America West CEO speech on US Airways merger
Wednesday, June 08, 2005
By Jim McKay, Pittsburgh Post-Gazette
America West's attraction to US Airways was twofold: It needed help coping with rising fuel costs that were wiping out revenue gains, and it did not want competitors to pick off US Airways' routes and other assets via bankruptcy, according to America West Chief Executive Officer Doug Parker.
Parker, speaking at an investment conference in New York yesterday, said his Arizona-based airline was doing better than its peers in lowering costs and raising revenues, but that the gains were being eaten up by oil price increases.
"Our people have done as well as they have ever done" in taking care of customers and keeping nonfuel costs lower than competitors', Parker told the Citigroup-sponsored conference. "But we're still struggling to keep our head above water and make a profit because of $50-a-barrel fuel."
The proposed $1.5 billion merger with US Airways, Parker said, assumes crude oil prices will likely stay at $50 a barrel or above through 2011, a prospect that he believes will force continued consolidation in the industry. The merged carrier "can be profitable at $50 crude oil," he said.
The merger still must gain a slew of regulatory and other approvals, led by U.S. Bankruptcy Court.
US Airways has received permission from the bankruptcy court to review alternate plans to emerge from court protection -- plans that would require other investors. If no one steps forward by July 1, the merger and investment agreements will be considered approved without a court action, freeing US Airways to propose its reorganization plan with America West.
Airline mergers have generally had a dismal track record, but Parker said this one -- put together with new financing from investment funds and other airlines -- was different.
He noted the labor costs of the two airlines were very similar, thanks to US Airways' ability to use bankruptcy to wrest more concessions from workers and vendors; and he said the merger could be put together without potentially divisive labor contract negotiations.
US Airways' bankruptcy will also allow the airline to shed 60 airplanes, or 15 percent of the combined fleet, in contrast to other merged airlines that end up with too many planes, he said.
The combined airline also expects to save up to $200 million by restructuring routes and better sizing airplanes to the demand of the cities it will serve.
Another $100 million could be saved by bringing information technology services in-house that US Airways had outsourced, he said.
Parker also figures the combined airline will be able to generate substantial new income by attracting customers that the two carriers could not serve alone under their separate route structures.
Parker noted that successfully combining the disparate cultures of US Airways, which dates to 1939, and America West, founded in 1983, will be his biggest challenge.
"We clearly need motivated employees, and it's management's job to make certain we communicate with people and get everyone working together, something airlines have had difficulty with in the past," he said. Parker said he attended a meeting this week between the pilot groups of America West and US Airways, both represented by the Air Line Pilots Association, to discuss their possible integration.
"I believe the employees on both sides understand this is better for both groups -- that the two airlines combined are much stronger than either of us can be individually," he said
If America West had not entered into a merger agreement, Parker said, other airlines would likely have picked up valuable US Airways routes and other assets in bankruptcy court and left America West "shut out" of the competition.