Can US Airways Pass Test of Time?
New Operations Chief
Aims to Make Merger
With America West Fly
By MELANIE TROTTMAN
December 26, 2007; Page A6
Everybody knows airline mergers rarely succeed. Everybody, that is, except Doug Parker, the airline executive who tempted fate by combining America West Airlines and US Airways two years ago.
After a disastrous spring and summer of late flights and other problems at the combined carrier, which kept the US Airways name, Mr. Parker brought in an operations specialist, Robert Isom, three months ago to make his grand vision work.
Mr. Isom, a seasoned airline manager who worked for Mr. Parker at Northwest Airlines in the early 1990s, has experience in both operations and finance. The yin to Mr. Parker's yang, Mr. Isom, the airline's chief operating officer, is focused on the minutiae of getting planes in and out of airports efficiently, while his boss has been more interested in -- and some say distracted by -- doing deals, including the subsequent failed attempt to take over Delta Air Lines Inc.
Since Mr. Parker's America West, based in Tempe, Ariz., acquired the struggling US Airways, based in Arlington, Va., the company has had to deal with all the problems that were predicted by merger skeptics, from computer glitches and mishandled baggage to the strife that comes with combining labor unions. The rate of customer complaints in October still outnumbered all other major U.S. airlines.
"Doug may have been a little over-confident about how smoothly and quickly this [merger] could be done," said Standard & Poor's airline analyst Jim Corridore. "Things have been more complicated and more difficult than they expected."
After his September appointment, Mr. Isom visited US Airways Group Inc.'s far-flung operations and put his list-heavy solutions to work. He assembled a team of managers to pick apart the reasons for a precipitous slide in on-time departures. After a tour of the airline's Charlotte, N.C., and Philadelphia hubs, he ordered a wide-ranging review of preparations for coping with winter storms.
After three months on the job meeting managers, Mr. Isom's prescription is at once simple and hard to implement. Getting flights back on time is the first priority. "The most profitable airline you can run is an on-time airline," says the 44-year-old executive.
Next, Mr. Isom insists, US Airways needs to start acting like a single airline, not two separate cultures. Hamstrung by the separate procedures of the predecessor airlines, the company lacked "a common focus as to what's important to fix," he says.
To address late flights, his team assembled a standard departure checklist every department now follows. The new "countdown to departure" checklist sets concrete metrics and goals for each workgroup. In the past, varied procedures led to delays of four to six minutes that cascaded across cities. Mr. Isom, who earlier oversaw ground operations and customer service at Northwest Airlines, says, departure planning "had not been done in a coordinated fashion."
Of his penchant for lists, he says: "I like to have a plan."
He also tightened the leash on airport station managers who used to have more discretion to delay a flight for connecting passengers or other reasons. That leeway may have worked at smaller America West, but it wreaked havoc at US Airways. The approach left aircraft out of place and caused crew shortages in certain cities. Now, decisions have to be cleared through the airline's centralized operations control center.
On his initial tour of US Airways facilities, Mr. Isom zeroed in on the lack of plans. He observed that the airline needed help preparing for winter, and started asking questions. Do you have the de-icing trucks and fluid you need? Have you worked on a strategy with the local airport authority and the Federal Aviation Administration? Have people been trained? He ordered tests on all winter equipment and a review of the airline's employee training.
So far, Mr. Isom is off to a good start. The airline's on-time performance improved to 80.6% of flights in November from 75.7% in October, though other airlines also improved.
Earlier in his career, Mr. Isom worked in America West's finance department, just after that airline emerged from bankruptcy reorganization. "Most every job that I've been in has had a component of severe financial issues and severe operational issues. It's no different here," he says. "You have to be willing to just get in there and bite it off one piece at a time."
In his current role he brings a good balance of customer-focused ideas and analytical skills, says US Airways President Scott Kirby. Adds Mr. Parker: "Robert's much more structured and detail-oriented than either me or Scott, who are both much more conceptual."
There's no doubt that US Airways needs more focus. Immediately after the combination, its stock price soared and profit returned. Since then, however, progress has stalled. Expenses this year have risen faster than at rival airlines as a result of operations woes. Delivering late baggage to customers, paying overtime, hiring more workers at airports, and accommodating stranded passengers at hotels all contributed to higher costs.
Many of the problems are typical for airline mergers, a reason why most carriers have avoided them. But US Airways' management, dominated by executives from the much smaller America West, also failed to grasp the complexity of operating along the East Coast, industry insiders say. There, the weather is worse, the skies are more congested and the politics of dealing with air-traffic-control officials are more challenging than in the West. Mr. Parker says he disagrees that it was a lack of know-how.
While management plays down its failure to combine union groups -- pilots from each side of the merger are still feuding over seniority rankings -- the tension has stunted joint contract talks and led to picketing. "This merger is far from complete. Management has clearly failed to integrate labor and manage two diverse cultures," the union that represents both pilot groups said in a recent statement.
Meanwhile, revenue growth is slowing, year-over-year profit is declining and the stock has dropped to under $16 from a 52-week high of more than $62. Although other airlines have also suffered amid rising oil prices and concern about travel in a strained U.S. economy, some analysts voice particular concern about US Airways. They cite its lack of international exposure and heavy spending to improve operations. That has increased the carrier's unit costs, or the cost to fly each seat one mile, by two to three percentage points higher than the airline projected. Even Mr. Parker says that is high in an industry that tends to rely on profit margins of 5%.
Mr. Isom hopes to have operations back on track sometime next year. Longer-term, he wants to focus on improving the appearance of the fleet and expanding internationally. The airline has earmarked $50 million to primarily improve business-class cabins on overseas flights. It will also spend to overhaul certain technologies, such as tracking baggage, after neglecting to do so for the past two years.
Mr. Isom knows the benefit of a long-term approach. After the death of his grandfather, a farmer, Mr. Isom inherited a batch of seeds from his last tomato crop. He scratched out a plot in his Minneapolis backyard and produced a bumper crop. "I may have some lucky seeds," he says modestly.
Write to Melanie Trottman at melanie.trottman@wsj.com
• Aiming High: After a spring and summer of late flights and other problems, US Airways' Doug Parker brought in operations specialist Robert Isom to make his grand merger vision work.
• The Background: Since America West acquired US Airways, integrating the carriers has proved to be a difficult task.
• The Challenge: Mr. Isom says US Airways needs to start acting like a single airline, not two separate cultures.
