US Airways CEO David Siegel yesterday told employees the carrier must fight for its life to defend Philadelphia from a Southwest Airlines attack that looms just over the horizon. To do so, he said all employees must face "painful" decisions as the company works to reinvent itself as a cost-competitive carrier.
"Southwest is coming for one reason: They are coming to kill us," Siegel said during the presentation. "They beat us on the West Coast, and they beat us in Baltimore. If they beat us in Philadelphia, they're going to kill us."
He specifically predicted a Southwest victory should the low-cost carrier expand Philadelphia services from the four-gate operation set to begin in May to eight gates. He also indicated Southwest's intentions to add more routes and frequencies from Philadelphia this summer. Southwest confirmed it would make an announcement about Philadelphia later today. Siegel added that US Airways will learn from America West Airlines' successful reinvention, rather than emulating TWA's strategy that failed to repel Southwest's advance into St. Louis
(BTN, Jan. 15, 2001).
Evoking the image of underdog Rocky Balboa fighting for Philadelphia, Siegel said US Airways will offer a simplified, low-fare structure for Philadelphia travelers, transition the airport operation to a rolling hub and make management changes.
In a broader sense, Siegel said US Airways substantially must close the gap between the carrier's 10-cent cost per available seat mile and the six-cent CASM achieved by Southwest and other low-cost carriers. "This is a big problem," he said. "We tried small fixes, and we know those don't work. MetroJet was about an eight-cent carrier and we know what happened to MetroJet
(BTN, Oct. 28, 2001)."
His package of solutions includes a reconfigured fleet relying heavily on regional jets but possibly excluding a first class product, a "best-in-class" Internet site to be launched later this year and a new inflight experience with elements that "are better" than JetBlue's. He also said the carrier will begin adding seats to the fleet of Boeing 757 aircraft but that a long-term decision on the Pittsburgh hub has not yet been finalized.
In a bold appeal to employees, Siegel said US Airways must have in place by the summer new, competitive labor agreements accounting for roughly half the necessary cost savings. Despite guidance given by union leadership to its members, Siegel implored each employee to individually decide "whether or not to participate," an approach that likely will intensify animosity between management and certain labor groups. The pilots union previously stated it would work with management toward more concessions. The flight attendants union appears on the fence, waiting for a detailed business plan, while the union representing mechanics has said it is unwilling to discuss a third round of concessions.
Siegel said formal labor negotiations will begin next month. "We are still at risk of not meeting terms of that [government-backed] loan as early as June," he said. "We bought some time, but not a lot of time."
Meanwhile, Siegel acknowledged that asset sales are "a trademark of failing carriers," but said the $1 billion US Airways borrowed is backed by taxpayer money, and "we may have to burn the furniture to stay warm." Though he mentioned Virgin USA in the context of asset sales, he gave no specifics on any potential transactions under consideration by the company's board.