Significant Labor Concessions Needed To Succeed

A broad new US Airways business plan released late last week calls for simpler fare structures, improved employee productivity and other measures aimed at lowering costs, while boosting revenue. However, a successful restructuring plan likely will have to also include significant pay, benefits and work rule concessions from labor to accomplish its goals and keep the nation's seventh-largest airline flying into the future, according to one industry analyst.

"They've said they have to reduce (overall) costs by 25 percent, and probably proportionately, if not even more so, it will have to come out of the labor expense area," Ray Neidl, a New York-based airline industry analyst with Blaylock & Partners LP, said of US Airways.  "There's only so much, without changing the model, that you can change outside of the labor area, so at least 25 percent if not more -- benefits, salary and increased productivity -- will have to be changed if the company's going to have any long-term chance of success."

David Castelveter, a US Airways spokesman, declined to comment on speculation surrounding how much the airline might ask employees to give back, in an effort to trim costs. "We're not going to start negotiating through the press about what we're looking to do and what we're not looking to do," Mr. Castelveter said. "We're going to be looking at every aspect of the business (for cost reductions). How much specifically comes from labor ... that's information what will be part of private discussions."

US Airways officials have been mum regarding specific details of its new business plan. However, the Association of Flight Attendants posted an eight-point overview of the plan, called "Framework for the Future," on its Web site following a meeting last week with US Airways president and CEO David Siegel and other executives.

The plan calls for efforts to:

• Lower the airline's costs, while keeping the best elements of its existing business model.
• Leverage the airline's existing strengths in the northeast, where it dominates.
• Increase productivity to the same standards of low-cost carriers.
  Provide consumers with new amenities they are willing to pay for, such as e-mail service and meals.
• Implement simple, restriction-free pricing that reduces fare disparities.
• Market directly to consumers, through vehicles such as the Internet, to reduce the airline's dependency on middlemen to sell tickets.
• Reclaim East Coast market share lost to low-cost carriers.
  
• Expand the airline's reach into the West. 

AFA's governing body, the Master Executive Council, said in the Web posting that "other details of this business plan remain confidential" and that MEC members had signed confidentiality agreements not to disclose them.

Teddy Xidas, president of AFA's Council 40, which represents local US Airways flight attendants, said the governing body was meeting this week to discuss "where we go from here" and "what we're willing to do and what we're not willing to do," in terms of granting concessions.
 
"The company hasn't given us any indication of exactly, fiscally, what they're looking for in the form of concessions," Ms. Xidas said. "They want us to participate, but they didn't actually tell us exactly what.

"Ultimately, the decision will be made by the membership, whether we go to the table or not."

US Airways' employees have already granted significant concessions in two previous rounds. The Air Line Pilots Association previously agreed to more than $560 million in annual wage and benefit concessions. The International Association of Machinists also agreed to concessions totaling $205 million, while the flight attendants granted more than $100 million in givebacks.

According to its Web site, ALPA's MEC met with US Airways' chairman David Bronner in Charlotte, N.C. -- the airline's largest hub -- on Feb. 19 and Feb. 20 to discuss the new business plan, "the defense" of the airline's Philadelphia hub and other issues. Southwest Airlines, a low-cost carrier that has been rapidly encroaching on some of US Airways' key routes, will launch service from Philadelphia International Airport in May.

ALPA spokesman Jack Stephan said he could not comment on US Airways' new business plan until after the union's MEC had seen it. Earlier this month, ALPA's MEC agreed to a less-restrictive and lower-paying wage scale to fly new regional jets that US Airways plans to implement into its fleet. US Airways views the regional jets as an essential piece of a plan that includes lowering its costs to better compete with discount carriers such as Southwest and JetBlue.

US Airways expects to receive the first of 85 regional jets it ordered from Brazil-based aircraft manufacturer, Embraer, later this month. The more efficient, 70-seat airplanes will go a long way toward improving US Airways' bottom line, according to the airline.

Mr. Castelveter confirmed this week that US Airways plans to launch its new Pittsburgh-based regional airline, MidAtlantic Airways, in April. MidAtlantic initially will serve Atlanta, Nashville (TN), Boston, Newark (NJ), and Albany and Syracuse (NY) with one flight per day from Pittsburgh. In May, MidAtlantic will add flights to Buffalo (NY)., Washington, D.C., Detroit, Kansas City (MO) and Philadelphia, Mr. Castelveter said.

Since its successful emergence from Chapter 11 bankruptcy protection in March 2003, US Airways has fallen on hard times again.

It reported a fourth-quarter 2003 net loss of $98 million. Later this year, the airline must meet a number of financial milestones required under the nearly $1 billion in federal loan guarantees it was granted last year by the Air Transportation Stabilization Board to help the airline out of Chapter 11.

Mr. Siegel told financial analysts late last year that the airline needs to cut its costs by as much as $300 million in 2004. Those cuts are in addition to employee wage and benefit concessions that he will seek.

FMI: www.usairways.com