US Airways` Chairman and Chief Executive Officer, Doug Parker, testified at the Senate Commerce, Science and Transportation Committee hearing on The State of the Airline Industry: the Potential Impact of…
US Airways` Chairman and Chief Executive Officer, Doug Parker, testified at the Senate Commerce, Science and Transportation Committee hearing on The State of the Airline Industry: the Potential Impact of Airline Mergers and Industry Consolidation, calling upon the Senate to allow market forces to continue to bring about positive change for the airline industry.
When Mr. Parker last addressed the Committee, shortly after the tragic events of September 11th, the airline industry was in a precipitous financial situation. At that time, Members of the Committee and others in Congress stood with the industry by demonstrating leadership and conviction in enacting legislation to provide much needed liquidity to our industry. The measures passed by Congress – direct cash transfers, the creation of a loan stabilization board, and relief on war risk insurance premiums, among other actions – enabled the industry to cover its basic operating expenses, including paying employees and serving communities at a time when commercial loans and financing were unavailable at any cost.
In his prepared testimony, Mr. Parker said, All of us in the industry were grateful for the help of the nation. And we all knew that the industry, like America, had been changed forever. But none of us could have foreseen the severity and duration of the crisis that faced airlines. Since 2001 there have been 24 Chapter 11 filings and 5 liquidations, $35 billion in cumulative losses; and 154,000 airline industry employees who have lost their jobs. The severe impact of multiple shocks to the aviation industry caused the industry to repeatedly come back to Congress for help on a regular basis. While Congress did help, we also heard the message — and appropriately so — that federal support should be the exception, and not the rule — and that it was time, as an industry, that we got our own house in order. At America West — now US Airways — we took that message to heart.
According to Mr. Parker`s testimony, aggressive cost management and consumer friendly policies and pricing allowed America West to return to profitability. The merger of America West and US Airways in 2005 further accelerated both profitability and benefits to employees and consumers. US Airways posted a profit excluding special items for the first three quarters of 2006, and is one of the only network carriers to project a profit for the fourth quarter.
The frontline employees of US Airways and America West who sacrificed so much to turn around and then merge our companies will receive 2006 profit sharing payments in March. In fact, year-to-date through September 2006, our total accrual for profit sharing was $48 million. We fully anticipate that amount to increase after we report our fourth quarter results next week, said Mr. Parker.
In his prepared remarks, Mr. Parker testified, With the ability to lower costs, gain efficiencies and adjust flying to better align demand and capacity, we believe we can lower fares in dozens of new markets and communities, just as we are doing at US Airways today. Moreover, passengers will benefit from the ability to get to more destinations via more routings; it is far more likely that thanks to the new Delta more passengers will be able to get to their destination at a time convenient for them and at a price that is reasonable, than would be possible under either stand-alone Delta or US Airways.
Mr. Parker pledged to the Committee members, We will not furlough any frontline employees of Delta or US Airways as part of this merger. We will align the work group cost structures between current US Airways and Delta employees, and going forward we will move to the higher cost scale. In fact, the day after the merger closes Delta employees won`t notice any changes-not even a change to the name of the airline. Over time, we will seek to take the best practices from either Delta or US Airways and standardize them across the new combined airline. Our ultimate goal is to build a stronger and more secure future for all of our stakeholders.
The airline industry remains extremely fragmented with substantial levels of excess capacity. Even after the merger, and the announced capacity reductions, our industry will remain highly-competitive, and consumers will continue to enjoy high-service levels and low fares. We have put forth a fair and equitable proposal, which we have enhanced to make even more compelling, to merge with Delta while the carrier is still in bankruptcy, and to make the combination of Delta and US Airways into a stronger, more competitive carrier than either carrier can become on its own, testified Mr. Parker.
Mr. Parker`s prepared remarks concluded, Our industry stands at a crossroads. We can continue down the current path of boom and bust uncertainty, or we can chart a new course. The question that legislators and policymakers face is simple; shall we embrace change to better serve our customers, employees and communities, or are we content with a future of continued financial uncertainty and government bailouts? We believe — and our experience has proven — that we have to break with the failed policies of the past in order to provide a more sustainable future for all stakeholders.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
