The chief executive of US Airways Group Inc 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.
The grim assessment summed up Wall Street sentiment. The Amex airline index .XAL fell about 3.5 percent, and US Airways shares dropped about 5 percent.
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 Air Lines Inc Chief Executive Richard Anderson sent a memo to employees on Tuesday cooling expectations that a deal with Northwest Airlines Corp was around the corner.
Delta and Northwest have been reported as being close to a deal, but the talks have snagged as pilots as the two carriers have been unable to agree on a plan to integrate seniority lists.
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.
US Airways boasts that its merger has been a success. Still, it has yet to fully integrate the unionized labor groups at the two airlines, and unions demonstrated outside the airline's headquarters on Thursday, alongside a 30-foot rat meant to symbolize US Airways' management.
But 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 70 cents at $13.10 on the New York Stock Exchange in midday trading.
(Reporting by Kyle Peterson; Writing by Chris Reiter and Bill Rigby; Editing by Derek Caney and Gerald E. McCormick)