February 28, 2008 / 5:24 PM / 10 years ago

US Airways CEO sees airline industry heading down

PHOENIX (Reuters) - The chief executive of US Airways Group Inc LCC.N warned on Thursday that the U.S. airline industry is heading into a downturn as it grapples with record high oil prices and a weakening economy.

“Our industry is in a mess, if you haven’t noticed,” said Doug Parker, speaking at the U.S. No. 5 airline’s headquarters near Phoenix.

“We’re about to head into what looks like another downturn,” he said at the company’s annual media day.

The grim assessment summed up Wall Street sentiment. The Amex airline index .XAL was down 3.6 percent, and US Airways shares dropped 4 percent.

Oil jumped more than 2 percent to match a record high of more than $102 a barrel on Thursday. While costs are increasing, demand has thus far held up, said Parker.

In an interview with Reuters, Parker criticized Delta Air Lines Inc (DAL.N) and Northwest Airlines Corp NWA.N for their tactics in pursuing a potential merger. He argued that too much pressure was put on their pilots.

“I don’t think it’s fair to put the pilots in that position,” Parker told Reuters. “In some sense, I feel for the pilots at Delta and Northwest.”

The prospect that a wave of mergers would help stabilize the volatile industry, which emerged from a five-year slump in 2006, dimmed earlier this week.

Delta Chief Executive Richard Anderson sent a memo to employees on Tuesday cooling expectations that a deal with Northwest was around the corner.

Delta and Northwest were reported to be close to a merger, but a deal snagged as pilots at the two carriers have been unable to agree on a plan to integrate seniority lists.

Parker said pilots need time to create an integration plan, and there’s only so much management can do to facilitate the process.

“Getting pilots to agree on seniority is a very difficult task,” he told Reuters. “You have to recognize that going in.”

Offering the unions money to get their backing would not help, because unions would just argue over the bigger pot of money, Parker said.

US Airways was formed in 2005 by the merger of bankrupt US Airways and America West Airlines. Parker, who led a failed effort last year to acquire Delta, remains a strong proponent of industry consolidation.

    But he said mergers need to eliminate excess capacity, which causes airlines to lose money on many tickets.

    “Capacity has to be rationalized,” said Parker. “Not doing that in an industry that has too much capacity is a concern.”

    Delta CEO Anderson said in his memo earlier this week that a merger would strengthen the airline’s network and accelerate international expansion. He did not mention capacity cuts.

    US Airways boasts that its merger has been a success. Still, it has yet to fully integrate the unionized labor groups from the two airlines, and unions demonstrated outside the airline’s headquarters on Thursday, alongside a 30-foot rat meant to symbolize US Airways’ management.

    “Doug Parker has failed to complete this merger,” said pilot Tania Bziukiewicz, spokeswoman for the Air Line Pilots Association, America West chapter. “It’s still chaos.”

    Parker was unfazed. He said management needs to be tough in order to carry out a merger.

    “You’ve got to make some hard decisions, and you’ve got to get on with it,” said Parker.

    US Airways shares were down 60 cents at $13.20 on the New York Stock Exchange in afternoon trading.

    Reporting by Kyle Peterson; Writing by Chris Reiter and Bill Rigby; Editing by Derek Caney and Gerald E. McCormick

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