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Nearly three years after the merger of America West and US Airways, US Airways this year plans to invest $300 million--$100 million more than it spent on integration in each of the past two years--to become the "airline of choice" for travelers. That investment does not encompass the cost of 105 new aircraft on order for both its mainline and express service operations, including 17 new Airbus 330-200 planes and 22 Airbus 350s to replace older planes and help the airline expand international services to new gateways. The carrier intends to spend $50 million to refurbish the interiors of nearly 300 mainline aircraft for a common interior branding, with leather seats throughout the coach cabin. Flight crews soon will debut a new uniform to replace those of the two former airlines. By May, first-class cabins across the Atlantic will feature new lie-flat seats, personal handheld inflight entertainment units, new dining options and other amenities. US Airways also plans to deploy new airport technology, including automated gate readers, baggage scanning equipment and increased customer self-service options. The mantra is "reliability, convenience and appearance," according to president Scott Kirby. But there are no plans to boost sales from corporate accounts, which represent a "small, single-digit percentage" of overall sales today, Kirby told Management.travellast month as he discussed the identity and future of the airline, new à la carte pricing and challenges of the past year. An excerpt follows.
Some people are confused by your identity. Do you want to be known as a low-cost or mainline carrier?
We don't think of it that way. We want to be the airline of choice, where customers choose based principally on schedule and price, but only so long as you deliver a reliable, convenient product that looks nice. We don't try to fit ourselves into a box of we're either a low-cost carrier or a mainline carrier. I don't think anyone fits into those boxes anymore. I think those two models are coming together, and that those distinctions are artificial. We've tried to take a step back and ask, 'What do customers want?' They prefer nonstop flights, they prefer the lowest fare, but, most of all, once they get beyond those two, they want you to get them there on time, with their bags and with a minimum amount of hassle. That's what we're trying to deliver.
As you expand your international service in coming years, it seems as though you will need more corporate business. What will you do to win it?
We won't sign corporate accounts just for the sake of signing a corporate account. For us, it has to make rational economic sense, and it only makes rational economic sense if the corporate account is willing to give us more than fair market share of business. If the corporate account wants a discount but is only going to fly us in places where we have the only service, then that doesn't make sense. If they're going to continue to fly other carriers where those carriers have nonstops and not take a connection on us and only fly us in markets where we have dominant service, then that doesn't make much sense. Our philosophy is if a corporate account can deliver market share to us that's greater than the fair market share would otherwise be, then we're happy to engage in corporate discounts; but otherwise, we're not.
Among the challenges that US Airways faced last year, you cited the troubled reservation system migration that wreaked havoc on your ontime performance for several months. What went so wrong?
The big thing was we focused on the technical integration rather than the process integration. We got a system that technically worked, but the processes were different. As a result, on the US Airways network, it simply took longer to complete a bunch of the different kinds of transactions than it did on their previous system. This used to take two seconds, now it takes five, but it happened 15,000 times a day. It was just slight changes to the process--like the standby boarding process or extra steps in closing out a flight--which they (US Airways employees) hadn't had before. It just turned into a snowballing cascade: You'd start the day, and the flight left six minutes late ... You get to the end of the day, and you're an hour behind and all the flights that were ontime are waiting for connecting passengers. If we did a redo, we would be much more focused on testing the process in advance, and the timing, before we cut over. We could do it much better the second time around because we have the battle scars from the first try. In spite of the real challenges and problems that we had, the bottom line is still extremely good and infinitely better than the alternative.
Given your recent $25 fee to check a second bag, is more à la carte pricing in the works?
The industry is evolving to more of an à la carte model; the reason for that is the economics. Since the industry was deregulated, yields in the United States are down by more than 50 percent in real terms. Our costs, unfortunately, continue to increase along with inflation, but fares have declined by 50 percent. In that world, airlines simply can't operate the way they did historically. It's imperative that we keep ourselves price competitive with other airlines. One of the ways you do that is charge only those customers who are using the extra services for those services. The second bag is a perfect example. Only 8 percent of our customers check a second bag, and, before this, all of our customers effectively were paying the cost. Now only those customers who use the service will pay, and we'll continue to offer low fares to everyone else. We think the bag fee will be about $75 million net of extra expenses. As for an end game, it depends on where we, and the whole industry, ultimately go to in terms of à la carte pricing.
How long will it take customers to see all these new services that you're introducing ?
Perception tends to lag reality in both directions. When we started running a bad airline, we got the benefit of the doubt for a long time. Going the other direction, it's the same thing. I certainly get a lot fewer complaints sent personally to me than I did a few months ago. That's how it changes. It's not overnight; it's one customer at a time, with that customer having consistently good experiences, and all of a sudden waking up one day and saying, 'You know the last four flights have been smooth as a baby's bottom. This is pretty good.' That starts to build on itself. That process has already started, and we'll just continue to accelerate it as long as we continue to run a good airline.
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