Airline executives recognized the shortcomings and by 1998 were telling Wall Street analysts that they were transforming the airline into a ‘‘world-class carrier of choice.’’ But it quickly became apparent that the only way to do so was to merge. A deal was announced: the much larger United Airlines would buy US Airways for $4.3 billion.
That became the company’s main focus. Everything else was put on hold. Improvements weren’t made to seats. Lounges were ignored. Why paint planes if they were going to be redone in United’s colors in the near future?
But then in the summer of 2001, the Justice Department blocked the deal. US Airways was back on its own.
Then came the Sept. 11, 2001 terrorist attacks.
The industry suffered major losses as passengers stopped flying. But US Airways was hit particularly hard.
Its routes included many highly profitable short-haul flights around the Northeast. But strict new security measures made it easier for people to drive or take a train. Compounding problems: Ronald Reagan Washington National Airport, a source of many of those lucrative flights, was closed for 23 days.
Within sight of the airport was the airline’s headquarters.
Executives used to peek out the window to see if the top level of the parking garage was full. It was an imprecise, but telling, way to gauge business. After 9/11, the parking garage was deserted. It was ‘‘a very stark reminder of what was going on,’’ says Ben Baldanza, a former US Airways executive and now CEO of Spirit Airlines.
By the following August, US Airways filed for bankruptcy protection. It emerged less than a year later only to head back to bankruptcy court in September of 2004.
Then at Christmas, the airline suffered a huge blow to its reputation.
A staffing shortage at its Philadelphia hub, the holiday rush and some bad weather led to a toxic mix. The airline quickly became overwhelmed and wasn’t able to call in reinforcements. Employees, mad about wage cuts, called in sick or refused to work additional hours.
The airline canceled 405 flights over the holiday period. Another 3,900 were delayed. More than 560,000 passengers were affected. If that wasn’t bad enough, there were 72,000 reports of lost or damaged luggage. Half the phone calls made to the airline were never answered.
(The airline has since improved its on-time and baggage handling performance and ranks at the top of U.S. carriers in those categories.)
Five months after the Christmas nightmare, discount carrier America West swooped in, buying US Airways out of bankruptcy. The airline was days away from being liquidated.
‘‘There wasn’t a compelling industrial logic to the combination,’’ says David Siegel, CEO of US Airways from 2002 to just before the second bankruptcy filing in 2004. He’s now CEO of Frontier Airlines. ‘‘The US Airways management team realized it needed to exit — the human sacrifice upon the altar of organized labor, starting with me.’’
Doug Parker, then CEO of America West, took over and still runs the combined airline, which adopted the US Airways name. It was not a smooth merger. Seven years later, the company’s pilots have yet to reach agreement on a new contract or a merged seniority list.
‘‘The number of employees at US Air outnumbered America West and that led to the sparks flying between the two groups,’’ says Ed Beauvais, who founded America West and left in 1992.
It might be crazy to merge with yet another larger airline when the last deal hasn’t yet been completed, but in many ways US Airways and American’s parent, AMR Corp., don’t have a choice.
The airline industry has been searching for stability ever since the government ended its regulation of routes and prices in 1978. Companies that once had profitable monopolies suddenly faced startups undercutting their fares. Since deregulation, 193 airlines — small and large — have filed for bankruptcy. Some emerged stronger. Some stopped flying. Others survived only through mergers.
A final wave of consolidation in the past five years has created a new breed of mega-airlines. Delta Air Lines bought Northwest and United merged with Continental, creating the world’s two largest airlines. Their massive route networks have enabled them to lure away highly profitable corporate travel accounts. A joint US Airways and American will rival them in size and give both airlines a shot at winning back business travelers.
‘‘It would be the end of legacy carrier consolidation,’’ says Basili Alukos, an airlines analyst at Morningstar.
Having one less competitor could also enable all airlines to charge more — something good for their bottom lines, but not fliers.Continued...