USAirways Chief Says Facilities Need to Be Next

US Airways CEO David Siegel, over a month beyond emergence from Chapter 11, was invited to look to the future, even as he explained his airline's remarkable, short history as a DIP (from August 11 of last year, until March 31 of this one).

At the Morgan Stanley Debt Investors Conference in New York on May 1, Siegel predicted airport costs are very likely the next big arena in which cost-cutters will come to do their work. They're unlike airlines, in that competition can't just come from 'nowhere' -- but, if air travel's new hassles are to be compensated to the customers, the airlines have done just about all they can; additional cost savings will need to come from facilities.

One example of why he thinks so, is that, at the airline's Pittsburgh hub, it costs USAirways about $9 per passenger, for facilities use -- and $8 of that goes just to service the airport's debt. Pittsburgh, he surmises, might not only not gain hub status for another airline -- it might lose the one it has.

Siegel (right) noted, "So when I came to US Airways a little more than a year ago, it was with the full knowledge that we had a steep mountain to climb. And beyond the lousy set of circumstances in our operating environment, the world of commercial aviation has changed forever -– especially for business travel, which has always been the cornerstone of our profitability. Business travel buying and behavior patterns are part of this new world that is forever changed. Just as the NASDAQ at 5,000 and the 28-year-old dotcom millionaires are a faint memory, so too, are the corporate travel budgets that had no limits.

It's about the money.

"Business travelers now shop with price in mind," he said. "Not to the extent of Aunt Martha who will only fly when the fare falls below $200, but they are now bargain shoppers nonetheless. They stay over a Saturday night. They book their travel 21 days in advance. They do all kinds of things to save money that they would not have done in the go-go days of the ‘90s. And, they are assisted by perfect price information that is now available to each and every one of us via the Internet."

He explained a couple major reforms: "...At the core was the requirement that we reduce our costs, because airline revenues will likely never be generated at the rates they once were..." One way to do that, is to more-closely size the aircraft (and their expenses, including crew expenses) to the route. "...We are going to deploy more than 300 regional jets to better serve the small to
medium-sized cities of our network, and give us the ability to open new markets..."

Predictions are fun, but scary.

Siegel saved the best for last: what's going to happen next? He let fly a broadside at the profligacy of airport expansion: "...I predict that airport costs are part of the next wave of aviation industry restructuring. The seemingly insatiable public appetite for air travel led to the development of too many planes and too many hubs chasing too few passengers. Furthermore, airports and airlines built very expensive and elaborate facilities that transformed airports into destinations unto themselves. And in the process, we lost sight of the fact that above all else, passengers want airports that are efficient, convenient, and affordable, contributing to the overall desire for low-cost air transportation.

"So just as airlines expanded too much in the last decade, so too have airports. And the debt is coming home to roost, so to speak... Prior to our emerging from bankruptcy, we rejected our Pittsburgh facility leases, effective next January, with the goal of renegotiating those leases and lowering our costs. I believe that the issues at play at Pittsburgh will soon confront other airport and other airlines as the industry continues to restructure... And moving forward, investors are going to need to carefully scrutinize plans for airport growth and development to make sure they are based on the cost efficiencies that airline consumers now demand."

FMI: www.usairways.com/about/speeches/05_01_03.pdf