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'US Airways' climb back'

Revived by a merger, the near-dead airline is again making money.

By STEVE HUETTEL
Published March 27, 2006

	[Times photo: Joseph Garnett Jr.]
	Consumer complaints are down 1.3 complaints* (January 2006) 5.5 complaints* (January 2005) *per 100,000 boardings Now a leader in on-time performance 2nd among the 10 top airlines (January 2006) 8th among the 10 top airlines (January 2005) Bay area won't see US Airways boom

One year ago, long-struggling US Airways looked like a prime candidate to land on the junk heap of failed airlines.

A white knight still hadn't appeared with $100-million the company said was needed to emerge from its second bankruptcy in two years. US Airways bled cash even during the busiest travel months, forced to match fares of discount competitors with much lower costs.

When an unlikely partner, America West Airlines, proposed a merger last May with US Airways - code-named Project Barbell - skeptics rolled their eyes and called the plan Project Dumbbell.

Now six months old, the combined US Airways is hitting early performance goals, say executives, and getting good marks from financial analysts, aviation experts and its own employees.

Higher fares are lifting all airlines, particularly US Airways. Unit revenue, how much money airlines take in for flying a seat 1 mile, jumped 16 percent in the last three months of 2005. That tied US Airways with AirTran Airways for the highest growth among major carriers.

Executives now say the merger will likely generate more than the $600-million a year in new revenue and cost savings they originally estimated.

US Airways chief executive Doug Parker says the airline will turn a profit in 2006, not counting one-time merger costs, even with crude oil selling above $60 a barrel.

"We're exceptionally pleased with where we are," he told reporters in a presentation at the US Airways headquarters outside Phoenix earlier this month. "We have a lot of confidence given what we've seen so far."

Lots of work remains, however, to mesh the two airlines into one.

The carriers still operate as separate airlines. US Airways and America West crews fly the same planes on the same route they did before the merger. They've combined staffs at most airports, such as Tampa International.

But because the carriers don't have a shared reservations system yet, passengers must use separate lines at the ticket counter. You can't check yourself in at a US Airways kiosk for an America West flight or vice versa.

The different systems also produce some pricing hiccups. America West's Web site last month showed a $230 one-way fare for an afternoon flight from Tampa to Phoenix. The same flight on US Airways' Web site: $109.

"Right now, I feel like Noah - I've got two of everything," joked Joe Beery, chief information officer.

Except for a handful of airports where the airlines still operate from different terminals, the integration is relatively transparent to passengers, said Robert W. Mann Jr., an airline industry analyst in Port Washington, N.Y.

"They've had great execution," says Mann, who is working as a consultant for America West pilots. "They've done the customer-facing side of it well."

Employees say the integration has been a bit bumpy. But for US Airways workers who survived years of layoffs and pay cuts among the deepest in the industry, the prospect of working for a stable airline is welcome.

"People are generally pretty upbeat, like maybe we can pull it out of a nosedive," says Rick Mosely of Tierra Verde, an A-320 captain with 23 years at US Airways. Friends who left for other airlines have "buyer's remorse, like maybe they jumped ship too soon," he said.

Traditionally, the toughest part of mergers has been getting employees from different companies to work as together. Or even to just get along.

Twenty-two US Airways fleet service workers were fired last month after a brawl in a Philadelphia hotel. Fleet service workers for the old US Airways and America West have different unions, each trying to represent the entire workforce.

Members of the union for US Airways fleet service workers came to an open meeting held by organizers for the America West union and told them to leave. When they refused, the US Airways members threw punches and tossed chairs, according to police reports.

The outbreak doesn't reflect larger splits between airline employees, the airline says. But there are rivalries and cultural conflicts that complicate a smooth integration.

With roots reaching to 1939, US Airways was an old-line, full service airline cobbled together from such East Coast stalwarts as Allegheny, Mohawk and Piedmont. America West launched from Phoenix in 1983 as a scrappy start-up flying mostly in the West.

The name Project Barbell came from the appearance of their combined route map: big on each coast and thin in the middle.

Parker, then American West's CEO, created the blueprint and lined up financing for a merger that would create what was dubbed as the nation's largest low-fare airline.

America West emerged as the victor as the deal unfolded. Most of Parker's lieutenants landed top executive posts. The new airline's headquarters ended up at America West's high-rise office in Tempe, outside Phoenix.

But the airline adopted the US Airways name, considered more appropriate for a major carrier with a route network reaching from Hawaii to Europe. Workers teared up as the America West sign came off the headquarters building last fall, said Gary Richardson, president of the airline's flight attendants union.

As the company standardizes hundreds of work rules, employees look for signals of which way Parker is leaning. "It does seem with the name change a lot of policies and procedures are are going the East (US Airways) way," said Richardson.

Perhaps most controversial is how to determine which employees get first priority to fly free in an open seat. America West policy is first-come, first served at the gate. US Airways, which has a much more veteran workforce, goes by seniority.

"With everything we've given up, there's not a lot of perks left," said John McCorkle, a 17-year US Airways flight attendant. "I'd like to know the amount of time I've served is rewarded."

For pilots, seniority means everything, said Jack Stephan, chairman of the US Airways pilots union. It determines their pay, what planes they fly, if they sit in the captain's or first officer's seat and which days of the week they work.

Unions for the airlines are negotiating how to combine seniority lists so neither side gets an advantage as retirements open up jobs as captains or in larger, higher-paying planes.

"My career expectation is to be a captain on an international widebody (jet) before I retire in seven years," said Stephan, a captain of a single-aisle Boeing 757. "I don't want the merger process to impede with that."

Soon after the airlines merged in September, Parker and his team made changes to smooth over relations with US Airways customers and employees.

They restored snacks in coach, eliminated a month earlier to save $1-million a year. The airline also reopened a club at Los Angeles International Airport and canceled plans to remove "power port" plugs for laptops from planes.

Employees were offered $50 bonuses for each month US Airways scored in the top three among 10 major airlines for running on time, losing the fewest bags or having the fewest customer complaints.

The combined airline has ranked No. 2 or 3 in on-time performance - defined as arriving less than 15 minutes behind schedule - since its first full month in October. Lost bags and complaints still plague US Airways, which finished at or near the bottom nearly every month.

US Airways added staff at its congested Philadelphia hub and bought new equipment last year to avoid a repeat of the disastrous Christmas 2004 holiday week, when it canceled hundreds of flights and mishandled thousands of bags.

And the airline is hiring 400 new agents for its U.S. reservation centers. The reason: the work of outsourced agents in Mexico, El Salvador and the Philippines "were not of a quality level we like," said Scott Kirby, executive vice president of sales and marketing.

The carrier will spend as much as $15-million annually, he said. If it didn't, he figures the airline would lose even more money from frustrated customers taking their business elsewhere.

US Airways launched a fare reduction in January from New York and three East Coast hubs - Charlotte, Pittsburgh and Philadelphia - to cities not served by a low-cost carrier.

But there are still high fares on routes where US Airways has little or no competition. Daisy Myers of Clearwater was shocked earlier this month when she called for a last-minute ticket to attend a sister-in-law's funeral in West Virginia.

She was quoted a $1,200 fare. The Tampa-Pittsburgh round trip alone was $905. Even after an agent offered to knock off $300 as a "bereavement" fare, she couldn't afford it.

US Airways promotes itself as the world's largest low-fare airline but is pragmatic enough to charge a premium in non-competitive or high-demand markets, said Mann, the airline industry analyst

"They are a low-fare carrier except when they know they don't have to be," says Mann. "More often than not they're a low-fare carrier. But if the Final Four is in Phoenix, there's no point in leaving money on the table."

Information from the Wall Street Journal and Dallas Morning News was used in this report. Steve Huettel can be reached at huettel@sptimes.com or 813 226-3384.

[Last modified March 25, 2006, 03:45:04]