- The Washington Times - Wednesday, March 24, 2004

US Airways Chief Executive Officer David N. Siegel said yesterday the company’s survival is likely to depend on its ability to withstand competition from Southwest Airlines as the low-cost carrier begins service in Philadelphia in May.

“They’re coming for one reason,” Mr. Siegel said in a presentation to employees broadcast over the Internet. “They’re coming to kill us.”

He asked employees to help the company reduce costs through wage concessions and productivity increases. US Airways officials say they need to reduce their costs by 25 percent to compete effectively with low-cost air carriers.

“It’s going to be a battle for our lives,” Mr. Siegel said about the Philadelphia market, where US Airways operates its second-largest hub. Other hubs are in Charlotte, N.C., and Pittsburgh.

In addition, the Arlington carrier is struggling to repay the $900 million government loan it used to emerge from bankruptcy last year.

“We’re still at risk of not meeting the terms of that loan as soon as June,” Mr. Siegel said.

The company is losing money on 70 percent of its primary routes. Its customers pay an average of $125 per ticket, while the airline pays an average of $140 per customer in operating costs.

Last year, the airline lost an estimated $450 million. It has 28,200 employees, about 2,000 of them in the Washington area.

While US Airways and other major airlines have lost money, Southwest Airlines and other low-cost carriers have consistently earned profits because of their no-frills operating structures.

Southwest Airlines officials offered no consolation for US Airways yesterday.

“The people in Philadelphia are going to see cost savings they’ve never seen before,” spokesman Ed Stewart said.

The airline is scheduled to begin service May 9 at Philadelphia International Airport with 14 daily nonstop flights.

“Assuming we do well in Philadelphia, chances are we will grow and expand,” Mr. Stewart said.

Airline industry analysts agreed US Airways is at a crossroad in its future.

“I think it’s critical that US Airways does survive in Philadelphia,” said Michael Boyd, president of the Boyd Group, an Evergreen, Colo., aviation consulting group. “It’s going to mean they’re going to have be more efficient, or they’re not going to be there.”

David Swierenga, who operates the Vienna, Va., airline industry consulting firm AeroEcon, said Southwest Airlines stands a good chance of taking away US Airways’ customers in Philadelphia.

“The only way it wouldn’t happen is if US Airways can somehow undercut Southwest’s price and service,” Mr. Swie-renga said. “A lot depends on what they can work out with their labor groups.”

Although Mr. Siegel did not offer details, he said everyone in the company must make “sacrifices.”

“Let’s not let Southwest take away our customers,” Mr. Siegel said as he ended a question-and-answer session with about 75 employees. “Let’s not let Southwest take away our jobs. Let’s not let Southwest take away our future, and let’s not let Southwest take away our airline.”

US Airways also is considering eliminating first-class service to make room for more passengers.

Unions that will be called on to make labor-contract concessions seemed unimpressed by Mr. Siegel’s call for “sacrifices.”

“Our members have responded twice when US Airways asked for concessions when they were in bankruptcy,” said Joseph Tiberi, spokesman for the International Association of Machinists and Aerospace Workers. Union workers “made it clear that further concessions are not an option.”

The machinists union represents about 5,000 US Airways mechanics and 4,450 fleet service workers.

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