USAir rebounds, earns profit of $112.9 million

July 22, 1995|By Suzanne Wooton | Suzanne Wooton,Sun Staff Writer

USAir came soaring out of its five-year slump yesterday, posting a surprisingly healthy $112.9 million profit on record revenues for the second quarter. But unresolved labor issues and a new threat from Southwest Airlines could create more turbulence for the struggling airline.

The earnings, which amounted to $1.47 a share, were more than eight times the $13.8 million Arlington, Va.-based USAir Group Inc. earned in the same quarter of 1994 and significantly above Wall Street's estimates of 76 cents a share, based on the average of 12 analysts surveyed by Zacks Investment Research.

Revenue was $1.98 billion, the highest quarterly figure in the history of the company and 5.5 percent higher than the year-ago period.

USAir officials attributed the latest results to continuing efforts to improve revenues, to cost-cutting moves that are expected to save $400 million this year and to industry-wide changes.

Among the most significant factors was Continental Airlines' decision earlier this year to scrap its CalLite operation. That discount fare program had forced USAir to sharply reduce ticket prices along the East Coast, its primary territory.

Still, USAir officials were reluctant yesterday to predict a long-awaited turnaround for the carrier, which handles half the 31,000 daily passengers at Baltimore-Washington International Airport.

"No one quarter makes a turnaround," said Richard Weintraub, a spokesman for the airline. "Are a lot of things going better? No question about it. Do we have to continue to get our costs much more under control? Absolutely, and particularly on the labor side."

Critical to the airline's cost-cutting plan is an agreement with its major unions. The carrier is seeking $500 million a year in cuts over the next five years. While it has reached a tentative pact with unions representing its pilots and machinists, the airline's flight attendants recently rejected salary cuts and work rule changes, setting back the entire labor negotiations. The strong quarterly results could make winning concessions more difficult.

In addition, last week's announcement by Southwest Airlines that it will expand its East Coast service to Florida early next year could again put pressure on USAir fares. Southwest plans to begin flying from BWI and several other cities to three Florida cities.

"Low-cost carriers like Southwest Airlines will continue to invade your territory as long as they sense as big a gap in cost," Mr. Weintraub said.

"We're absolutely determined to close that gap, and this quarter gives an indication of the kind of thing we can do," he added.

Analysts also remained cautious about the airline's prospects.

"There's been so much promise about this industry that's lasted one or two quarters, it's difficult to stay completely enthusiastic," said Alex C. Hart, airline analyst for Ferris Baker, Watts Inc. in Baltimore.

"The flight attendants balking at their deal wasn't real pleasant," he said. "They have to plan how to deal with Southwest coming into one of their strongest markets. They've got some serious problems to manage. The question is, can they sustain this kind of performance?"

Nevertheless, the latest financial results were encouraging for the airline, which has lost $2.5 billion since 1988.

Typically, the second quarter is the most profitable for USAir, but even second-quarter profits in recent years have been small; $15.3 million in 1990 was the largest recently.

After losses of $139 million in the first two months of 1995, USAir has seen four consecutive profitable months and a mid-year net profit of $16 million, compared with a 1994 mid-year loss of $182.8 million.

Company officials also said yesterday that USAir's cash balance, not counting proceeds from the sale of assets, was about $665 million at the end of the second quarter.

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