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US Airways, So Far, Surmounts Labor Issues

Stocks in this article: LCC UAL

In a September interview, Stephen Johnson, US Airways corporate counsel, said "the company is in the untenable position of having to continue negotiations with USAPA and inevitably having to take one side or the other on seniority and that's something we're just not willing to do." Without a court ruling, the company will be sued by one side or the other once a long negotiation process is completed, he said.

Speaking at a Nov. 17 investor conference, CFO Derek Kerr barely mentioned labor negotiations. But he emphasized that since the merger, one reason for US Airways' success has been operational improvements. "Operations have been our focus since our consolidation in 2005," he said. "Without a good operation, you will not be able to make profits."

Kerr's charts indicated that in 2007, US Airways had the worst rankings among network carriers in all four operational categories tracked by the U.S. Department of Transportation: on-time departures, on-time arrivals, mishandled bags and customer complaints.

The carrier attacked the areas one by one and moved up to first or second best in three categories. Now, Kerr said, the focus is on decreasing the number of customer complaints. No other carrier has shown such consistent four-category improvement since 2007.

In other areas of improvement, US Airways has been less distinct from peers. Like them, it has benefitted immensely from diminished capacity and newfound fee revenue. In the case of US Airways, Kerr noted, $500 million in 2010 fee revenue includes about $475 million in bag fees. Purchases of preferred seats provided about $25 million.

Although classified as one of four remaining legacy carriers, US Airways is in fact an outlier, neither a global carrier with a vast international network nor a low-cost carrier. This is why each of the last four CEOs -- Steven Wolf, David Siegel, Bruce Lakefield and Doug Parker -- has pursued merger efforts. Only Lakefield was successful, securing the 2005 merger with Parker's America West as well as the labor costs reductions and financing that enabled the carrier to emerge from bankruptcy.

Since the merger, the airline "has been profitable for exactly the reason they predicted it would be," said Mike Flores, president of the US Airways chapter of the Association of Flight Attendants. "They put together two smaller carriers under one management group, improved the operational metrics -- which had been below industry standards -- and produced the product at a lower cost than competitors do.

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