Significant Labor Concessions Needed To Succeed
A broad new US Airways
business plan released late last week calls for simpler fare
structures, improved employee productivity and other measures aimed
at lowering costs, while boosting revenue. However, a successful
restructuring plan likely will have to also include significant
pay, benefits and work rule concessions from labor to accomplish
its goals and keep the nation's seventh-largest airline flying into
the future, according to one industry analyst.
"They've said they have to reduce (overall) costs by 25 percent,
and probably proportionately, if not even more so, it will have to
come out of the labor expense area," Ray Neidl, a New York-based
airline industry analyst with Blaylock & Partners LP, said of
US Airways. "There's only so much, without changing the
model, that you can change outside of the labor area, so at least
25 percent if not more -- benefits, salary and increased
productivity -- will have to be changed if the company's going to
have any long-term chance of success."
David Castelveter, a US
Airways spokesman, declined to comment on speculation surrounding
how much the airline might ask employees to give back, in an effort
to trim costs. "We're not going to start negotiating through the
press about what we're looking to do and what we're not looking to
do," Mr. Castelveter said. "We're going to be looking at every
aspect of the business (for cost reductions). How much specifically
comes from labor ... that's information what will be part of
private discussions."
US Airways officials have been mum regarding specific details of
its new business plan. However, the Association of Flight
Attendants posted an eight-point overview of the plan, called
"Framework for the Future," on its Web site following a meeting
last week with US Airways president and CEO David Siegel and other
executives.
The plan calls for efforts to:
- Lower the airline's costs, while keeping the best elements of
its existing business model.
- Leverage the airline's existing strengths in the northeast,
where it dominates.
- Increase productivity to the same standards of low-cost
carriers.
Provide consumers with new amenities they are willing to pay for,
such as e-mail service and meals.
- Implement simple, restriction-free pricing that reduces fare
disparities.
- Market directly to consumers, through vehicles such as the
Internet, to reduce the airline's dependency on middlemen to sell
tickets.
- Reclaim East Coast market share lost to low-cost
carriers.
- Expand the airline's reach into the West.
AFA's governing body, the Master Executive Council, said in the
Web posting that "other details of this business plan remain
confidential" and that MEC members had signed confidentiality
agreements not to disclose them.
Teddy Xidas, president of AFA's Council 40, which represents
local US Airways flight attendants, said the governing body was
meeting this week to discuss "where we go from here" and "what
we're willing to do and what we're not willing to do," in terms of
granting concessions.
"The company hasn't given us any indication of exactly, fiscally,
what they're looking for in the form of concessions," Ms. Xidas
said. "They want us to participate, but they didn't actually tell
us exactly what.
"Ultimately, the decision will be made by the membership,
whether we go to the table or not."
US Airways' employees
have already granted significant concessions in two previous
rounds. The Air Line Pilots Association previously agreed to more
than $560 million in annual wage and benefit concessions. The
International Association of Machinists also agreed to concessions
totaling $205 million, while the flight attendants granted more
than $100 million in givebacks.
According to its Web site, ALPA's MEC met with US Airways'
chairman David Bronner in Charlotte, N.C. -- the airline's largest
hub -- on Feb. 19 and Feb. 20 to discuss the new business plan,
"the defense" of the airline's Philadelphia hub and other issues.
Southwest Airlines, a low-cost carrier that has been rapidly
encroaching on some of US Airways' key routes, will launch service
from Philadelphia International Airport in May.
ALPA spokesman Jack Stephan said he could not comment on US
Airways' new business plan until after the union's MEC had seen it.
Earlier this month, ALPA's MEC agreed to a less-restrictive and
lower-paying wage scale to fly new regional jets that US Airways
plans to implement into its fleet. US Airways views the regional
jets as an essential piece of a plan that includes lowering its
costs to better compete with discount carriers such as Southwest
and JetBlue.
US Airways expects to
receive the first of 85 regional jets it ordered from Brazil-based
aircraft manufacturer, Embraer, later this month. The more
efficient, 70-seat airplanes will go a long way toward improving US
Airways' bottom line, according to the airline.
Mr. Castelveter confirmed this week that US Airways plans to
launch its new Pittsburgh-based regional airline, MidAtlantic
Airways, in April. MidAtlantic initially will serve Atlanta,
Nashville (TN), Boston, Newark (NJ), and Albany and Syracuse (NY)
with one flight per day from Pittsburgh. In May, MidAtlantic will
add flights to Buffalo (NY)., Washington, D.C., Detroit, Kansas
City (MO) and Philadelphia, Mr. Castelveter said.
Since its successful emergence from Chapter 11 bankruptcy
protection in March 2003, US Airways has fallen on hard times
again.
It reported a fourth-quarter 2003 net loss of $98 million. Later
this year, the airline must meet a number of financial milestones
required under the nearly $1 billion in federal loan guarantees it
was granted last year by the Air Transportation Stabilization Board
to help the airline out of Chapter 11.
Mr. Siegel told financial analysts late last year that the
airline needs to cut its costs by as much as $300 million in 2004.
Those cuts are in addition to employee wage and benefit concessions
that he will seek.