US Airways strategizes to safeguard future

Doug Parker became chief executive officer of America West and later US Airways Group Inc. 10 days before Sept. 11, 2001, when planes crashing into buildings forever changed air travel, and made flying more of a hassle.

Now just getting to the gate can be an ordeal: lines at screening checkpoints, body scans, removing shoes, surrendering all but 3 ounces of liquids.

After the Sept. 11 terrorist attack, Americans' fear of flying spurred a shakeout in the industry that continues today: 159,000 airline employees, or 29 percent, lost their jobs since 2001. Others lost pensions and pay in bankruptcy reorganizations. Some airlines disappeared.

The 9/11 attack accelerated fundamental changes in "an industry that had never been really financially strong," said Parker, 49, reflecting on his decade as CEO, his thoughts about Philadelphia, and why rival Southwest Airlines Co. is shrinking here.

A big proponent of consolidation, Parker said that whether US Airways goes it alone, or merges - he cited as potential merger partners American, Delta, and United - "Philadelphia is extremely important to us, and will be important forever."

US Airways' Charlotte, N.C., hub has more daily flights - 600 compared with Philadelphia's 444 - but Philadelphia generates more revenue "by a pretty large margin," Parker said.

"We fly bigger airplanes out of Philadelphia to bigger markets, and there's more business in Philadelphia so you can get higher yields. So the revenues are higher."

Growth in Philadelphia will be international, Parker said, although international travel now "is a little soft."

"Internationally, we think there are additional opportunities over time. Nothing to announce yet, but we are working all the time with the Convention and Visitors Bureau and others to come up with places that make the most sense to fly and where we can get the most traffic."

US Airways has successfully beaten Southwest back, able to match fares and with fuller planes on routes Southwest said were unprofitable. Southwest has been downsizing operations here - from a peak of 71 daily nonstop flights to 20 cities to its current 55 daily flights to 18 cities. Four of those 18 destinations, including Pittsburgh, will disappear in January.

"I think Southwest came into Philadelphia in a large way because they anticipated US Airways might be going away. It was not an illogical assumption," Parker said. "Without the America West merger, US Airways would have gone away."

US Airways is able to fill planes, called "load factor," and charge more per seat, known as "yield," because it connects passengers from its Philadelphia hub to dozens of cities, including 34 destinations in Europe, the Caribbean, Mexico, the Middle East, and Canada. Southwest does not fly internationally.

Southwest flies Boeing 737s, with 137 seats. US Airways' fleet is varied, and includes smaller regional jets.

"We have a competitive advantage in places like Philadelphia, where we have a lot of connecting traffic," Parker said. "We can match Southwest's local fares, but we don't have to fill up the airplane with the local fares. We have a lot of connecting people, and Southwest doesn't have that ability. We can take people from Pittsburgh on to Frankfurt or London."

"Southwest's model is fantastic, but it doesn't work as well in another airline's large international hub."

After the 2005 merger, US Airways had a reputation for baggage mishandling, operational unreliability, customer complaints, surly service workers, decrepit equipment, and revolving-door management.

"And most of that problem was focused in Philadelphia," Parker said.

"I remember a board meeting where one of our management people, head of operations at the time, said, 'Philadelphia is an issue that can't be fixed.' "

Those problems included airspace congestion, chronic flight delays, and labor angst. "Not having employees pulling on the same side as the company at times," Parker said. But the biggest problem was US Airways' operations management at Philadelphia airport. "We set ourselves up to fail back then."

After The Inquirer in October 2006 detailed US Airways' chronic baggage problems, the airline spent millions on new baggage equipment and more airport service workers and managers, and began to attack the other part of the mishandled bag problems - flight delays that often cause luggage to get lost or waylaid between planes.

A new chief operating officer, Robert Isom, began a campaign to turn around the worst on-time performance record among major airlines to be No. 2 last year. He hired Bob Ciminelli, who had run American Airlines' operations at LaGuardia Airport, to head US Airways operations at Philadelphia International. US Airways established a satellite corporate headquarters at Philadelphia airport, headed by Suzanne Boda.

It probably did not hurt that US Airways also began rewarding employees with bonuses when it got good performance marks, based on federal data.

The airline is still plagued by labor issues, including a dispute over integrating seniority between more senior former US Airways pilots and less senior pilots with America West. The pilots' union has sued the company for allegedly stalling on contract talks to keep costs low.

In July, US Airways sued the pilots' union for a work slowdown by pilots on the East Coast. "It will get resolved," Parker said. "We can't have a joint contract until we have a joint seniority list. I expect it will be tied up in court for a considerable time, certainly a year or more."

In 2008, airlines were hit with the worst crisis since 9/11: crude oil at $147 a barrel, the financial collapse on Wall Street, and a recession.

To survive, they all made drastic changes: markedly reducing the number of flights and seats, cutting jobs, grounding older and less fuel efficient aircraft. Planes became more crowded.

With fewer passengers flying, airlines added fees for checked bags and other amenities once included in the ticket price. Although unpopular, fees are here to stay, Parker said.

The macro challenge ahead is "continued discipline" and "capacity restraint," he said. "We are still, in 2011, an industry that's not doing particularly well. We've made huge strides, but we're not done."

Parker said there are still too many airline hubs. US Airways closed Pittsburgh and Las Vegas as hubs after the 2005 merger, but other airlines have not made similar tough decisions, he said.

As a result, there are midsize cities that are "marginal" airline hubs, and removing them would rightsize the industry and planes in the air.

"Philadelphia is not one of those," Parker said. "The industry has too many hubs in total. Philadelphia will always be one of them."

Contact staff writer Linda Loyd at 215-854-2831 or [email protected].