Dennis Miller
What about my Member
- Joined
- Mar 13, 2003
- Posts
- 200
Mark Tatge, 04.20.04, 6:21 PM ET
NEW YORK - Chief Executive David N. Siegel's surprise departure as chief executive of US Airways Group Monday signaled just how serious things are at the nation's seventh largest airline. It was Siegel who piloted U.S. Airways through bankruptcy. He secured $1.2 billion in new capital and nearly $2 billion in annual cost savings.
Now, Siegel is ditching US Airways with $5 million in severance. The timing couldn't be worse. The airline faces an onslaught of low-fare competition at its East Coast hubs. At 10 cents per available seat mile, US Airways spends 30% more to operate than low cost carriers like Southwest Airlines , JetBlue Airways , AirTran Holdings and Spirit Airlines.
Siegel, 42, wanted to slice $1 billion more in costs out of the airline. The obvious target was labor, which accounts for 35% to 40% of the airline's operating costs.
He squeezed labor hard, maybe too hard. Depending on what figures you use--the company's or the union's--labor has already shouldered roughly $2 billion to $5 billion in cost cuts. (Pilots claim a $5 billion figure, saying that includes 1,800 lost jobs, pay cuts, work rule changes and lost pensions over their life of their contract, 2002-2008.)
"There is a lot of bitterness. We feel absolutely betrayed," said Jack Stephan, a spokesman for the Airline Pilots Association.
Siegel asked the unions for two rounds of cost cuts during bankruptcy. Then, after the airline emerged from bankruptcy last year, he pushed to reduce costs again. Why? Low- fare competition was eating away at US Airways' markets.
Unions blame Siegel for the oversight. But Siegel had to do something. US Airways has been burning cash from operations at a rate of more than $800,000 per day, a situation that analysts expect to worsen with the entrance of Southwest into Philadelphia next month.
Siegel, previously CEO at Avis Rent-a-Car System, a unit of Cendant (nyse: CD - news - people ), and a senior executive at Continental Airlines (nyse: CAL - news - people ), did little to fix the dysfunctional culture at US Airways. That culture spans back decades to when the airline was formed from a collection of regional carriers.
Today, US Airways has no national route structure. It operates from three East Coast hubs, Charlotte, NC, Philadelphia and Pittsburgh. It flies low-yielding flights to Florida. There's no easy way to expand US Airways route structure. Its 280 main-line jets aren't flown enough. The airline is paying too many crews to sit idle. And until the bankruptcy, it was paying these crews too much money.
The airline fare structure penalizes business travelers, charging them more than $1,000 on some routes. Rather than pay the fares, they turn to carriers like Southwest. "If it were just a matter of throwing money at this problem it would be easy to fix," said Stephan. "The airline needs to develop a strategy and decide what kind of product we are going to offer. Siegel didn't do this."
Bruce R. Lakefield, 60 years old, a member of the US Airways board, was named to replace Siegel.
Will Lakefield, who declined to be interviewed, be more successful in trimming costs? "If he doesn't, there isn't going to be any US Airways," said analyst Ray Neidl with Blaylock & Partners in New York.
A second bankruptcy would likely end in liquidation--a prospect that neither creditors, nor labor want. The airline got a breathier last month when the Air Transportation Stabilization Board agreed to revise the terms of a $1 billion loan made when the airline emerged from bankruptcy, in exchange for $250 million prepayment.
But US Airways real issue is lowering its overhead and getting more fliers on its planes. Even if Lakefield proves successful, Neidl says US Airways survival prospects are at best 50-50. "I said might survive. Too much has changed in the past two years."
NEW YORK - Chief Executive David N. Siegel's surprise departure as chief executive of US Airways Group Monday signaled just how serious things are at the nation's seventh largest airline. It was Siegel who piloted U.S. Airways through bankruptcy. He secured $1.2 billion in new capital and nearly $2 billion in annual cost savings.
Now, Siegel is ditching US Airways with $5 million in severance. The timing couldn't be worse. The airline faces an onslaught of low-fare competition at its East Coast hubs. At 10 cents per available seat mile, US Airways spends 30% more to operate than low cost carriers like Southwest Airlines , JetBlue Airways , AirTran Holdings and Spirit Airlines.
Siegel, 42, wanted to slice $1 billion more in costs out of the airline. The obvious target was labor, which accounts for 35% to 40% of the airline's operating costs.
He squeezed labor hard, maybe too hard. Depending on what figures you use--the company's or the union's--labor has already shouldered roughly $2 billion to $5 billion in cost cuts. (Pilots claim a $5 billion figure, saying that includes 1,800 lost jobs, pay cuts, work rule changes and lost pensions over their life of their contract, 2002-2008.)
"There is a lot of bitterness. We feel absolutely betrayed," said Jack Stephan, a spokesman for the Airline Pilots Association.
Siegel asked the unions for two rounds of cost cuts during bankruptcy. Then, after the airline emerged from bankruptcy last year, he pushed to reduce costs again. Why? Low- fare competition was eating away at US Airways' markets.
Unions blame Siegel for the oversight. But Siegel had to do something. US Airways has been burning cash from operations at a rate of more than $800,000 per day, a situation that analysts expect to worsen with the entrance of Southwest into Philadelphia next month.
Siegel, previously CEO at Avis Rent-a-Car System, a unit of Cendant (nyse: CD - news - people ), and a senior executive at Continental Airlines (nyse: CAL - news - people ), did little to fix the dysfunctional culture at US Airways. That culture spans back decades to when the airline was formed from a collection of regional carriers.
Today, US Airways has no national route structure. It operates from three East Coast hubs, Charlotte, NC, Philadelphia and Pittsburgh. It flies low-yielding flights to Florida. There's no easy way to expand US Airways route structure. Its 280 main-line jets aren't flown enough. The airline is paying too many crews to sit idle. And until the bankruptcy, it was paying these crews too much money.
The airline fare structure penalizes business travelers, charging them more than $1,000 on some routes. Rather than pay the fares, they turn to carriers like Southwest. "If it were just a matter of throwing money at this problem it would be easy to fix," said Stephan. "The airline needs to develop a strategy and decide what kind of product we are going to offer. Siegel didn't do this."
Bruce R. Lakefield, 60 years old, a member of the US Airways board, was named to replace Siegel.
Will Lakefield, who declined to be interviewed, be more successful in trimming costs? "If he doesn't, there isn't going to be any US Airways," said analyst Ray Neidl with Blaylock & Partners in New York.
A second bankruptcy would likely end in liquidation--a prospect that neither creditors, nor labor want. The airline got a breathier last month when the Air Transportation Stabilization Board agreed to revise the terms of a $1 billion loan made when the airline emerged from bankruptcy, in exchange for $250 million prepayment.
But US Airways real issue is lowering its overhead and getting more fliers on its planes. Even if Lakefield proves successful, Neidl says US Airways survival prospects are at best 50-50. "I said might survive. Too much has changed in the past two years."
