> At the helm of US Airways for just over a year, CEO David Siegel on March 31 > guided the airline out of bankruptcy after seven months of court-supervised restructuring. > Business Travel News editors David Jonas and David Meyer last week spoke with Siegel about US > Airways' emergence from Chapter 11 and its future prospects. > > BTN: Considering the extremely rough road that lies ahead, was emerging from bankruptcy last > month a mixed blessing? > > David Siegel: It feels better to be out than in, but I guess it is a mixed blessing. We feel > good about having accomplished all that we could in the courts. We fixed the balance sheet, took > a lot of money out of our cost structure and improved liquidity. Now we can focus on growing the > business. While everybody else is distracted trying to do some of the things we have done during > the past seven or eight months, we can stay ahead of the rest of the industry and continue on > the path of implementing our business plan. > > BTN: You seem to have garnered nearly universal praise for the restructuring thus far, but > competitors and analysts still question if US Airways' unit costs are low enough to allow for > effective competition. > > Siegel: It is a fair criticism. Yet, before we restructured we were the number-six network > carrier with the number-one highest cost structure, and now we are now the number-six carrier > with the number-six cost structure. We'll still lose money this year. The industry will lose > money this year. The revenue environment is uncertain. > > While we dramatically have improved our relative position, the whole industry continues to be > under pressure. That just says our work is not done. We still need to reexamine our business > model. Yet, if you look at it as a horse race, we were dead last and now we are kind of toward > the front. > > BTN: Certainly strides have been made on the cost side. What sorts of strategies are you seeking > to employ in terms of revenue generation? > > Siegel: We are doing several, broad-brush things. We are trying to optimize the existing > network. We have right-sized the fleet, down to 279 mainline shells. We are about to deploy over > the next two or three years a very large number of regional jets. We have the United partnership > domestically and are going to join the Star Alliance and do more on an international basis later > in the year. And we are bringing in best practices on analytical decision-making tools for > pricing, revenue management, scheduling and planning. > > We are implementing a different strategy with the network by making the hubs work together on a > more complementary basis and better capitalizing real estate positions we have at the preferred > airports in New York, Boston and Washington. > > BTN: Please explain your capacity reductions and the overcapacity problem still facing the > industry at large. > > Siegel: If you look at August 2001 and today, industry revenue is down about 30 percent and our > capacity is down about 30 percent, so we have been the only disciplined competitor matching > capacity with demand. The rest of the industry, with the more recent cuts, is down maybe 12 > percent to 15 percent. In simplistic terms, if revenues are down 30 percent?half in capacity > reduction and half in yield?you would say that another 15 percent of industry capacity needs to > come out. > > The math is obvious, but everyone has a different definition of excess. Some people say one > competitor that has about a 15 percent marketshare and currently is operating in Chapter 11 > should go away. Some people would say that everybody has a marginal hub. We have Pittsburgh, > Northwest has Memphis, Continental has Cleveland, American has St. Louis and Delta has their > position in Dallas and I argue in Cincinnati and Salt Lake. So another way for capacity to come > down is for everyone to shut down their uneconomic hub positions. > > A third alternative is everyone pares back capacity 15 percent around their networks because > they do not want to shut down a hub, but it is not clear what the new level of demand is. Even > though the war is over, demand still is depressed. What is the new baseline? It appears to be a > permanent drop in demand and we are trying to assess if we have to take additional capacity out. > We continue to evaluate our marginal hub position in Pittsburgh. > > BTN: Back to alliances, how is the United partnership currently performing, and what is the > vision for the next few years? > > Siegel: It is tracking ahead of forecast and we are very pleased with the results as we have > pursued a fast-track implementation. By summer, we expect to see meaningful value. It takes > three or four years for these alliances to mature. One reason is the customer needs time to > become enfranchised and understand the network opportunities. Yet, there also is the practical > issue of creating, in our vision, a seamless product with United. Some of that will take time. > > Also, you have joint corporate sales and joint promotions to leisure customers, and there is a > purchasing cycle: training the salesforce, putting together new corporate opportunities and then > selling in. But once the alliance is mature, the numbers we laid out to the Air Transportation > Stabilization Board show a couple hundred million dollar benefit a year to US Airways, and we > think that is on the conservative side. > > BTN: We understand the joint corporate sales effort already has begun. > > Siegel: We already have made hundreds of presentations to corporations to jointly sell and have > had some good success. But it does take time because every corporation has its own > decisionmaking cycle. As we get out in front of corporations, every quarter the product offering > is that much more attractive and competitive because we have implemented more codeshare cities > and worked out more of the kinks. > > BTN: On the topic of corporate sales, we have been hearing more about reciprocity at the most > senior levels. Have you been getting requests for your attention to reciprocal negotiations? > > Siegel: We have been proactive with that, more so than in the past. We are an important customer > to a lot of our vendors. Our new equity sponsor, the Retirement System of Alabama, has great > equity relationships. They have a portfolio of operating companies, including a very large media > company, for example, that has thousands of employees around the country. We will make sure that > we have competitive offers into those operating companies to get a better share of their > business. > > BTN: In your mind, are airfares at sustainable levels or is deeper, more comprehensive reform > necessary? > > Siegel: Absolute revenues are not at a level that can sustain the industry. Something has to > adjust to the marketplace. We have always said there needs to be changes to the fare structure > that are more consumer-friendly but also revenue-neutral to revenue-positive for the industry. > We continue to test ideas, as do other carriers. We would agree that the fare structures need to > be simplified. We think the low end needs to come up?and we tried to initiate some things there > last year that got unwound this year?and the high end needs to come down. There needs to be a > convergence, but how do you do that where you are not revenue-negative? > > Some of the experiments of other carriers, where they have tried to simplify, have had a > significant adverse impact to the industry. The reduction in price did not sufficiently > stimulate enough volume, and they were revenue-negative decisions. You are seeing some of these > experiments being dialed back. The industry will search for a structure that works for the > consumer and for the airlines. There will be a lot of experimentation to test the elasticity of > demand. > > BTN: How far off is profitability? > > Siegel: It is so hard to say because we are all trying to get a grip on what the real revenue > environment is and the extent of the war impact. There is a consensus that the industry loses a > significant amount of money this year. Given our restructuring, we will outperform the other > network carriers. People are thinking 2004 will be unprofitable and 2005 is when we will make > money. It is largely driven by what happens with revenues, and it is hard to predict. > > Clearly, the whole industry is on an unsustainable path. We, being the first to restructure, are > extremely well-positioned relative to the rest of the industry. We are the lowest-cost major > network carrier, and we continue to bring in best practices and challenge the business model. We > have built into our plan significant cost reductions over the next two to three years. We are > not done. > > BTN: An important element of US Airways' restructuring is regional jet deployment. What is the > plan and how close is an order from a manufacturer? > > Siegel: The order will be very soon and very large. We will deploy RJs in three ways: downgauge > lowest load factor narrowbodies and redeploy them for other opportunities; add new markets that > were too far for a turboprop and too thin for a mainline jet; and look at opportunities to > replace turboprops based on passenger preference or for competitive reasons. > > Of the 300 RJs we plan to add, they will fall roughly evenly into each of those three > categories. We have a pent-up demand for regional jets that has built up during the past four or > five years, so there is lots of catching up to do against the rest of the industry. It will be > positive from a marketshare perspective and positive from a customer product perspective. And as > you add regional jets, it brings in a lot more feed to the mainline. > > BTN: Do you expect additional airline bankruptcies among the major carriers? > > Siegel: There are carriers that have a lot of liquidity. As a practical matter, it is unlikely > they would file, and it becomes an interesting bluffing game with labor. Others clearly have > cash-burn liquidity issues and are on the precipice. The industry will restructure, but there > will not be uniform success across carriers. You may have a situation of haves and have nots. > > There are three of us who have had burn rates and a liquidity position that forced us to do a > significant out-of-court restructuring or go through the process. They are obviously us, United > and American. With Delta, Northwest and Continental, the question is, Do they have sufficient > liquidity and/or are their burn rates low enough where it would be difficult for them to achieve > the same degree of success in restructuring the cost base? It will be interesting to see where > we all are in a year or two. __________________________________ Do you Yahoo!? Yahoo! SiteBuilder - Free, easy-to-use web site design software http://sitebuilder.yahoo.com