ourselves to default on the ATSB loan. We borrowed that money from the taxpayers and we are going to pay that money back. I believe that we can successfully continue to transform this company. I've been here 18 months and we've made remarkable progress in reducing costs, improving revenues and substantially reducing losses. If you look at 2003 vs. 2002, our operating performance is over a billion dollars better. We went from significant negative cash flow in 2002, which had been widely reported, to cash break-even in 2003. So, we've made a lot of progress in last 18 months in restructuring the company.
With that said, we're about halfway done. We're clearly trying to address this low-cost carrier threat. We consensually improved our labor cost competitiveness, and we believe we can get the rest of the way there in a consensual and labor-friendly process. I don't believe that a Chapter 11 is a requirement to complete our transformation, and I don't see one anytime in the foreseeable future.
Q. The pilots' MEC authorized a return to talks. Is anything scheduled?
A. The negotiating committee is going to meet with us to collect data and analyze our situation. Our pilot group has led the way throughout our restructuring process. They've been the most proactive to help us to continue to successfully reshape the company and once again they are taking a leadership position.
None of us is happy about the challenges we facing with low-cost competition, but our employees have supported this company throughout its entire history, especially in the post 9/11 era. Ultimately they have always come to the right conclusions to support the company. We will all continue to work together to solve the problem. And based on the track record of the past of our employee group, I expect that, even though none of them like the situation we face, we'll all face the challenge and work together to solve it.
Q. How much time do you have to accomplish what you want?
A. I would say again that we're about halfway through the process. When we emerged from bankruptcy on April 1, I made very clear we weren't out of the woods. We weren't done restructuring the company. What we had done was complete the financial piece with respect to our aircraft obligations and other debt obligations, but that we realized we must continue to transform the business. We've made significant progress in 2003 and will continue to make significant progress in 2004. I look at this as the bottom of the fourth inning of a nine-inning game that maybe goes into extra innings. So I think it's another intensive 18 months to get to where we need to.
I was involved in the restructuring at Northwest and Continental and it took two or three years for those companies to restructure and transform themselves, so I expect it to take about the same time here roughly. I think it's a more challenging environment for legacy carriers today. All legacy carriers will have to deal with these issues, and we'll try to continue to lead other legacy carriers in addressing those fundamental structural changes.
Q. You said a second ago that you don't believe another Chapter 11 would be required. Can you rule it out?
A. We have a strong liquidity position. We have gone from a large cash burn to cash neutral, and we have substantially reduced losses. I don't see a Chapter 11 filing in any kind of relevant time horizon. You cannot predict where this industry is going over the long term, except that it is going to change pretty dramatically. I believe that legacy carriers are going to have to go through some very fundamental restructuring and we need to continue ours.
Q. How is this quarter looking for the company?
A. We continue to see a strengthening in the economy and a reflection of that in our business. I would say that we have been on a nice trajectory that has outpaced the industry on cost and revenue improvement and we continue to see that trend. We had a fare sale last week that was a huge success. We took bookings over three-day period and broke records on the web site and our own reservation centers in terms of call volume and dollar volume. The web has actually been very interesting for us. While we have the greatest web site sales penetration among the network carriers, we have made some very significant improvements to the site in terms of functionality and reliability. We're seeing the web site just doing incredibly well, and during this recent fare sale it had unmatched reliability and at the same time set records for sales volume, so that was very exciting for us.
Q. Your cost per available seat mile (CASM) in 2003 will be 10 percent better than 2002. Does that include fuel and is it systemwide?
A. It was mainline CASM and it excludes fuel. I do believe fuel for 2004 is a risk for all carriers. We've done a good job hedging in the last year and a half and we have a good hedging program in place for 2004 as well as very successful fuel conservation initiatives that are saving millions of dollars a year. Other carriers have said fuel prices are a wild card in terms of the impact on 2004 financial performance.
Q. What can we expect to see in Philadelphia starting in May?
A. I think you'll see a dramatic comparison of the superiority of our product against Southwest's. You will see US Airways ready to do what it does so well, which is to serve the customer. Clearly Southwest is going to make a splash with low fares and their new service. We are going to have a very exciting, competitive response. One of our best selling points is going to be the superior product we deliver as compared to Southwest. Competition is healthy and good, and Southwest is a tough competitor.
Q. You say you need to make changes in everything -- how you price, how you distribute. Can you give any insight of what we can expect to see along those lines?
A. Again, like all legacy carriers, we need to make a transformation in our business model and we understand that. This change in the industry is significant and permanent and we need to be responsive to it. So we're going to be. I think some of things we'll do as Southwest enters Philly will give you a good indication of the future. Again, I'm not going get into too much of this specifically, but we see where this industry is going and we know we need to adapt to change and we will. As Charles Darwin said it is neither the strongest nor the smartest of the species that survives, but those most adaptive to change. We're going to adapt. We will continue to evolve and transform our business. We've had a pretty good trend over the last year and half and we need to maintain that trajectory over the next year and a half to get to the right destination. We're committed to do that, and I believe we have the support of all of our stakeholders, including our employees, to do that, and we're all going to work together to make that happen.
Respectfully,
USA320Pilot
