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."
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