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On April 22, US Airways announced it had withdrawn from merger discussions with United Airlines. On Monday, United instead announced a definitive merger agreement with Continental Airlines. Between those events, US Airways hosted journalists here at its corporate headquarters. Chairman and CEO Doug Parker reiterated his view that industry consolidation overall is positive for the industry and suggested that US Airways eventually would participate. "We have long held the view that the right number of hub-and-spoke airlines for this industry is three," Parker said. "At some time in the future--it could be two years, it could be five years--the next transaction that happens could be with [Delta, United/Continental or American] and US Airways." Parker later fielded questions related to consolidation and other topics.
What made you think that you could get [a merger with United Airlines] through the U.S. Department of Justice?
If we were contemplating a merger between two large airlines right now, I certainly would not be anticipating that it would be easy to get through Justice, but I would know that Justice has to abide by the law. None of the mergers that appear to be contemplated come close to violating antitrust law. [Regulators] can't start thinking, "Okay, this deal will lead to three deals." You'd never end up with any mergers. They will be looking at deals independently.
In the Senate version of the FAA Reauthorization, there was some language proposing when, where and how airlines would be required to disclose various passenger fees. What are your thoughts?
Somehow this all got labeled as hidden fees. If we are hiding these, we are doing a terrible job. We are not trying to hide anything. To the contrary, we are very open about it. We don't want to have legislation that doesn't make sense and creates an environment that says, "If you want to do all these things that you don't want to do, here are all the fees we have." That will clog up Web pages, create a lot of expense and slow down processing time. But we have no problem disclosing to our customers, and we indeed do disclose to our customers, what the entire cost of their travel will be at the time of the purchase.
Do you accept that you and your passengers will have to pay for the NextGen air traffic control system?
We are incapable as businesses to pass along the increase in taxes that we have seen over the past few years. If indeed we were capable of that, the industry would not have lost $25 billion in 2008 and 2009. We cannot continue to accept taxes. We are certainly willing to pay what we save. We'd be willing to invest in a project with a return on that investment. It is questionable, at this point, how great that return is. While air traffic control has enormous benefits to consumers--and by the way, we can save some fuel and so it's also good for the environment--it doesn't get the kind of return that people think the industry is going to get out of it. We don't have a lot of ATC complaints from airlines right now. There is not a capacity issue for the United States right now as it relates to air traffic control, so while putting in place NextGen ATC makes all the sense in the world, it isn't going to save the airlines a dramatic amount. Our position is, so long as we have to pay for it, we'd prefer it not to happen.
What is your prediction of the likelihood of pre-emptive cancellations as a result of the new tarmac delay rule?
There absolutely will be cancellations that would not have been canceled otherwise. The fact is, we got ourselves into this mess. This has been going on for a while now and we had been warned if it didn't get fixed, and it kept happening so shame on us. This is what happens when you don't do right by your customers for a consistent period of time--you get legislation. And the legislation is not going to be perfect. It is going to have some unintended consequences, and we just have to deal with it. The scenarios that people talk about, how a plane is about to take off and is going to turn back and people can't fly ... those will happen. But more likely is what is done pre-emptively. We'll end up doing things in advance, canceling flights in bad-weather situations so we don't allow ourselves to get into those situations. [Penalties of] $27,500 per passenger is a little more than each passenger pays. So you have a huge incentive. Given the publicity around this legislation, we are taking the position that [the federal government] will actually charge [those penalties], so we are not going to let [tarmac delays of more than three hours] happen. The really bad part of this legislation is, when you look at these [lengthy tarmac delays] that happened, almost every one of them was airplanes landing, not waiting to take off. No one sits on a tarmac waiting to take off for seven or eight hours. That doesn't happen. These egregious events were all either related to a diversion or landing at an airport where airplanes continued to land and there were no gates. I would argue that if we could go back in time, we should have fought really hard to legislate that. If you do that, let's have big fines, but let's not have big fines for people trying to get out of airports.
How much capacity has to come out of the system before you guys are happy?
The answer to that question is so dependent on what you think the economy will do. It appears right now, at these levels of capacity and with this economy, that we are going to have an industry in 2010 that is modestly profitable. Not profitable enough to cover the cost of capital, but at least we are moving back into the black. That is in the right direction. I don't think the answer has to be more capacity reductions, but it is a supply and demand issue. Right now, we still have too much supply for the existing demand to be profitable, certainly at these oil prices, but it does not appear to be that far out of balance anymore.
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