News Article - June 13, 2008

  PHOENIX US Airways Group Inc. said Thursday it planned sweeping cuts in service and increased fees to pay for sky-high fuel costs that have plagued the industry. The Tempe, Ariz.-based carrier said it would cut domestic flights, shrink the size of its fleet, slash 1,700 jobs, charge passengers to check their first bag and add a fee for nonalcoholic drinks during flights. US Airways is the dominant carrier at Philadelphia International Airport.

   "We must write a new playbook for running a profitable airline in this new and challenging environment," US Airways Chairman and Chief Executive Doug Parker said in a statement. Fliers will now pay $15 to stow even one bag in the cargo hold for tickets booked on or after July 9, 2008. US Airways will be the third major carrier to add such a charge. The free drinks in coach are on their way out too. Passengers in the back will soon be charged $2 per nonalcoholic drink starting Aug. 1.

   In addition, US Airways plans to cut domestic mainline capacity 6 percent to 8 percent in the fourth quarter, and another 7 percent to 9 percent in 2009. Its Las Vegas operation will be reduced by almost half by the end of the year, rolling back daily flights to 74 from a high of 141 flights in 2007. US Airways also is returning 10 planes, canceling leases on two more and planning to park more through 2010. The action follows retrenchment at most major carriers in recent weeks that will effectively reshape the American air travel industry.

   AMR Corp.'s American Airlines, the nation's largest airline, plans to eliminate thousands of jobs and cut 11 percent to 12 percent of capacity after the peak summer travel season. Continental Airlines Inc. also plans to cut 3,000 jobs. In addition, American Airlines and UAL Corp.'s United Airlines will charge $15 for the first checked bag, and Southwest Airlines Co. says it's flying slower to save $42 million in fuel. The changes, however, still may not be enough to prevent the industry from losing an estimated $2.3 billion this year. "The industry has to fundamentally reprice its services," independent airline consultant Robert Mann said.

   Airlines must cut the number of available seats by 20 percent before they'll have the power to boost fares and effectively keep up with the price of fuel, Mann said. "If it can't do that, it's left to grasp at straws," by doing such things as charging passengers a la carte fees for bags and drinks, he said.

   Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa., said he realizes that the airlines were forced into extra fees and curtailing service. But they'll likely convince a lot of people to stay home nevertheless, he said. "Some customers are going to balk at this. They're going to feel like they're being nickel-and-dimed," Mitchell said.

   US Airways said its new passenger fees, combined with previously announced charges for a second bag and choice seats, will help raise about $300 million to $400 million annually. But it has much more to do if it's going to overcome the cost of fuel, which has jumped to almost $4 per gallon from $2.72 at the end of 2007. US Airways' fuel costs are up almost $2 billion this year.

   Parker said the airline now needs to make about $650 to $700 per round-trip passenger just to break even. Fuel accounts for a much bigger part of that amount. While US Airways paid $151 per passenger in fuel costs in 2007, they are paying $299 this year. Some industry observes say US Airways is the most vulnerable among major carriers because of its weak offering of lucrative international flights. But Mann said he thinks US Airways, which learned to turn a profit despite having low-cost carrier Southwest in its backyard, won't go down easily.

   "They've had as much experience in a highly competitive domestic environment as anybody," Mann said. "It's true they don't have the same international network, but then again they never needed one to compete with Southwest." On Wednesday, Parker told US Airways shareholders that the company is well positioned to handle escalating fuel costs, because it has a relatively large amount of cash on hand compared with other airlines. He backed that up Thursday by promising to invest $550,000 of his own money -- equivalent to Parker's 2008 salary -- in company stock. US Airways stock has dropped 91 percent this year from a 52-week high of $36.81. Shares rose as much as 16 cents, or 6 percent, to $2.85 in aftermarket trading Thursday.

Source - Courier Post