US Airways Boss Rattles the Cage

Never let Wall Street see you sweat.

US Airways ( UAIR) learned that the hard way Thursday.

The carrier's stock fell 11 cents, or 2.4%, to $4.29, after CEO David Siegel's warning to employees Wednesday that Southwest's ( LUV) debut of service in Philadelphia, a key US Airways hub, could kill the company.

In the last week, shares of US Airways have dropped more than 10% on fears the company could be forced to file for bankruptcy less than a year after emerging from Chapter 11 protection.

"Southwest is coming for one reason. They're coming to kill us. If they beat us in Philadelphia, they're going to kill us," said Siegel in an address to workers. "We can't run from Philadelphia. We're not going to run. It's going to be a battle for our lives."

On May 9, Southwest launches service from Philadelphia with 14 flights, a competitive move that has already lowered prices in the Philadelphia market. With US Airway's unit costs 40% higher than Southwest's, Siegel told employees he needs another round of wage cuts to stay competitive, and he offered to cut his own pay.

Negotiations with labor will take place in April, but time is running out -- according to Siegel, US Airways needs cost cuts by June 2004 to remain competitive. And US Airways' relationship with unions is tenuous at best. At the end of 2003, flight attendants sued the company for breach of contract, and pilots have called for the resignation of the company's CEO and CFO.

But while US Airways stock slumped, the rest of the airlines rallied Thursday, as investors went bargain-hunting after the sector hit a seven-month low earlier in the week. The Amex Airlines index rose 4.6%, led higher by AMR ( AMR), parent of American Airlines, up 82 cents, or 7.7%, to $11.45. On the low-cost side, Southwest rose 52 cents, or 3.9%, to $13.90, while AirTran ( AAI) rose 68 cents, or 6.4%, to $11.31.

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