'Revenue Synergy'
Is Key for US Air
And America West
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
May 23, 2005; Page B4
Crucial to the success of the planned merger of US Airways Group Inc. and America West Holdings Corp. is the "revenue synergy" expected to flow from knitting together two largely regional route networks, offering more choices for consumers and being able to compete for new corporate travel contracts.
But the reality will amount to winning back business from road warriors such as Art Pushkin and Greg Johnston, two high-mileage US Airways customers who recently defected to rival airlines.
Regaining their goodwill will depend on service. But potential employee unrest over possible furloughs, a shrinking of the combined airline and the tricky business of integrating union seniority lists might make good service hard to come by. The companies have said they need to lose 5,000 of the combined 42,000 jobs -- through attrition, they hope -- and shrink the fleet by 15%.
Mr. Pushkin, a regional sales manager for a digital printer maker, flies 150,000 miles a year and holds US Airways' most elite frequent-flier status. But lately, the Long Island, N.Y., resident has been traveling on UAL Corp.'s United Airlines. "I get frustrated because [US Airways] does things that don't make sense," Mr. Pushkin said last week, the day the merger was announced. "I don't feel they're paying attention to their high-volume customers."
Mr. Pushkin said he traveled on United last week because he was going to the West Coast, where US Airways, currently in bankruptcy-court reorganization, has closed its airport clubs. The sales manager gives US Airways credit for having "by far the best rank-and-file front-line employees in the industry," but said poor management decisions such as the ones that caused a Christmastime staffing shortage and lost-luggage meltdown are "inexcusable."
Mr. Johnston, a sales manager for a furniture company in Hickory, N.C., who takes 300 flights a year, said he gave up on US Airways three months ago, and has switched to Delta Air Lines. "I defected for a number of reasons," he said. "Filthy planes. Filthy airports. The front-line staff are good, but management gives them nothing to work with."
Both men, members of a consumer advocacy group called Ffocus that is made up of US Airways frequent fliers, said they think the marriage of US Airways, a bigger East Coast carrier, and America West, a smaller, low-cost West Coast airline, could result in a viable carrier with a better route network.
"It's an absolutely wonderful proposition -- with new management," said Mr. Johnston. "I'd very much like to see this thing go through. We've been holding up America West's business strategy to US Air management for three years."
The merged airline, which would be run by Doug Parker, America West's chief executive officer, contemplates $600 million in annual synergies resulting from route restructuring, cost savings and additional revenue. The plan envisions $150 million to $200 million by cutting unprofitable flying, matching aircraft size to route demand and adding flights to Hawaii. It sees a like amount in additional revenue coming from improved connections between the two route networks, flying the planes more hours per day and enhancing its position in secondary markets where neither currently has much presence.
"We should be able to generate higher yields than the two of us do independently by getting a better business mix," Mr. Parker said Friday. "If we can price and schedule the airlines as one, that will bring out these revenue synergies." Once the deal closes this fall, the two, flying under the US Airways banner, will immediately integrate their managements, scheduling, pricing, marketing and frequent-flier plans, which will deliver "99% of the synergies very quickly," he said.
But some analysts were quick to cast doubt on the expected synergies and raise concerns that integrating the two company's unionized workers will be more difficult than the two airlines are saying. "We believe the magnitude of revenue growth will be much smaller than expected," Goldman Sachs airline analyst Glenn Engel said in a research note Friday. And "with the most junior captain at US Airways having a tenure of 19 years, versus the most junior [America West] captain having a tenure of seven years, management will have an uphill battle with pilot unions as AWA pilots could potentially lose seniority."
Write to Susan Carey at
[email protected]
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