US Airways CEO: We'll get through the turmoil

Doug Parker is in a desperate situation, and he's not afraid to admit it: Oil at $130 a barrel and higher will turn his US Airways, and all airlines, into a dramatically different industry.

But the CEO is not giving up, and he has a message for anybody predicting his airline's downfall:

"If there are other airlines whose strategies are based on US Airways going away, they'd better find a different strategy. We are going to be fine, and we are going to get through this. We can compete as well as anyone."

If that's not clear enough: "There is no imminent risk. We have thankfully done a good job of generating cash and saving it," Parker said.

Parker, 46, was in Philadelphia Friday and met with the Inquirer's Editorial Board before flying to headquarters in Tempe, Ariz.

He acknowledged his industry is in a fight for survival. All major U.S. airlines are losing billions to soaring fuel, wiping out profits, and forcing aggressive cost cuts and flights.

"These are desperate times for the airline industry," Parker said.

Airlines are so desperate about oil that 12 CEOs signed an open letter to their customers recently, enlisting them to pressure Congress to reform the oil markets and regulate market speculation.

"You can call it desperate, but it's working," said Parker, who lobbied lawmakers on Capitol Hill last week to stop "speculators" from driving up the cost of oil.

He said members of Congress were receptive and want to fix the problem, although there is debate over how to do it.

If oil prices don't go lower, here's what Parker said travelers and airlines can expect:

Airlines will start collecting $650 to $700 per passenger for a ticket. Planes will fly primarily to big cities, and not a lot of small communities. There will be many fewer flights. Air travel will be a throwback to the era before deregulation. Flying will be a luxury.

"It will have a huge impact upon our economy and upon the way Americans live. It's going to be that severe," said Parker, who had been CEO of America West, which in 2005 merged with US Airways.

"I've worked in the airline business 22 years. This is by far the worst economic crisis this industry has faced."

Just one year ago, US Airways was concentrating on baggage problems and on-time performance of flights in Philadelphia and elsewhere. But those operational problems, which have greatly improved, he said, pale when compared with what oil is doing to airline economics.

Some analysts suggest US Airways, the smallest of the major U.S. carriers, is one of the most vulnerable to go out of business if oil stays at current levels.

Parker somberly disagreed.

"We're not going to have a cataclysmic liquidation of a big-six carrier, as some suggest," he said. "The industry will work it out, and there will still be six of us, but six smaller airlines."

When US Airways reports second-quarter earnings on Tuesday, analysts will be watching closely the carrier's liquidity - cash- and how its plans to conserve in the traditionally slower fall and winter months after Labor Day.

US Airways had a profit of $400 million last year, and is projected by Wall Street to lose $1 billion this year. The airline says an average roundtrip flight now costs $299 just for fuel per passenger.

"We have a strong cash position," said Parker, noting the airline has about $2.8 billion in restricted and unrestricted cash. "We are working on a number of financings, nothing we can talk about just yet. We are not overly concerned about the cash position for the coming year."

But if fuel stays at current levels or higher, "everybody should worry about their cash position. We are working to raise as much financing as we can."

A big proponent of consolidation, Parker said he's still interested in merging with another airline, but thinks mergers and acquisitions are dead in the current economic climate and until after the election.

"I'm still interested. The industry would be better served if it was less fragmented. But we are fine on a stand-alone basis," he added. "US Airways does not need a merge to be a viable airline."

Parker sought a merger with Delta, and later United. In April, Delta said it would merge with Northwest, and in June United said it would form an alliance with Continental. Parker says, for now, US Airways will go it alone.

Parker said he's encouraged that the industry as a whole has cut 10 percent more flights, and next year will likely cut another 10 percent. "But that's not enough, if oil stays where it is," he said.

The airline will trim 1,700 jobs and cut seating capacity on domestic flights 6 percent to 8 percent in the fourth quarter, and another 7 to 9 percent in 2009.

Parker did not specify what more US Airways might do to cut expenses. He noted that 25 percent of flights from Las Vegas have been trimmed, and 10 percent in Phoenix, while Philadelphia will lose just 2 percent to 3 percent starting in October.

Philadelphia will remain a crown jewel in US Airways' network, which is 80 percent domestic flights, and 20 percent international.

"It is our international gateway. We'd like to expand that," Parker said. The airline hopes to add three international flights next summer, including to Tel Aviv.

"Philadelphia is by far the largest market we serve" and generates the most revenues. "It's hard right now to project the future, but whatever the future is for US Airways, Philadelphia is going to be extremely important, critical," he said.

In a world where oil is $150 a barrel, US Airways will serve primarily business-travel markets, he said. "You could envision where you don't have as many spokes [flights] out of Philadelphia to smaller communities. Right now we haven't reached that point."

"We've made the cuts that we believe we'll have to make for 2009. Relative to other markets, Philadelphia holds up well."

The changes will start this fall. The airline has a menu of new charges and fees, everything from $2 for sodas to $15 for a checked bag on tickets booked after July 9. US Airways also is getting rid of in-flight movies on domestic flights to save on fuel costs because the entertainment systems weigh 500 pounds.

Parker said there's not been a dropoff in ticket sales or pushback from passengers, but the true test will come this fall and winter after the busy summer vacation period.

"As we start adding fees, we may lose some customers," Parker said. "We are watching that closely. We are encouraged that most of these fares have been matched by other carriers."

But higher fares and fewer flights will be noticeable to people making holiday travel plans. "It's coming," he said.

"Most of us are hopeful oil prices will fall, but if that doesn't happen, the industry will continue to shrink in size, fewer flights and fewer markets - but US Airways will be here."

Betsy Snyder, equity analyst at Standard & Poor's, does not foresee liquidation of any large airlines this year. "But 2009 is a different situation."

US Airways has a smaller route structure than some of the others, "so that might put it more in jeopardy," Snyder said. It has more of a domestic routes than some competitors.

US Airways' debt maturities are relatively small over the next few years. That is a strong point compared with some competitors. Last year, US Airways refinanced debt and stretched out maturities.

Snyder said she expected all airlines to cut more capacity and jobs, and hike fares and fees.

"It's a grim outlook for all the airlines, not just US Airways. Even Southwest, at some point, is going to be affected if their fuel hedges run out. Nobody expected that fuel prices would be at these levels."