A number of employees have contacted Dave Siegel regarding an online column called “Plane Business Banter†recently written by Holly Hegeman, which featured extensive commentary about US Airways. For the benefit of those who raised questions, as well as all other employees, Dave offers the following rebuttal:
While I am not a regular reader of “Plane Business Banter,†several of our employees forwarded to me excerpts from Holly Hegeman’s column titled, “US Airways: One Year Later.†After reading this issue, it is unlikely that I ever will become a regular subscriber, as its appears that the author clearly has limited understanding of our business. Let me correct some factual errors in an attempt to set the record straight.
First, I applaud Doug Parker, America West’s chairman and chief executive officer, and his management team for implementing a successful new fare structure, and I agree that the industry needs to adopt a simpler structure with lower unrestricted fares and fewer restrictions, which is easier said than done. For America West, which has virtually no high fare traffic, its new structure is revenue positive. If US Airways were to adopt it, we would actually lose revenue, something we absolutely cannot afford to do. Other network carriers have experimented with lower, simpler fare structures recently and these actions have been revenue negative. If you ask Doug Parker, he likely would tell you that what America West did makes sense for them, but not other network carriers.
On the cost side, the data is just plain wrong. Despite reducing our capacity twice as much as other network carriers, our year-over-year unit cost performance (9 percent reduction in Cost per Available Seat Mile, or CASM, excluding fuel) was the best in the industry. At the same time, our unit revenue performance (2 percent increase in Revenue per Available Seat Mile, or RASM) was also the best in the industry, and it was our best relative unit revenue performance during the second quarter in four years.
As for our vision, it remains the same and it remains clear: We are going to be a super-regional carrier focused in the East, with a competitive product, cost structure and network (the latter, through strategic domestic and international alliances). We continue to lead the restructuring effort among mature network carriers, having made the greatest progress in improving revenue, reducing cost and strengthening our capital structure. We also recognize that our work is far from done, a consistent theme with our employees, shareholders and customers. There is no better reminder of this than the increasing challenges presented by low-cost competitors. We are keenly focused on meeting this challenge, since, along with all other mature network carriers, our very survival depends upon it.
Let me now comment on the advice of one of Holly’s long time advisors:
1. Although I hold a bachelor of science degree in applied mathematics and have done graduate-level work in operations research methods and econometrics, I have no idea what a “genetic optimization program†is. I am more familiar, however, with terms like “genetic counseling,†“genetic code,†and “genetic defect.â€
At US Airways, we have introduced sophisticated decision optimization tools for demand forecasting (a 16-variable multi-nomial logit model) and aircraft allocation (a complex linear-programming optimization model). These tools have helped us re-schedule and re-fleet the airline, enabling US Airways to achieve its best relative unit revenue performance in four years. The improvement process is ongoing.
2. We continue the optimization process, aided by recently introduced sophisticated profitability systems, never before available to the company. We can now tell with unmatched precision where we are making money and losing money to continue our improvement of the business.
3. We have changed out two-thirds of the officer group since I arrived and eliminated 20 percent of the officer positions, making us the leanest management team in the industry. Although I hold the former Piedmont managers that I worked with at Continental in high regard, and consider Gordon Bethune my mentor, most of these managers are well past retirement age and succeeded in an era of limited competition. Our vision of optimizing our hubs in Philadelphia, Pittsburgh, Charlotte is logical and feasible. The vision suggested by Holly of focusing solely on Charlotte is the “bad dream†she suggests, not to mention that it would result in slashing the workforce further.
4. We have worked tirelessly with labor to implement a friendly restructuring, reaching consensual agreements with our employees. Labor friendly means working through the difficult issues and reaching a consensual agreement. If we had the 1989 Piedmont labor contracts, you are correct, we instantaneously would be significantly profitable. If we had the 2003 America West contracts for that matter, we would be solidly profitable. We do not. We have labor contracts that look more or less like our bigger competitors, Continental, American and United.
5. I actually have given some thought to changing the name back to Piedmont Airlines, but it’s probably too regionally focused.
6. About half of the network carriers own their commuters, half do not. We will own ours if it makes sense and sell them if it does not. We are still executing our plan.
7. What made Piedmont Airlines a success was a good product, competitive labor costs, limited competition and a motivated workforce. Today’s highly competitive environment is different. Focusing solely on Charlotte and its heavy dependency on connecting traffic is just plain suicide. Scaling back, as Holly suggests would eliminate 70 percent of our workforce. There are no profitable hub opportunities left in the Midwest. To the contrary, it is already over hubbed. No amount of “genetic optimization†is going to change that.
8. We serve small and medium-sized cities from small and medium-sized hubs. To profitably match capacity with demand, and feed our hubs, we need to have the right size jet aircraft. Regional jets work by having lower trip costs, i.e., not flying around many empty seats, even though seat mile costs are higher.
The bottom line and what Holly needs to understand is that we were left for dead and have played a difficult hand remarkably well. We continue to try and change our culture, but it is difficult to lay off employees and take away their pay, even when we risked losing everyone’s job. We still pay our line employees very competitive industry wages, especially when compared to the alternatives. The old USAir didn’t work because it had a non-competitive cost structure and excess capacity. The old Piedmont, while a fine airline, lived in another era of limited competition. The world has changed. Painting the airplanes purple and hubbing Dayton again would not work either.
Our vision of focusing on our core assets in Philadelphia, Pittsburgh and Charlotte is working. For this second quarter, we have moved from the bottom of the pack to the middle, with pre-tax margins around the same as Continental and Northwest. We continue to optimize the network, add regional jets and build our alliance partnerships. This team did the same at Northwest and Continental with much success. The difference now is that low cost-competitors are rapidly changing the marketplace. (Our long-term success will depend on our employees’ willingness to forget the past (which we cannot change) and work with management to build a better future.) As I have said many times, our restructuring work is far from done. We have led all mature network carriers over the last 18 months in meeting these challenges and expect to continue to lead the industry these next 18 months as US Airways and other mature network carriers continue to restructure during this time of unprecedented challenge in the industry.
Source: TheHub 8/27/2003
While I am not a regular reader of “Plane Business Banter,†several of our employees forwarded to me excerpts from Holly Hegeman’s column titled, “US Airways: One Year Later.†After reading this issue, it is unlikely that I ever will become a regular subscriber, as its appears that the author clearly has limited understanding of our business. Let me correct some factual errors in an attempt to set the record straight.
First, I applaud Doug Parker, America West’s chairman and chief executive officer, and his management team for implementing a successful new fare structure, and I agree that the industry needs to adopt a simpler structure with lower unrestricted fares and fewer restrictions, which is easier said than done. For America West, which has virtually no high fare traffic, its new structure is revenue positive. If US Airways were to adopt it, we would actually lose revenue, something we absolutely cannot afford to do. Other network carriers have experimented with lower, simpler fare structures recently and these actions have been revenue negative. If you ask Doug Parker, he likely would tell you that what America West did makes sense for them, but not other network carriers.
On the cost side, the data is just plain wrong. Despite reducing our capacity twice as much as other network carriers, our year-over-year unit cost performance (9 percent reduction in Cost per Available Seat Mile, or CASM, excluding fuel) was the best in the industry. At the same time, our unit revenue performance (2 percent increase in Revenue per Available Seat Mile, or RASM) was also the best in the industry, and it was our best relative unit revenue performance during the second quarter in four years.
As for our vision, it remains the same and it remains clear: We are going to be a super-regional carrier focused in the East, with a competitive product, cost structure and network (the latter, through strategic domestic and international alliances). We continue to lead the restructuring effort among mature network carriers, having made the greatest progress in improving revenue, reducing cost and strengthening our capital structure. We also recognize that our work is far from done, a consistent theme with our employees, shareholders and customers. There is no better reminder of this than the increasing challenges presented by low-cost competitors. We are keenly focused on meeting this challenge, since, along with all other mature network carriers, our very survival depends upon it.
Let me now comment on the advice of one of Holly’s long time advisors:
1. Although I hold a bachelor of science degree in applied mathematics and have done graduate-level work in operations research methods and econometrics, I have no idea what a “genetic optimization program†is. I am more familiar, however, with terms like “genetic counseling,†“genetic code,†and “genetic defect.â€
At US Airways, we have introduced sophisticated decision optimization tools for demand forecasting (a 16-variable multi-nomial logit model) and aircraft allocation (a complex linear-programming optimization model). These tools have helped us re-schedule and re-fleet the airline, enabling US Airways to achieve its best relative unit revenue performance in four years. The improvement process is ongoing.
2. We continue the optimization process, aided by recently introduced sophisticated profitability systems, never before available to the company. We can now tell with unmatched precision where we are making money and losing money to continue our improvement of the business.
3. We have changed out two-thirds of the officer group since I arrived and eliminated 20 percent of the officer positions, making us the leanest management team in the industry. Although I hold the former Piedmont managers that I worked with at Continental in high regard, and consider Gordon Bethune my mentor, most of these managers are well past retirement age and succeeded in an era of limited competition. Our vision of optimizing our hubs in Philadelphia, Pittsburgh, Charlotte is logical and feasible. The vision suggested by Holly of focusing solely on Charlotte is the “bad dream†she suggests, not to mention that it would result in slashing the workforce further.
4. We have worked tirelessly with labor to implement a friendly restructuring, reaching consensual agreements with our employees. Labor friendly means working through the difficult issues and reaching a consensual agreement. If we had the 1989 Piedmont labor contracts, you are correct, we instantaneously would be significantly profitable. If we had the 2003 America West contracts for that matter, we would be solidly profitable. We do not. We have labor contracts that look more or less like our bigger competitors, Continental, American and United.
5. I actually have given some thought to changing the name back to Piedmont Airlines, but it’s probably too regionally focused.
6. About half of the network carriers own their commuters, half do not. We will own ours if it makes sense and sell them if it does not. We are still executing our plan.
7. What made Piedmont Airlines a success was a good product, competitive labor costs, limited competition and a motivated workforce. Today’s highly competitive environment is different. Focusing solely on Charlotte and its heavy dependency on connecting traffic is just plain suicide. Scaling back, as Holly suggests would eliminate 70 percent of our workforce. There are no profitable hub opportunities left in the Midwest. To the contrary, it is already over hubbed. No amount of “genetic optimization†is going to change that.
8. We serve small and medium-sized cities from small and medium-sized hubs. To profitably match capacity with demand, and feed our hubs, we need to have the right size jet aircraft. Regional jets work by having lower trip costs, i.e., not flying around many empty seats, even though seat mile costs are higher.
The bottom line and what Holly needs to understand is that we were left for dead and have played a difficult hand remarkably well. We continue to try and change our culture, but it is difficult to lay off employees and take away their pay, even when we risked losing everyone’s job. We still pay our line employees very competitive industry wages, especially when compared to the alternatives. The old USAir didn’t work because it had a non-competitive cost structure and excess capacity. The old Piedmont, while a fine airline, lived in another era of limited competition. The world has changed. Painting the airplanes purple and hubbing Dayton again would not work either.
Our vision of focusing on our core assets in Philadelphia, Pittsburgh and Charlotte is working. For this second quarter, we have moved from the bottom of the pack to the middle, with pre-tax margins around the same as Continental and Northwest. We continue to optimize the network, add regional jets and build our alliance partnerships. This team did the same at Northwest and Continental with much success. The difference now is that low cost-competitors are rapidly changing the marketplace. (Our long-term success will depend on our employees’ willingness to forget the past (which we cannot change) and work with management to build a better future.) As I have said many times, our restructuring work is far from done. We have led all mature network carriers over the last 18 months in meeting these challenges and expect to continue to lead the industry these next 18 months as US Airways and other mature network carriers continue to restructure during this time of unprecedented challenge in the industry.
Source: TheHub 8/27/2003
