USAir smoothes out its rough edges Airline reduces losses after mergers

January 19, 1992|By Agis Salpukas | Agis Salpukas,New York Times News Service

ARLINGTON, Va. -- Since taking over USAir Group Inc. last year, Seth E. Schofield has won high marks for making the best of a bad hand. But it is still far from clear that the troubled carrier, the country's fourth-largest airline, will wind up a winner.

When Mr. Schofield was promoted to chief executive, replacing Edwin I. Colodny, USAir was hemorrhaging. A pair of ambitious mergers in the late '80s, with Pacific Southwest Airlines and Piedmont Aviation, produced a raft of problems. The carrier had also been battered, along with the rest of the industry, by the effects of the recession and the Persian Gulf war.

USAir is the dominant airline at Baltimore-Washington International Airport, controlling about 60 percent of the traffic there.

USAir continues to bleed, but at a much slower rate. Costs have been cut, through a mix of layoffs, deferred orders of new planes and the closing of overlapping facilities. Many of the money-losing routes in PSA's highly competitive West Coast market have been dropped.

And some of the roughest edges of the messy Piedmont merger have been smoothed out. No longer -- or, at least, not nearly so often -- is the carrier referred to as Useless Air because of problems with flight delays, lost luggage and surly employees.

Losses could drop this year to as little as $145 million, said Paul P. Karos, an analyst at First Boston Corp. That is less than a third of 1991's estimated loss of $457 million. Moreover, the Arlington-based company is cushioned by a $1.5 billion cash reserve.

Things are even stable enough these days for Mr. Schofield to embark on a new program of domestic growth and consolidation. Earlier this month, USAir got final approval to buy a slew of takeoff and landing slots at New York's La Guardia Airport from Continental Airlines. And it recently agreed to operate the Trump Shuttle in the coveted Boston-Washington corridor.

But what Mr. Schofield and his staff say they cannot afford to do is expand just as aggressively abroad, where the biggest growth in traffic is expected over the next decade.

"Quite frankly," said Randall Malin, executive vice president of marketing, "we were not in the position to compete with the carriers with deep pockets."

Forming alliances

To be sure, USAir has a few toeholds abroad, with some service to Europe and the Caribbean. It just spent $50 million to acquire a London-to-Philadelphia route from Trans World Airlines.

Nonetheless, for better or worse, USAir is sticking largely to its domestic knitting, continuing, in particular, to repair the damage from its merger with Piedmont.

USAir started out modestly as Allegheny Airlines, which built up a route system in the East. In 1972, the carrier made a big jump in size by acquiring Mohawk Airlines.

When deregulation was introduced in 1978, the airline established a major hub in Pittsburgh and its fleet blanketed many Eastern markets. In 1979, it changed its name to USAir to reflect its wider reach, and in the late '80s, it made

its biggest leap by acquiring PSA and Piedmont.

The carrier now has 429 planes operating out of five hubs -- Baltimore, Pittsburgh, Philadelphia, Charlotte, N.C., and Dayton, Ohio.

USAir had no choice about expanding, analysts say, given the consolidation that was dramatically changing the nature of the industry.

But the major breakdowns in service that grew out of the Piedmont merger could have been avoided, they say.

Growing pains

In an effort to minimize confusion and duplication, USAir decided that Piedmont employees would have to adopt the work methods and operations of the parent. Many from Piedmont balked at the more rigid and bureaucratic ways of the larger carrier, which formally took over Piedmont in August 1989.

The result was often chaos. Large numbers of canceled flights played havoc with USAir's schedule, and passenger complaints soared over missed connections, misplaced baggage and hostile or non-existent service.

In hindsight, said Mike Schwab, senior vice president of operations, there was a basic contradiction in USAir's approach to the merger. The idea to use a "mirror image" strategy, recasting Piedmont in USAir's mold, was at odds with the goal of bringing together the best of both companies.

But while some union leaders and employees are still upset at the way the merger was carried out, most have put aside their bitterness, Mr. Schwab said. Passenger complaints have dropped so sharply that the carrier had the lowest rate in the industry in October.

L "The problems of the merger are behind us," Mr. Schwab said.

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