USAir's flight from earnings

Donald Saltz

August 09, 1991|By Donald Saltz

There's hardly a tougher business around these days than airlines. Their balance sheets have been battered by the lingering recession and by sharp fare-price cutting throughout the industry. The Persian Gulf war made things even worse for a while by causing an even larger segment of the traveling public to stay home, and it boosted fuel prices substantially.

The widespread industry problems are shared by most of the airlines, but there are exceptions. Delta, American, Northwest and United have generally been profitable. On the other end, four large airlines are operating in bankruptcy -- Pan Am, Continental, Midway and America West -- and a fifth, TWA, is but a step away.

The major airline company of our area is USAir Group, based in Arlington, Va. Over the years, USAir has grown from a regional carrier known as Allegheny Airlines to major-league status -- seventh largest among all U.S. airlines in revenues and third largest when it comes to passengers carried. Last year, USAir transported 60 million people to their destinations.

It is by far the busiest carrier operating at Baltimore-Washington International Airport with almost 420 daily flights in and out by it and its affiliated lines.

BWI is one of USAir's hub airports -- others are in Charlotte, Dayton, Pittsburgh and Philadelphia -- and BWI handles much of the line's north-south traffic. The Florida routes exemplify what is happening in the industry.

The Florida business had been hurt by sharp fare reductions by Eastern Air Lines before its demise. Since then, business has perked up and fares have increased substantially over promotional ones offered right after the gulf war.

USAir was one of the most profitable airlines in the nation just a few years ago. It had gained a reputation for on-time arrivals and had expanded its routes westward and overseas. Then in the bTC late 1980s, USAir acquired both Pacific Southwest Airlines and Piedmont Airlines. The acquisitions came around the same time as profits reached a record high in 1987 of about $195 million, or $5.28 a share. Times were so good then that USAir even bought back hundreds of thousands of its shares.

The Piedmont acquisition, however, proved difficult to digest. Remembers USAir Vice President Dave Shipley: "The Piedmont merger cut into our on-time performance . . . among the airlines we dropped to last, although we're back near the top again."

In fact, for the second quarter of this year, 86 percent of USAir's flights arrived on time, ranking it sixth among the 12 biggest airlines.

Even though it was now a much larger airline, USAir's earnings fell by nearly a third in 1988, and the first of a series of annual losses occurred in '89. USAir has cut its number of employees, as have most airlines, but USAir did it quicker. In the past year, 7,000 USAir employees were furloughed, reducing the total to 45,000.

Losses, though, have become horrendous. Last year, USAir had a record deficit of $454.5 million on revenues of $6.6 billion, more than triple the revenues of only four years earlier when there was a profit of $150 million. Unfortunately, the rate of losses continues at just about the 1990 pace this year. The company has lost $225.5 million in six months. One top of that, it has long-term debt of $2.3 billion.

The firm has 407 planes -- all jets -- in its fleet, nearly two-thirds of them made by Boeing. The problem is that planes are flying about 60 percent full. However, that is only about 1 percentage point below the industry average.

Shipley notes the still-damaging recession continues to limit airline traffic, especially domestic. Adding to recession worries, Shipley says, are the big fare discounts being offered by the airlines operating under bankruptcy proceedings.

The upshot: USAir's share price has fallen from the mid-$50s as recently as 1989, and from $24.50 within the past year to the current $12 or $13. Without earnings, share movements are more erratic.

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