FORTUNE 500 2007  
FORTUNE 500    

Onboard the wild ride of Doug Parker

Barney Gimbel, Fortune writer

Parker, in an open-collar green shirt and black pants, paced across the room with a wireless mike in his hand. "We made more money than everybody else except for Southwest," he said. "But as all of us know, we have a lot to do." A fiftysomething man in a football jersey and stained jeans asked when they would get their pensions back. "You're making all these millions in profit, aren't you?" The crowd cheered. "If we go back to where we were, we'd be out of business in six months," Parker responded. "We just can't do that. The industry has changed, and it's not going back."

Because of its two bankruptcies, US Airways pays its employees some of the lowest wages in the business. "How many people are here despite better offers?" another mechanic asked. No hands went up. "You're only keeping us here because we have no other option. Just give us something. Something!" Parker kept his cool. "It's always a pleasure to see you," he joked to the mechanic. "I wish I could say the same," the man replied.

"I'm not surprised it was that bad," Parker said as we headed back to the airport. Combining the two workforces has led to contentious labor negotiations. The pilots from the old America West, for example, make more than the ones from US Airways. The company wants to equalize the pay, while all the pilots want a raise. "What happened is I lost touch with what was going on," Parker said. "We were all so engaged in this merger, and I was relying on updates from my management team rather than hearing right from the employees."

The next night, back in Phoenix, Parker was at home watching TV with his 12-year-old son, Jackson, when Eberwein called. The news wasn't good: The media had found out he had been arrested in Scottsdale for driving under the influence of alcohol after having had three beers at a golf tournament the same day he lost the Delta bid. But he hadn't told his employees or his son. "Jackson said, 'Dad, what's wrong?'" Eberwein recounted in an e-mail to Fortune. "Doug said, 'Nothing, buddy, just some work stuff.' The phone kept ringing, and finally Jackson said, 'You have to tell me what is going on.'" The next morning his mug shot was all over the newspapers, and pundits on CNBC were wondering if he should step down as CEO.

"I thought I was okay [to drive] and I wasn't. I made a big mistake," he told me a month later in his office after he had served his 24-hour jail sentence. "It's not one I'm going to make again, and I'm paying the consequences for it, and that's fair. I'm never going to forget it." That day the mood was noticeably somber. "We're all a little down on ourselves," he said. The last weekend had been rough, thanks to a botched integration of the company's reservation systems that led to long lines for passengers and a systemwide on-time average of a dismal 30%. (It's normally closer to 80%.) "But six months from now, people won't be talking about this," Parker said. "This is a transition item."

But it's already hurting the bottom line. Last year US Airways posted a $304 million profit with a pretax margin of 4.5%, one of the industry's highest. First-quarter earnings in 2007, however, are expected to be "slight," the company said, in part because of its operational meltdowns. "We're in kind of a sweet spot in the story of US Airways," says Vaughn Cordle, chief analyst with Airline Forecasts. "The main driver of US Airways' success has been its low labor costs. If it's forced to pay the industry average, then their cost structure goes up $800 million, and there goes their profit."

Parker believes he hasn't gotten close to that sweet spot. "We're doing better than any of the other network carriers by a nice margin. So we're fine with the status quo." And as for labor negotiations, he's rather blunt: "We can continue to operate with two separate labor forces if necessary."

At the airline's Media Day the next day, the company opened with a mock video of the merger hearings in Washington in which they used the Conan O'Brien technique of taking Parker's head and giving him new lips and new things to say. In the video a Senator asks Parker, "If you complete this merger, do you see getting even bigger and forcing another merger?" Parker responded, "We most certainly will, Senator. You know, mergers are like Lay's Potato Chips: You can't just eat one. Today Delta. Tomorrow United. And in a few weeks we are going to go after American. And you know, we might not stop there, because, you know, there's that Michael Jackson saying, 'Don't stop till you get enough.'"

Parker was only half-kidding. Back in his office he told me he doesn't rule anything out. "All airlines have a problem right at this point in time," he says. "The industry is out of ideas. We've done all the cost cutting, we've gone through bankruptcy, and we're doing okay, not great. Mergers won't happen until people are in a position where they're thinking, 'Oh, my God, what are we going to do?' Our plan is to sit and wait for that day to come so we can say, 'Hey, we've got a solution.'" In the meantime he's got an airline to run.  Top of page

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