Siegel: "It's Going To Be a Battle For Our Lives"

This isn't what US Airways CEO David Siegel had been hoping for. Just months after his airline emerged from bankruptcy, still limping, the company faces a new threat in one of its biggest hub markets.

Southwest Airlines is coming.

US Airways now faces competition at the gate from the low-cost carrier with one of the best reputations in the business. And it doesn't help that US Airways still carries the highest cost-per-passenger-mile in the business.

Analysts say this is where US Airways makes it or breaks it.

"Philadelphia was its last great fortress of non-competition," said Michael Dyment, with the aviation consulting group Simat, Helliesen & Eichner in Arlington (VA).

Siegel, speaking to employees during a March 24th webcast, said bravely, "We can't run from Philadelphia. We're not going to run. It's going to be a battle for our lives." But to keep that promise, Siegel will have to do the one thing that's been toughest for him since emerging from bankruptcy almost a year ago: drive down costs.

US Airways' cost per available seat mile (CASM) is 13 cents, the highest in the industry. Southwest's cost is just eight-cents -- the lowest in the business.

"Southwest's cost structure is so advantageous that they can come into new markets and charge substantially less than what the incumbent is charging," Dyment said.

That's the problem in a nutshell, said Siegel, during the webcast. "Last year our average fare was $125. Unfortunately, it cost us $140 to carry that passenger, so every time a passenger got on one of our airplanes last year we were paying them $15."

But what's left for Siegel to squeeze? His workers have already chipped in. During bankruptcy, they agreed to about $1 billion a year in pay and benefit cuts. When, during the webcast, Siegel asked for another round of cuts, union leaders accused him of trying to save the airline with their bread and butter instead of restructuring. Now, on top of the Southwest problem, Siegel faces demands from union workers that he resign.

FMI: www.usairways.com, www.southwest.com