In Sickness and in Health ... They Did
Mike Mergen/Bloomberg NewsThe merger of US Airways and America West has been an eye-opener in the marriage of the combined company's chief executive and his wife, a former flight attendant.
Tempe, Ariz.
THE most influential flight attendant at the US Airways Group is not employed by the airline; in fact, she quit working in the industry nearly a decade ago. But Gwen Parker, for 12 years a flight attendant and an active union member at American Airlines, regularly advises US Airways' chief executive about how to treat the company's 35,000 employees.
The chief executive, W. Douglas Parker, is her husband. Having engineered the merger of his smaller America West Airlines with US Airways, Mr. Parker, 44, faces the daunting task of combining their vastly different, though equally wary, work forces in an industry noted for its volatile labor relations. "He has an uphill battle," Mrs. Parker said in an interview at their children's elementary school, where she is a volunteer. She has no formal role at US Airways, but both husband and wife say that she has helped him to appreciate the plight of airline workers, and to learn to express empathy with employees, even as Mr. Parker, a veteran airline executive, helped to lead the industry's cost cutting.
Mr. Parker said he has come to appreciate how uncaring and defensive executives sound when announcing that workers must make concessions. "In this business you'll hear, 'Well, what else are we going to do?' " he said, referring to repeated management demands to cut workers' pay, increase their work and reduce benefits. "I was guilty of it in the past." But, he added: "You can't say to Gwen, 'What else are we going to do?' It's not going to make for a nice evening at home."
Mr. Parker may well need all the empathy he can muster. An angry work force can quickly sap the quality of service at an airline, chasing away customers and leading to financial problems even in the best of economic times. Both US Airways and America West suffered embarrassing and costly service meltdowns in recent years. Mr. Parker is treading lightly as he travels the country seeking worker support for additional changes that he says are essential to the success of the merged company, which adopted the US Airways name and the America West headquarters, here in Tempe.
The stakes are sizable. A successful merger at US Airways, now the fifth-largest domestic airline, could lead to further consolidation among major carriers. That would help drain more costs out of the shaky industry and allow it to better weather the next downturn. But disarray at US Airways could scare other airlines away from mergers, leaving the industry less robust.
"There's a reason carriers have not combined," said John E. Luth, chief executive of the Seabury Group, an investment banking firm that advised US Airways on the second of its two post-Sept. 11 bankruptcies and on the merger. Without compatible labor costs at the two airlines, he said, mergers are a mess. Flight networks cannot overlap too much or the combination will attract antitrust scrutiny. And managements are reluctant to cede control. Still, Mr. Luth, whose firm collected $19 million in fees for its work with US Airways, said that "I think we're going to see one or two additional mergers this decade" among the major airlines.
WALL STREET, meanwhile, is already giddy about US Airways' prospects. Lower labor and other operating costs, with the exception of fuel, as well as rising fares attributable to a reduction in fleets by bankrupt airlines, have some investors excited about the industry for the first time in five years. That allowed the new US Airways, around the time of the merger, to raise $866 million by selling stock - a commitment by investors that seemed unthinkable a few months earlier.
Shares of US Airways have nearly doubled since the merger was completed on Sept. 27, pushing its market capitalization to more than $2.71 billion. That is not bad, considering that the two airlines have three bankruptcies between them and that the merger, when announced last spring, was disparaged by some people as two drunks trying to hold each other up. Mr. Parker said he had also endured having the merger, code-named Project Barbell because the two airlines' operations are concentrated on opposite sides of the country, lampooned as Project Dumbbell.
"I take huge pleasure in surprising people," he said during an interview aboard a flight from Phoenix to Boston, where he would be host for a spirited employee-gripe session.
Tall and boyish-looking - some pilots call him Doogie, as in "Doogie Howser, M.D.," the old television series about a teenager who becomes a doctor - Mr. Parker was little known before the merger made headlines. In 2001, he took the helm of America West, which has hubs in Phoenix and Las Vegas.
He grew up around the Midwest, the family following his father's rise from meat cutter to executive at Kroger, the grocery chain. Out of college, Mr. Parker joined American Airlines in Fort Worth, doing financial work. There he met Gwen, a flight attendant and daughter of a liberal Methodist minister with a strong belief in unions and social justice.
"I've always been a supporter of unions," Mrs. Parker said. "It caused a lot of conflict in the beginning of our relationship."
She found American Airlines - she worked there until 1996 - particularly tough on workers. "They always gave you the feeling you were so easily replaced," she said. "I helped Doug understand that. You want to be respected for the job you do."
Too much confrontation and an airline can descend into chaos. Too nice a guy in the corner office and unions can walk away with all the money. Striking a balance is inherently risky, but Mr. Parker seems to crave a thrill.
On his honeymoon, he bungee-jumped. "I'd do it again," he said. A few years later, he ran with the bulls in Pamplona, Spain. And he still likes playing blackjack in Las Vegas, where he said he usually starts at a table that limits bets to $25 but shifts to a $50 table if he is winning - though he knows that it's easy to lose money quickly there. "That's the bad part," he said.
By the early 1990's, Mr. Parker had moved on to a more senior finance job at Northwest Airlines, and Mrs. Parker was still flying for American, when a brief strike occurred there. She took him along to a rally of American's flight attendants. "I was just there as a spouse," he said. "These people were foaming at the mouth" as they talked about how badly they were being treated by the airline's executives - "guys I knew and respected," he said.
From Mr. Parker's perspective, the American flight attendants didn't grasp the industry's problems. "Don't they get it?" he remembered wondering at the time. Later, as chief executive of America West, he said he encountered a similar perception gap with the pilots' union. "A lot of ill will," he recalled. "Unrealistic expectations." But Mr. Parker said he reacted differently, thinking, "Shame on management over the years for not communicating how the business is going."
He was named America West's chief executive 10 days before the Sept. 11 terrorist attacks shut down the nation's airlines for several days and greatly accelerated a financial crisis in the industry. His airline, running short of cash, had negotiated some crucial loans, but lenders backed out after 9/11. At the same time, ticket sales plunged. With just $85 million on hand, "we were by far in the worst shape," he said.
At a meeting of airline chiefs and federal officials to discuss an industry bailout, Mr. Parker, 39 at the time, remembers having to raise his hand when government officials asked if any companies were in immediate danger of insolvency. "America West has two weeks," he told them.
After being turned down twice, the airline got the first government loan guarantee, and the $429 million it was able to borrow kept it alive. Still, the company has piled up a cumulative loss of about $670 million over the past four years.
By 2005, America West badly needed more capital. Longer term, even with its low costs, America West faced trouble because it serves markets dominated by leisure travel, which generally commands lower fares. Competitors, which have reduced their own costs, have business-travel routes on which they can often charge higher prices, giving them wider profit margins.
US Airways, meanwhile, with a dense network of shorter East Coast routes, had cut its labor costs roughly down to America West's level. It badly needed capital, too, to emerge from its second trip to bankruptcy court in three years. Some analysts speculated that it would liquidate
Out of mutual desperation came opportunity, and the two airlines said last April that they would merge. The deal closed quickly, in only five months, and investors obviously have bought into the idea. But can management sell the merger to workers? Mr. Luth, the investment banker, said he thinks that the conditions are right. "Both of these labor groups have been right up to cliff's edge and looked into the abyss," he said.
The airlines will operate separately for the next 18 to 24 months, as the merged company applies for a single federal operating permit and reconciles the labor agreements that each predecessor had worked out with its unions. The combined airline has $2.6 billion of cash, giving it time, but it needs workers' help to achieve the full $600 million a year of savings and other benefits expected from the merger.
Those savings would make the new US Airways solidly profitable once it pays off its merger-related expenses. The new company expects to save $100 million a year by combining computer systems, another $100 million by eliminating overlapping management jobs and $50 million by shedding redundant offices and work sites.
By reducing its fleet by 60 airplanes, costs go down by an additional $175 million a year. And the company expects to increase revenue on existing flights by $175 million a year because the combined routes offer customers better connections. Beyond the merger benefits, the generally rising fares in the airline industry, expected well into 2006, should add to the bottom line.
For workers, however, the biggest issue now is seniority. That determines not only their pay but also many aspects of their work schedules - the routes they fly, the shifts they work, vacation and days off. America West's management runs the company. But US Airways' workers are generally far more senior. Unions for flight attendants and pilots are negotiating to merge the seniority lists, and there are already some hard feelings. Workers don't want to be bumped out of their current jobs.
America West's flight attendants appealed to the international union's board to protect them by altering seniority rules for mergers. Gary Richardson, president of the America West unit of the Association of Flight Attendants union, said he feared US Airways' "coming in here on top of our flight attendants and pushing us down."
The plea irked US Airways employees, even though it was denied. "I've been getting bumped my whole career," said John McCorkle, who has been a US Airways flight attendant for 16 years and who also writes an unofficial employee newsletter. A series of earlier mergers and consolidations had repeatedly jumbled the airline's seniority list. Some of his new America West colleagues "truly believe they've saved US Airways" and thus deserve top seniority, he said. But, he added, "I don't want to hear them gripe about bumping."
Wage concessions and loss of some pension benefits make workers focus even more intently on seniority. "I have a career expectation of being an international captain someday," said Jack Stephan, a US Airways pilot of 22 years and a union official. "That pays the most." If a seniority list change delayed or eliminated that opportunity, "that would be intolerable for me," he said.
Both airlines operate at Logan International Airport in Boston, where Mr. Parker held the first post-merger meeting to hear employees' concerns. About 80 workers filled an unused waiting area, and it soon became apparent that the US Airways' workers were sitting on one side and America West's workers on the other. "That is so lame," Mr. Parker said, laughing.
He explained the airline's situation, using slides. Labor costs are now competitive "due to a lot of pain, I'm aware, at US Airways," he said with a nervous chuckle. A baggage-handling meltdown last Christmas in Philadelphia and other service lapses, however, hurt the airline's reputation with fliers, he added. "We have to fix that," he said. "The image of the company has taken a hit."
WHILE the integration of the two airlines is on schedule, he continued, "We're still losing money; we haven't accomplished anything yet." Looking at employees, he saw tension. "You get the sense if you say the wrong word to someone, it might blow up," he told them. "It's so fragile."
He invited questions. A US Airways worker complained that Alan W. Crellin, a former marine and Los Angeles police officer who is unpopular with some workers, was in the post-merger management team as the executive vice president of operations. "It was very disappointing to see you brought on some old baggage," the worker told Mr. Parker.
"Look," Mr. Parker replied evenly, "we went and built the best management team with what we had. I think he's actually a very good executive. It's unfair - in good times and bad you personalize things. Give it a chance. Don't focus too much on individuals. It's a fair question. I've heard it a lot."
There was a request that middle management be replaced in Philadelphia, US Airways' biggest hub. "We can never get the respect of the middle manager," Michael K. Higgins, a US Airways flight attendant based there, told Mr. Parker. "How long do you wait?"
Mr. Parker conceded that "I simply don't know" about managers there. "It would be a mistake to walk in on day one and blow everyone away," he said, before adding: "There's a real defensiveness among the US Airways management. That defensiveness has to go away."
Then, a 25-year-old regional jet pilot got up and, in the course of a rambling statement, complained about US Airways' gate agents being grumpy. Cami D'Amato, a gate supervisor at Logan, cut him off. "Since 9/11 we've been humiliated," she said, adding that some angry passengers have vented their frustrations about security measures by shouting nasty personal insults to ground crew members like her.
The room grew tense. Mr. Parker turned to the young pilot. "You might want to sit down," he deadpanned, explaining that his money would be on Ms. D'Amato if things turned physical.
Mr. Parker changed the subject. "This is a great group of people," he said. "Nothing in our plan says the employees need to give more. We're done."
Questions and complaints continued, though calmly.
Back home in Arizona, while Gwen Parker has taught her husband to be sensitive to the plight of workers, she, in turn, has come to better appreciate management's point of view. Can Mr. Parker be similarly persuasive with US Airways' employees?
"Doug helped me understand the business side," Mrs. Parker said. As a union member suffering through cost cutting, she said, "we saw it as nickel-and-diming - but those nickels and dimes add up."
Mike Mergen/Bloomberg NewsThe merger of US Airways and America West has been an eye-opener in the marriage of the combined company's chief executive and his wife, a former flight attendant.
Tempe, Ariz.
THE most influential flight attendant at the US Airways Group is not employed by the airline; in fact, she quit working in the industry nearly a decade ago. But Gwen Parker, for 12 years a flight attendant and an active union member at American Airlines, regularly advises US Airways' chief executive about how to treat the company's 35,000 employees.
The chief executive, W. Douglas Parker, is her husband. Having engineered the merger of his smaller America West Airlines with US Airways, Mr. Parker, 44, faces the daunting task of combining their vastly different, though equally wary, work forces in an industry noted for its volatile labor relations. "He has an uphill battle," Mrs. Parker said in an interview at their children's elementary school, where she is a volunteer. She has no formal role at US Airways, but both husband and wife say that she has helped him to appreciate the plight of airline workers, and to learn to express empathy with employees, even as Mr. Parker, a veteran airline executive, helped to lead the industry's cost cutting.
Mr. Parker said he has come to appreciate how uncaring and defensive executives sound when announcing that workers must make concessions. "In this business you'll hear, 'Well, what else are we going to do?' " he said, referring to repeated management demands to cut workers' pay, increase their work and reduce benefits. "I was guilty of it in the past." But, he added: "You can't say to Gwen, 'What else are we going to do?' It's not going to make for a nice evening at home."
Mr. Parker may well need all the empathy he can muster. An angry work force can quickly sap the quality of service at an airline, chasing away customers and leading to financial problems even in the best of economic times. Both US Airways and America West suffered embarrassing and costly service meltdowns in recent years. Mr. Parker is treading lightly as he travels the country seeking worker support for additional changes that he says are essential to the success of the merged company, which adopted the US Airways name and the America West headquarters, here in Tempe.
The stakes are sizable. A successful merger at US Airways, now the fifth-largest domestic airline, could lead to further consolidation among major carriers. That would help drain more costs out of the shaky industry and allow it to better weather the next downturn. But disarray at US Airways could scare other airlines away from mergers, leaving the industry less robust.
"There's a reason carriers have not combined," said John E. Luth, chief executive of the Seabury Group, an investment banking firm that advised US Airways on the second of its two post-Sept. 11 bankruptcies and on the merger. Without compatible labor costs at the two airlines, he said, mergers are a mess. Flight networks cannot overlap too much or the combination will attract antitrust scrutiny. And managements are reluctant to cede control. Still, Mr. Luth, whose firm collected $19 million in fees for its work with US Airways, said that "I think we're going to see one or two additional mergers this decade" among the major airlines.
WALL STREET, meanwhile, is already giddy about US Airways' prospects. Lower labor and other operating costs, with the exception of fuel, as well as rising fares attributable to a reduction in fleets by bankrupt airlines, have some investors excited about the industry for the first time in five years. That allowed the new US Airways, around the time of the merger, to raise $866 million by selling stock - a commitment by investors that seemed unthinkable a few months earlier.
Shares of US Airways have nearly doubled since the merger was completed on Sept. 27, pushing its market capitalization to more than $2.71 billion. That is not bad, considering that the two airlines have three bankruptcies between them and that the merger, when announced last spring, was disparaged by some people as two drunks trying to hold each other up. Mr. Parker said he had also endured having the merger, code-named Project Barbell because the two airlines' operations are concentrated on opposite sides of the country, lampooned as Project Dumbbell.
"I take huge pleasure in surprising people," he said during an interview aboard a flight from Phoenix to Boston, where he would be host for a spirited employee-gripe session.
Tall and boyish-looking - some pilots call him Doogie, as in "Doogie Howser, M.D.," the old television series about a teenager who becomes a doctor - Mr. Parker was little known before the merger made headlines. In 2001, he took the helm of America West, which has hubs in Phoenix and Las Vegas.
He grew up around the Midwest, the family following his father's rise from meat cutter to executive at Kroger, the grocery chain. Out of college, Mr. Parker joined American Airlines in Fort Worth, doing financial work. There he met Gwen, a flight attendant and daughter of a liberal Methodist minister with a strong belief in unions and social justice.
"I've always been a supporter of unions," Mrs. Parker said. "It caused a lot of conflict in the beginning of our relationship."
She found American Airlines - she worked there until 1996 - particularly tough on workers. "They always gave you the feeling you were so easily replaced," she said. "I helped Doug understand that. You want to be respected for the job you do."
Too much confrontation and an airline can descend into chaos. Too nice a guy in the corner office and unions can walk away with all the money. Striking a balance is inherently risky, but Mr. Parker seems to crave a thrill.
On his honeymoon, he bungee-jumped. "I'd do it again," he said. A few years later, he ran with the bulls in Pamplona, Spain. And he still likes playing blackjack in Las Vegas, where he said he usually starts at a table that limits bets to $25 but shifts to a $50 table if he is winning - though he knows that it's easy to lose money quickly there. "That's the bad part," he said.
By the early 1990's, Mr. Parker had moved on to a more senior finance job at Northwest Airlines, and Mrs. Parker was still flying for American, when a brief strike occurred there. She took him along to a rally of American's flight attendants. "I was just there as a spouse," he said. "These people were foaming at the mouth" as they talked about how badly they were being treated by the airline's executives - "guys I knew and respected," he said.
From Mr. Parker's perspective, the American flight attendants didn't grasp the industry's problems. "Don't they get it?" he remembered wondering at the time. Later, as chief executive of America West, he said he encountered a similar perception gap with the pilots' union. "A lot of ill will," he recalled. "Unrealistic expectations." But Mr. Parker said he reacted differently, thinking, "Shame on management over the years for not communicating how the business is going."
He was named America West's chief executive 10 days before the Sept. 11 terrorist attacks shut down the nation's airlines for several days and greatly accelerated a financial crisis in the industry. His airline, running short of cash, had negotiated some crucial loans, but lenders backed out after 9/11. At the same time, ticket sales plunged. With just $85 million on hand, "we were by far in the worst shape," he said.
At a meeting of airline chiefs and federal officials to discuss an industry bailout, Mr. Parker, 39 at the time, remembers having to raise his hand when government officials asked if any companies were in immediate danger of insolvency. "America West has two weeks," he told them.
After being turned down twice, the airline got the first government loan guarantee, and the $429 million it was able to borrow kept it alive. Still, the company has piled up a cumulative loss of about $670 million over the past four years.
By 2005, America West badly needed more capital. Longer term, even with its low costs, America West faced trouble because it serves markets dominated by leisure travel, which generally commands lower fares. Competitors, which have reduced their own costs, have business-travel routes on which they can often charge higher prices, giving them wider profit margins.
US Airways, meanwhile, with a dense network of shorter East Coast routes, had cut its labor costs roughly down to America West's level. It badly needed capital, too, to emerge from its second trip to bankruptcy court in three years. Some analysts speculated that it would liquidate
Out of mutual desperation came opportunity, and the two airlines said last April that they would merge. The deal closed quickly, in only five months, and investors obviously have bought into the idea. But can management sell the merger to workers? Mr. Luth, the investment banker, said he thinks that the conditions are right. "Both of these labor groups have been right up to cliff's edge and looked into the abyss," he said.
The airlines will operate separately for the next 18 to 24 months, as the merged company applies for a single federal operating permit and reconciles the labor agreements that each predecessor had worked out with its unions. The combined airline has $2.6 billion of cash, giving it time, but it needs workers' help to achieve the full $600 million a year of savings and other benefits expected from the merger.
Those savings would make the new US Airways solidly profitable once it pays off its merger-related expenses. The new company expects to save $100 million a year by combining computer systems, another $100 million by eliminating overlapping management jobs and $50 million by shedding redundant offices and work sites.
By reducing its fleet by 60 airplanes, costs go down by an additional $175 million a year. And the company expects to increase revenue on existing flights by $175 million a year because the combined routes offer customers better connections. Beyond the merger benefits, the generally rising fares in the airline industry, expected well into 2006, should add to the bottom line.
For workers, however, the biggest issue now is seniority. That determines not only their pay but also many aspects of their work schedules - the routes they fly, the shifts they work, vacation and days off. America West's management runs the company. But US Airways' workers are generally far more senior. Unions for flight attendants and pilots are negotiating to merge the seniority lists, and there are already some hard feelings. Workers don't want to be bumped out of their current jobs.
America West's flight attendants appealed to the international union's board to protect them by altering seniority rules for mergers. Gary Richardson, president of the America West unit of the Association of Flight Attendants union, said he feared US Airways' "coming in here on top of our flight attendants and pushing us down."
The plea irked US Airways employees, even though it was denied. "I've been getting bumped my whole career," said John McCorkle, who has been a US Airways flight attendant for 16 years and who also writes an unofficial employee newsletter. A series of earlier mergers and consolidations had repeatedly jumbled the airline's seniority list. Some of his new America West colleagues "truly believe they've saved US Airways" and thus deserve top seniority, he said. But, he added, "I don't want to hear them gripe about bumping."
Wage concessions and loss of some pension benefits make workers focus even more intently on seniority. "I have a career expectation of being an international captain someday," said Jack Stephan, a US Airways pilot of 22 years and a union official. "That pays the most." If a seniority list change delayed or eliminated that opportunity, "that would be intolerable for me," he said.
Both airlines operate at Logan International Airport in Boston, where Mr. Parker held the first post-merger meeting to hear employees' concerns. About 80 workers filled an unused waiting area, and it soon became apparent that the US Airways' workers were sitting on one side and America West's workers on the other. "That is so lame," Mr. Parker said, laughing.
He explained the airline's situation, using slides. Labor costs are now competitive "due to a lot of pain, I'm aware, at US Airways," he said with a nervous chuckle. A baggage-handling meltdown last Christmas in Philadelphia and other service lapses, however, hurt the airline's reputation with fliers, he added. "We have to fix that," he said. "The image of the company has taken a hit."
WHILE the integration of the two airlines is on schedule, he continued, "We're still losing money; we haven't accomplished anything yet." Looking at employees, he saw tension. "You get the sense if you say the wrong word to someone, it might blow up," he told them. "It's so fragile."
He invited questions. A US Airways worker complained that Alan W. Crellin, a former marine and Los Angeles police officer who is unpopular with some workers, was in the post-merger management team as the executive vice president of operations. "It was very disappointing to see you brought on some old baggage," the worker told Mr. Parker.
"Look," Mr. Parker replied evenly, "we went and built the best management team with what we had. I think he's actually a very good executive. It's unfair - in good times and bad you personalize things. Give it a chance. Don't focus too much on individuals. It's a fair question. I've heard it a lot."
There was a request that middle management be replaced in Philadelphia, US Airways' biggest hub. "We can never get the respect of the middle manager," Michael K. Higgins, a US Airways flight attendant based there, told Mr. Parker. "How long do you wait?"
Mr. Parker conceded that "I simply don't know" about managers there. "It would be a mistake to walk in on day one and blow everyone away," he said, before adding: "There's a real defensiveness among the US Airways management. That defensiveness has to go away."
Then, a 25-year-old regional jet pilot got up and, in the course of a rambling statement, complained about US Airways' gate agents being grumpy. Cami D'Amato, a gate supervisor at Logan, cut him off. "Since 9/11 we've been humiliated," she said, adding that some angry passengers have vented their frustrations about security measures by shouting nasty personal insults to ground crew members like her.
The room grew tense. Mr. Parker turned to the young pilot. "You might want to sit down," he deadpanned, explaining that his money would be on Ms. D'Amato if things turned physical.
Mr. Parker changed the subject. "This is a great group of people," he said. "Nothing in our plan says the employees need to give more. We're done."
Questions and complaints continued, though calmly.
Back home in Arizona, while Gwen Parker has taught her husband to be sensitive to the plight of workers, she, in turn, has come to better appreciate management's point of view. Can Mr. Parker be similarly persuasive with US Airways' employees?
"Doug helped me understand the business side," Mrs. Parker said. As a union member suffering through cost cutting, she said, "we saw it as nickel-and-diming - but those nickels and dimes add up."
