USAir's bottom line gains altitude

September 06, 1995|By Suzanne Wooton | Suzanne Wooton,Sun Staff Writer

After six years of devastating losses totaling more than $3 billion, USAir Group Inc. said yesterday that it finally expects to make a profit in 1995.

Despite a surprisingly healthy second quarter, the Arlington, Va.-based airline had been reluctant to proclaim a turnaround.

But with continued strong traffic and high yields, the nation's sixth-largest carrier now says it expects to report a profit for the third quarter and the year overall.

"The revenue trend that began earlier this year has continued through the summer," said Seth E. Schofield, chairman and chief executive officer of the airline. USAir handles more than half the 31,000 daily passengers at Baltimore-Washington International Airport.

USAir stock jumped $1.75 a share to close yesterday at $9.75 a share. More than 7.3 million shares changed hands, making it the most active stock on the New York Stock Exchange.

"It's a confidence builder," airline analyst Alex C. Hart of Ferris, Baker Watts Inc. of Baltimore said about yesterday's announcement.

USAir officials attributed the improved financial picture to the carrier's cost-cutting moves, which are expected to save $400 million this year, as well as to industrywide changes.

This year the carrier has enjoyed a significant boost from the demise of CalLite, Continental's discount fare program, which had forced USAir to keep its fares low, particularly to heavily traveled East Coast markets.

"If industry conditions stay as they are now, it's sustainable," Mr. Hart said. "But if somebody comes along with nasty, deep discount fares, and that becomes the standard again, who knows what will happen."

Southwest Airlines' foray into USAir's lucrative Florida market early next year is a serious threat to USAir, Mr. Hart said.

Throughout the industry, major airlines have cut flights and grounded planes in an effort to reduce the number of seats they need to fill. USAir has cut its daily flights by more than 5 percent.

As a result, the airline has been increasingly filling its planes, with load factors now reaching 70 percent. The income per passenger, or yield, is higher. That essentially means that a higher percentage of USAir's seats are being filled by people paying relatively higher fares.

But airline officials insisted yesterday that the improved financial picture did not influence the company's abrupt decision earlier this summer to end its yearlong negotiations with its major unions for $2.5 billion in wage cuts and other givebacks over the next five years.

"What this does is underscore the fact that when you make efforts to get costs under control that it has a very real impact," said Richard M. Weintraub, a spokesman for the company.

After reaching a stalemate in consolidated negotiations with the company's four unions, USAir decided to bargain with each group separately. The first talks with the machinists union are expected to begin shortly.

While airline officials say the cost-cutting agreements are still critical, the improved financial picture could alter the talks.

"The case goes away for needing concessions from their employees," said Kelly Ison, a spokesman for USAir's division of the Air Line Pilots Association. "That was the reason for coming to the employees to start with. If the results are in line with what the industry is doing, there's not a case."

The upward trend for USAir began toward the end of the first quarter.

After losses of $139 million in the first two months of 1995, USAir saw four consecutive profitable months and a midyear net profit of $16 million, compared with a loss of $182.8 million in the comparable period a year ago. In the second quarter of this year, the company posted a $112.9 million profit on revenues of $1.98 billion, the highest quarterly figure in the history of the company.

Still, most analysts -- and the airline itself -- were reluctant to proclaim an end to the financial troubles at USAir, which has the highest operating costs in the airline industry.

Yesterday's announcement was prompted by federal requirements that mandate that company officials make such disclosures if there is a change in its financial predictions.

"Most of the financial community anticipated losses for the third quarter and the year and that was based in part on our own projections," Mr. Weintraub said.

The latest projections will result in profit-sharing for many employees as a result of the plan the company adopted in 1992 for its employees whose salaries were cut.

Mr. Weintraub said the 4.2 cents-a-gallon fuel tax, scheduled to take effect next month, undoubtedly will hurt the company's bottom line, though that is not expected to alter its projections for returning to profitability.

The tax is part of the sweeping deficit reduction package enacted by Congress in 1993. The airline industry was granted a two-year waiver that is scheduled to expire Oct. 1.

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