Transcript Of Mike Boyd's Cnbc


May 18, 2003
Video Monitoring Services of America, Inc.

Date March 25, 2004, Time 12:00 PM - 01:00 PM, Station CNBC, Location Network, Program Power Lunch

BILL GRIFFETH, co-host: You've probably heard by now that US Airways executive -- Chief Executive David Siegel says his company still needs to cut costs dramatically, maybe as much as 40 percent in order to survive, adding that he is willing to cut his own compensation to bring it in line with the pay of his counterparts at the various low-cost carriers. The announcement comes as low-cost, heavyweight, if you will, Southwest Airlines heats up the competition by adding flights out of US Airways' hub in Philadelphia.

Joining us with his thoughts on the future of US Air, Michael Boyd is president aviation analyst at Boyd Group. He joins us today from Denver. Thanks for joining us.

Mr. MICHAEL BOYD (The Boyd Group): Good day, sir.

GRIFFETH: Mr. Siegel admits his company has been beaten already by Southwest Air on the West Coast. And he says if they come to Philadelphia, his company is dead if they don't cut cost by 40 percent. Is he making a valid statement here, or is this just labor negotiations?

Mr. BOYD: No, this is not labor talk. He's very serious. He's right on the money with his explanations he gave his employees yesterday. I was very impressed with the fact he'd give up over $4 million to stay with the company. That's a heck of an incentive. And I think going forward with his kind of leadership, US Airways can survive and have a more robust airline picture in the Northeast in two years, but the employees are going to have to come to the party.
GRIFFETH: You're saying you think they can survive, but do you think the employees will be willing to cut costs as much as he's talking about?

Mr. BOYD: Well you know, we do work for labor unions. So I'll tell you up front, the-- the days of having pattern bargaining where everybody gets the same pay in the airline industry are over. US Airways employees have done a lot so far. They're going to have to do more. And it's—you know, it's this way or the unemployment line. I'm afraid that's just the bottom line, and Mr. Siegel laid it out to them that way.

GRIFFETH: If we can, for just 30 seconds-- I mean, this has been going on for a long time. You know, United's in deep trouble. American's had its problems. You can go on down the list here. But big picture, how did the airlines find themselves in this pickle to begin with?

Mr. BOYD: Well I-- I think until the last-- you know-- four months with fuel prices going up, airlines like American, Continental, Northwest were in a very good position. Certainly US Air has a more difficult situation, but they've got very, very sound management. United Airlines is in a good position, except their management at the top is, I think, misguided and weak. But overall, I think if the fuel price issue doesn't come over and trounce them too quick, we're going to have a very robust and healthy airline industry in 18 months.

GRIFFETH: You know, it occurs to me also that this is the very same problem that other industries face right now. Their labor costs, for example, are higher than they should be in order to make them as profitable as they need to be, or at least to grow their companies. Other industries have the luxury of being able to outsource their jobs in some countries to lower costs. You can't do that with airlines, can you?

Mr. BOYD: No, you really can't. And what these airlines like US Air and network carriers are facing is cherry pickers. There's nothing wrong with that, but these low-fare carriers go after the big markets. They're not interested Ithaca, New York, or Jacksonville, North Carolina. So it's very important that carriers like US Air and United and American survive. And to be very honest, when you look at the fundamentals, certainly at American, Continental and Northwest, I think survival is not in the question any more. They are going to survive and prosper, but it's going to take some more work, especially for US Air.

GRIFFETH: You don't think that the industry needs more of a shake out in the form of either more bankruptcies, liquidations and some consolidation?

Mr. BOYD: No, I think that's the academics saying that. The problem we have working with a lot of small communities, if an airline goes down, it's not going to get replaced. So the consolidation issue I don't think is good. We need more robust competition. That means keeping the people we have, the airlines we have. This airline forest isn't going to grow any more big trees.

GRIFFETH: Consolidation doesn't necessarily have to mean that an airline leaves a particular area. It could mean that a bigger airline with a bigger economy of scale is able to have some routes that are losing money while other routes are making money. And that way, they can be profitable and still grow the airline. Isn't that possible?

Mr. BOYD: Absolutely. The airline industry is going that way with these alliances like Northwest, Continental and Delta. Those alliances are adding more strength to their system, helping consumers, while these airlines are still going to compete vigorously with each other. So going forward, these big airlines are not dead meat. Certainly in the case of American and Continental, these are airlines with a clear vision. I think going forward we're going to have a much stronger airline industry.

GRIFFETH: Bringing it back to US Airways very quickly before we let you go, you feel they'll survive. But do you think they'll be able to cut their cost as much as they hope to?

Mr. BOYD: Well they're going to have to cut their costs. That will be up to the employees to recognize what has to be done. They do have sound, solid management with a good, strategic direction. If they pull together, they'll be fine. If the employees do what some of their union leaders want to do, the next stop will be the unemployment line.

GRIFFETH: Mr. Boyd, thank you. Michael Boyd, president aviation analyst at the Boyd Group joining us today from Denver.
In theory, Mike Boyd is right on the mark. I have great respect for him. But several things he says need an asterict. Citing a few examples:

"I was very impressed with the fact he'd give up over $4 million to stay with the company. That's a heck of an incentive"

Not so. By my standard and Boyd's its alot of money. But in the Fortune 500 CEO circle that is peanuts. Walk away with his $4M, and Siegal in his 40s is done in a real executive suite. $4M is peanuts to those at the top of the business game. Its better for him to fight and loose than to walk away.

"They're going to have to do more. And it's—you know, it's this way or the unemployment line. "

This is probably the truth. However, you can only push labor so far, kick them so many times before they quit caring. Living day to day with the anxiety of poor job security, vicious management, and continual harrasment leads certain segments of labor saying to put the company out of its misery so they can get on with their lives. I know several employees, including pilots who feel enough is enough and if it goes under, so be it.

" They do have sound, solid management with a good, strategic direction."

Mr. Boyd, on this point your very wrong. Nothing else need be said.

"Well you know, we do work for labor unions. So I'll tell you up front, the-- the days of having pattern bargaining where everybody gets the same pay in the airline industry are over. "

I dont think this is the case. As the industry stabilizes and re-matures, patern bargaining will reemerge and there will once again be the haves (union members) and the have nots (non union).

Denver, CO
I agree with Mr. Boyd on just about all he said except his comments about US management. Using management and CCY in the same sentence is a definite oxymoron.

Do changes have to come? Absolutely. Is there a better way of going about it? Certainly! Can management make some operational changes BEFORE coming to the workers with their hands out? Yes! So the big question is--why haven't they?

Where are the rational fares and schedules? Where is the rolling of the PHL hub?
Where are the other improved efficiencies which would contribute to the recovery? Where are the paycuts for Dave and THE WHOLE MANAGEMENT TEAM?

In another post about PHL, I saw a comment about rampers leaving airplanes half loaded or unloaded and walking away at the exact time of their shift end. I have personally sat at a gate in PHL waiting to be marshalled in while rampers at the next gate sat and watched and refused to do it because the gate was outside their zone. I am sorry, but these are the attitudes and behaviors which need to go and NOW.

I truly hope that everything works out and the company can be grown into profitability (as opposed to shrinkage). Unfortunately I have no faith in this management's ability to do it, and I fear most employees and other concerned parties agree with me. The sad question is who in their right mind would take the job?

Management should wake up and realize they have the tools to be one of the strongest airlines---decent routes and facilities and THE BEST EMPLOYEES IN THE BUSINESS. Until they realize this and treat the troops fairly, I fear there is no hope.

My best to you all......