By Matthew Barakat, AP Business Writer
A Year After Emerging From Bankruptcy Protection, US Airways Again Finds Its Future in Question
ARLINGTON, Va. (AP) -- A year after emerging from bankruptcy protection, US Airways again finds its future in question, with the airline's top executive warning workers that low-fare competition "is coming to kill us."
President and chief executive David Siegel told the airline's 31,000 employees last week that, after years of losing market share to growing competition from low-fare carriers, US Airways is making a last stand at its Philadelphia hub, where low-fare king Southwest Airlines will begin flying in May.
"We have to stop them in their tracks," Siegel said. "We have to have new labor agreements this summer. We have to be ready."
For labor leaders, though, Siegel's call to arms has a familiar ring. Management issued similarly dire warnings before and during US Airways Group Inc.'s bankruptcy proceedings, and labor responded by providing roughly $1 billion a year in concessions to help the airline cut its annual costs by $1.9 billion a year.
The unions were told at the time that those cuts, while painful, would allow the airline to be competitive.
Now management is seeking another round of cuts of a similar magnitude.
The airline's machinists' union issued a harsh critique of Siegel on Tuesday, labeling his management "incompetent" and saying "he has failed us all" by failing to have a successful business plan after bankruptcy.
"It is painfully evident that David Siegel's bankruptcy restructuring did nothing but reduce labor costs while failing to similarly reduce non-labor costs," IAM district president Randy Canale wrote in a memo to union members.
Jack Stephan, head of the US Airways unit of the Air Line Pilots Association, said Siegel has been essentially a one-trick pony, harping on the need to cut workers' pay and unwilling to make the structural changes necessary for the airline's survival.
Siegel "is a great guy to recognize that the sky is falling, but we expect more of our leadership," said Stephan, whose union has called for Siegel's resignation.
Shares of the reorganized airline exceeded $10 a share last year, but have since traded at less than $5 each. Earlier this month, the airline restructured the terms of a $900 million federally guaranteed loan to avoid possible default. And the airline's independent auditor issued a warning about the company's future viability.
Management says that when it developed its business plan in bankruptcy, it had no way to foresee the rapid growth of low-fare carriers on the East Coast. It was not prepared for the full effect of a longer-than-expected war in Iraq. It did not expect fuel costs to be so high. And it failed to fully recognize that business travelers would no longer pay the exorbitant walk-up fares that had been the airline's moneymaker in the 1990s.
"Today customers go to Orbitz. They see a dozen different airlines side by side," Siegel said. "We're going to have to match (discount carriers) airfares."
US Airways entered Chapter 11 bankruptcy protection in August 2002 and emerged rapidly, on March 31, 2003.
Some bankruptcy experts thought the airline could have used more time to get its affairs in order and to negotiate better deals with workers, lessors and vendors. But the airline did not have the luxury of time: its federally guaranteed financing was available only upon emergence from bankruptcy and its ability to conduct most credit-card transactions with customers would have expired after March 31.
Matthew McBrady, a finance professor at the University of Virginia with expertise in bankruptcy, said it's not surprising that a company recently emerged from Chapter 11 finds itself at risk of a so-called "Chapter 22" proceeding, a double-dip into bankruptcy protection.
"Chapter 11 is not designed to fix a bad business model," McBrady said. "It's designed to fix a bad" debt situation. "Chapter 11 is probably not a really good laboratory for making profound changes to a business model."
US Airways spokesman David Castelveter said many of the company's projections leaving bankruptcy were accurate. It has reduced costs as it expected, except for fuel costs, which are at a historically high level. On the revenue side, though, the impact of low-fare competition and the lingering effect of the weak economy on business travel were anticipated but underestimated.
"We have brought our costs down. We are drawing passengers. Our load factor is up," Castelveter said. "But clearly the price of an airline ticket is coming down. ... The simplest analogy is that we're picking apples for 10 cents apiece and selling them for seven cents."
At last week's meeting with employees, Siegel discussed changes to boost revenues, such as an improved flight schedule and a simplified fare structure.
Stephan said the unions support schedule and fare changes, but that management has dragged its feet on such issues.
"We've been telling the airline for years that they've got to change their fare structure," he said. "We spend a lot of time chasing that high-fare passenger. We may get somebody to pay $2,000 for a flight from Philadelphia to Boston, but that guy we gouge is only going to do it one time."
A Year After Emerging From Bankruptcy Protection, US Airways Again Finds Its Future in Question
ARLINGTON, Va. (AP) -- A year after emerging from bankruptcy protection, US Airways again finds its future in question, with the airline's top executive warning workers that low-fare competition "is coming to kill us."
President and chief executive David Siegel told the airline's 31,000 employees last week that, after years of losing market share to growing competition from low-fare carriers, US Airways is making a last stand at its Philadelphia hub, where low-fare king Southwest Airlines will begin flying in May.
"We have to stop them in their tracks," Siegel said. "We have to have new labor agreements this summer. We have to be ready."
For labor leaders, though, Siegel's call to arms has a familiar ring. Management issued similarly dire warnings before and during US Airways Group Inc.'s bankruptcy proceedings, and labor responded by providing roughly $1 billion a year in concessions to help the airline cut its annual costs by $1.9 billion a year.
The unions were told at the time that those cuts, while painful, would allow the airline to be competitive.
Now management is seeking another round of cuts of a similar magnitude.
The airline's machinists' union issued a harsh critique of Siegel on Tuesday, labeling his management "incompetent" and saying "he has failed us all" by failing to have a successful business plan after bankruptcy.
"It is painfully evident that David Siegel's bankruptcy restructuring did nothing but reduce labor costs while failing to similarly reduce non-labor costs," IAM district president Randy Canale wrote in a memo to union members.
Jack Stephan, head of the US Airways unit of the Air Line Pilots Association, said Siegel has been essentially a one-trick pony, harping on the need to cut workers' pay and unwilling to make the structural changes necessary for the airline's survival.
Siegel "is a great guy to recognize that the sky is falling, but we expect more of our leadership," said Stephan, whose union has called for Siegel's resignation.
Shares of the reorganized airline exceeded $10 a share last year, but have since traded at less than $5 each. Earlier this month, the airline restructured the terms of a $900 million federally guaranteed loan to avoid possible default. And the airline's independent auditor issued a warning about the company's future viability.
Management says that when it developed its business plan in bankruptcy, it had no way to foresee the rapid growth of low-fare carriers on the East Coast. It was not prepared for the full effect of a longer-than-expected war in Iraq. It did not expect fuel costs to be so high. And it failed to fully recognize that business travelers would no longer pay the exorbitant walk-up fares that had been the airline's moneymaker in the 1990s.
"Today customers go to Orbitz. They see a dozen different airlines side by side," Siegel said. "We're going to have to match (discount carriers) airfares."
US Airways entered Chapter 11 bankruptcy protection in August 2002 and emerged rapidly, on March 31, 2003.
Some bankruptcy experts thought the airline could have used more time to get its affairs in order and to negotiate better deals with workers, lessors and vendors. But the airline did not have the luxury of time: its federally guaranteed financing was available only upon emergence from bankruptcy and its ability to conduct most credit-card transactions with customers would have expired after March 31.
Matthew McBrady, a finance professor at the University of Virginia with expertise in bankruptcy, said it's not surprising that a company recently emerged from Chapter 11 finds itself at risk of a so-called "Chapter 22" proceeding, a double-dip into bankruptcy protection.
"Chapter 11 is not designed to fix a bad business model," McBrady said. "It's designed to fix a bad" debt situation. "Chapter 11 is probably not a really good laboratory for making profound changes to a business model."
US Airways spokesman David Castelveter said many of the company's projections leaving bankruptcy were accurate. It has reduced costs as it expected, except for fuel costs, which are at a historically high level. On the revenue side, though, the impact of low-fare competition and the lingering effect of the weak economy on business travel were anticipated but underestimated.
"We have brought our costs down. We are drawing passengers. Our load factor is up," Castelveter said. "But clearly the price of an airline ticket is coming down. ... The simplest analogy is that we're picking apples for 10 cents apiece and selling them for seven cents."
At last week's meeting with employees, Siegel discussed changes to boost revenues, such as an improved flight schedule and a simplified fare structure.
Stephan said the unions support schedule and fare changes, but that management has dragged its feet on such issues.
"We've been telling the airline for years that they've got to change their fare structure," he said. "We spend a lot of time chasing that high-fare passenger. We may get somebody to pay $2,000 for a flight from Philadelphia to Boston, but that guy we gouge is only going to do it one time."
