US Airways president and chief executive David N. Siegel said yesterday that the rush by the nation's larger airlines to create their own low-cost carriers is a flawed strategy.
Siegel, who steered US Airways out of a seven-month bankruptcy Monday, said at an American Bar Association forum at the Renaissance Mayflower Hotel in the District creating a small airline within a larger one was not the strategic step needed for a successful restructuring.
"We think it's more important to restructure your core business and compete in the game you're in," he said.
In an effort to boost revenue, United Airlines and Delta Air Lines plan to launch low-cost carriers to compete with Southwest Airlines, JetBlue Airways and AirTran Airways. US Airways eliminated its low-cost carrier, MetroJet, after the Sept. 11, 2001, terrorist attacks.
Siegel, 41, who was hired in March 2002, exacted steep pay and benefit cuts from the airline's employees and renegotiated contracts with aircraft leaseholders and suppliers to slash the carrier's costs, which were the highest in the industry. After filing for Chapter 11 bankruptcy protection last August, the Arlington-based airline cut costs by more than $2 billion.
But US Airways still has a tough fight ahead. The weak economy, the war in Iraq and the growth of low-cost carriers on its routes continue to threaten its prospects.
Siegel said he did not support the Senate's plan to cap the pay of the top five executives of the major airlines at 2002 levels. He said the Senate should instead go after individual corporate heads who receive exorbitant pay, such as Leo F. Mullin, the chief executive of Delta Air Lines, US Airways' biggest competitor on the East Coast. Mullin received $13 million in pay and bonuses in 2002. After of criticism from lawmakers and labor officials, Mullin announced yesterday that he would give up $9.1 million in stock options, pay and bonuses due him in 2003 and beyond.
Siegel received about $1.45 million in salary and bonuses last year, almost double the compensation that his predecessor, Rakesh Gangwal, was paid in 2001. Neil Cohen, the airline's chief financial officer, earned 69 percent more than his predecessor.
Siegel said higher salaries were needed to attract and retain talented senior executives. He said he and several of his top executives have been recruited by companies in other industries since he has brought the airline out of bankruptcy, but he plans to stay at US Airways.
"There's a lot of psychological reward in doing this," he said. "You can't put a price on knowing you're helping to save these jobs."
Siegel said Congress's efforts to deliver a $3 billion-plus aid package for the airlines was "not enough" to stabilize the industry, which is expected to lose $4 billion because of the war. Yesterday, the House and Senate debated their bills. The House has proposed $3.2 billion in aid, while the Senate is offering $3.5 billion, a package criticized by the White House as excessive.
Siegel said the days of high revenue for the airlines from business travelers are over. These passengers are no longer willing to pay up to five times as much as leisure travelers for the same trips. Business travelers once accounted for only 20 percent of the industry's passengers but made up nearly 60 percent of the industry's revenue. Now, Siegel said, they are booking trips further in advance and staying over Saturday nights in effort to reduce their fares.
Siegel outlined for the forum what he calls his "seven strategies for success and sanity" during a bankruptcy: hiring the best attorneys, even if they have never worked on an airline bankruptcy case; making sure advisers and attorneys meet executives and all heads of divisions regularly; lining up exit financing before filing for bankruptcy; speaking clearly to stakeholders, employees, officials, suppliers and the media; setting internal monthly and weekly deadlines; ensuring that the chief executive attends most bankruptcy hearings and creditor committee meetings; and sticking to an emergence deadline.