US Airways Chief Calls For Wholesale Reform
By Darren Shannon 
US Airways Chairman and CEO Doug Parker has called on the U.S. airline industry to discard its historical bias toward market dominance and adopt a value-based business model.
Speaking to journalists at the airline’s annual media day in Tempe, Ariz., today, Parker noted that capacity cuts and a pronounced shift toward ancillary revenues borne from last year’s fuel crisis and a recent stabilization of oil prices has inadvertently produced an environment that could benefit U.S. airlines, and may even produce a profit despite the current economic depression.
However, Parker also warned that this short-term benefit should not derail an opportunity to turn an industry that has consistently underperformed other businesses into one that can post consistently positive returns.
“This industry is at a very interesting point in time...The oil crisis of 2008 forced us to make aggressive changes before the real crisis hit. Because of changes in the pricing model to include ancillary fees and with oil prices falling...we may actually be profitable [as an industry] in 2009,” said Parker, noting that even if passenger unit revenue falls 15% this year, US Airways will still breakeven.
“But,” he added “this implies a level of comfort I don’t think is in our self interest.” Instead, the airline industry must “convert the airline business into a real business” that can escape a financial performance standard that consistently fails to match the median for other U.S. industries.
“I know what you are thinking – I am nuts. But there is nothing charming or romantic about this; it cannot continue,” he said. “Conditions are right to get this fixed.”
A key challenge is consolidation. “The problem is fragmentation. There is not one single airline with more than 25% of market share...and there are six airlines with between 10% and that 25% share,” noted Parker. “It is very hard to generate returns.”
Parker, although a champion of US Airways’ own growth, also feels any consolidation will benefit the entire industry. “US Airways doesn’t need to participate – although it would benefit our shareholders. Defragmentation is beneficial to all.”
Labor relations must also improve, and the onus is on management, added Parker. He warned that the cycle of signing unsustainable contracts during periods of strong revenue and then requesting concessions in the downturns only destabilizes the industry. “This is not labor’s fault, it is management’s fault,” said the chairman and CEO. “Labor does what it is supposed to do--represent its members. [Management] needs to [negotiate] proper contracts.”
The industry must also revise its business model. “There is no business that has a loyalty program like ours. We have a product to sell, why are we giving it away?” He added that ancillary fees also “generate real improvements” and should produce between $400 million and $500 million in extra revenue in 2009 for the airline.
U.S. airlines must also work together to challenge federal control of an industry “that is overtaxed and over regulated.” Parker noted that the industry’s lobbying efforts, although improving, must be stronger, and that a concerted effort must be made to tell Congress “to do no harm.”
Photo: Benet Wilson
