US Airways will join the parade of fuel-frantic airlines as early as today and announce new passenger fees, flight cuts, potential layoffs and other cost-cutting moves.
The airline’s board of directors is meeting to consider options to offset an estimated $2 billion-a-year higher fuel bill, Chief Executive Officer Doug Parker told shareholders Wednesday at the airline’s annual meeting in Tempe.
On the fee front, company insiders say the airline, the first to charge for meals several years ago, is likely to be the first major airline to charge for soft drinks.
It is also expected to follow American Airlines’ lead on charging for even one checked bag.
American’s $15 fee for the first bag begins next week, just a short time after most major airlines started charging $25 for the second checked bag.
“I think we’ll be aggressive on those fronts,” President Scott Kirby said of the industry’s move to a la carte pricing.
The impact on passengers will be significant in Phoenix, where US Airways is the busiest carrier, with more than 300 daily departures from Sky Harbor International Airport.
US Airways officials declined to offer specifics but said the entire business has been under examination as the industry deals with a financial crisis far worse than the fallout after 9/11.
“Suffice it to say everything is certainly on the table right now,” Kirby said after the shareholder meeting.
Oil prices that have more than doubled in the past year are a big problem for the industry and “one we’re going to need to address,” Parker said. “A $2 billion hole is a rather large hole to dig out of.”
Kirby said US Airways’ flight cuts and the number of affected employees won’t be of the magnitude of recent downsizings announced by United, Continental and American.
Each said it planned to cut seat capacity in the United States by double-digit percentages.
Continental said it was eliminating 3,000 positions; United, 1,500; and American, an undetermined number in the thousands.
To date, US Airways has announced cuts of only 2 to 4 percent in U.S. seat capacity in the second half of the year.
“There’s less opportunity for us than others,” Kirby said.
The biggest reason: The airline is restricted on how much it can cut back flying under labor agreements made after the US Airways/America West merger.
They dictate a minimum fleet size and flight hours for pilots and flight attendants.
It also can’t just park planes like other carriers, because many of its planes are leased.
Another factor, Kirby said: US Airways has been cutting duplicate and unprofitable flights since the US Airways/America West merger three years ago.
More flight cuts are definitely on the way, though, and the upshot for passengers is higher fares.
“Two to 4 percent (the capacity cuts already announced) is probably not enough,” Kirby said.
With oil prices spiking from roughly $60 a barrel a year ago to Wednesday’s high of $138, the airline now spends an average $299 per passenger round trip on fuel alone, executives said Wednesday.
That compares with $151 in 2007 and $70 in 2000.
And that’s only for fuel, which even at current prices still represents less than half the airline’s costs.
To break even, US Airways said it needs to get $650 to $700 per passenger from a combination of higher fares and fees.
The airline is nowhere close to that figure.
“That’s a telling number for why we and the rest of the industry have to radically restructure,” Kirby said.
He conceded ticket demand will go down as airlines shrink and fares rise dramatically, but he said, “The industry net would be better off.”
US Airways shareholder Evelyn Davis, a corporate gadfly well-known to CEOs around the country for her annual meeting antics, pressed Parker about the efforts to get some oil-price relief from Congress, such as through government subsidies.
He told her he was in Washington last week to discuss the issue but doesn’t see subsidies on the horizon.
“I don’t think that’s where Congress is going,” he said.