Firm Hands Reaping Applause at US Air

US Airways' revenue per available seat mile and stock price have soared.


With an airplane painted in the colors of defunct Piedmont Airlines behind him, US Airways CEO Doug Parker stood in a Charlotte, N.C., airport hangar and gave a speech rife with the types of things employees like to hear.

Although the goal with most consolidations is to eradicate vestiges of predecessor companies, Parker spoke at the recent unveiling of an airplane dedicated to the past.

"People said stop talking about this ... we're going to start a new culture," he said. "But what I realize is you can't kill that [old] culture. It's still here, it's vibrant, and frankly, it's one of the best assets of US Airways. What you should do is embrace it."

Less than a year ago, Parker and his team from low-cost carrier America West Airlines took over a bankrupt legacy carrier and engineered what so far has been one of the industry's most successful mergers.

Since then, US Airways' revenue per available seat mile and stock price have soared, and Parker has been widely applauded for his communication skills and sensitivity to employee concerns. Now, he's talking about the possibility of merging with another bigger carrier -- Delta Air Lines(DALRQ:OTC BB) or Northwest(NWACQ:OTC BB).

What sometimes gets overlooked in US Airways' success is the contribution of the management teams preceding Parker's. In the final few years at the former US Airways, two CEOs -- David Siegel, from 2002 to 2004, and Bruce Lakefield, from April 2004 to September 2005 -- struggled with the fallout from the Sept. 11 terrorist attacks and the most severe slowdown in industry history.

Through two bankruptcies, they slashed $3.4 billion in annual costs and billions more in debt. Additionally, Lakefield nursed the airline through a period when it almost shut down for lack of cash, raised new cash through investment concepts never previously attempted and eventually managed to save the jobs of the vast majority of the airline's roughly 24,000 active employees.

To be sure, the two CEOs weren't always warmly embraced by employees. Their roles included cutting salaries and benefits and eliminating jobs. But both said, in recent interviews, that they are proud of their work at US Airways.

Siegel, an executive from 1993 to 1999 at Continental(CAL:NYSE), was witness to that company's turnaround, which serves as the clearest precedent to the one he helped bring about at US Airways. At Continental, personable Gordon Bethune took over in 1994 and guided the carrier to success after the run of the widely vilified Frank Lorenzo.

"Like Doug [Parker], Gordon came in when all the cost cuts had been made," said Siegel. "Somebody had taken the hits for that, and now he can be the builder, the positive guy. If I had the choice, I'd rather do that than what I had to do."

Siegel, now CEO of Gate Gourmet, left a post as CEO of Avis Rent A Car to join US Airways. Six months later, the airline filed for bankruptcy protection, a path that would eventually be followed by three of the five other legacy carriers. US Airways secured about $1.9 billion in annual savings, including $1 billion from labor. It wasn't enough, however, given a subsequent breakdown in industry pricing due to rapid expansion by low-fare carriers.

Siegel sought more cuts, an unpopular move that led to his ouster. In 2004, US Airways again sought bankruptcy protection and secured another $1.5 billion in annual cuts. This time, the airline emerged with expenses low enough that it became a viable candidate to merge with America West.

Siegel concedes that he failed to get sufficient pay concessions in the first bankruptcy. "I said we hope this works, the world has to get better. But I always feared we weren't getting enough," he said. "When the world didn't get better, I said now we have to step up to reality."

"I knew when I went to the second round that it would be tough for me to survive politically," Siegel said.

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