USAir earns 1st profit in 7 years But airline seeks to cut labor costs to remain competitive

January 23, 1996|By Suzanne Wooton | Suzanne Wooton,SUN STAFF

USAir Group Inc. yesterday reported its first profitable year since 1988, with a $119.3 million profit in 1995, compared to a loss of $684.9 million in 1994. But, despite its vastly improved financial picture, the carrier sent labor yet another warning that it might not even stay in business unless it cuts costs further.

"Last year was a good one for the airline industry as a whole," said John Harper, USAir's chief financial officer. "Our full potential, however, cannot be realized, nor our existence assured, if we do not achieve a competitive cost structure."

The Arlington, Va.-based carrier, the largest at Baltimore-Washington International Airport, last year cut $500 million in operating expenses by eliminating unprofitable flights and slicing other costs. But it failed to reach agreement with its labor unions on a proposed $2.5 billion cut in wages and benefits over the next five years.

Mr. Harper said yesterday that despite its progress in cutting expenses, USAir's labor costs remain the highest in the industry.

"We must take advantage of this favorable industry and economic environment to secure the lower costs we need to capitalize on our strengths in the future," he said.

Reaching an agreement with labor is expected to be a top priority for USAir's new chairman and chief executive officer, Stephen M. Wolf, who took over the nation's sixth-largest airline yesterday, succeeding Seth E. Schofield, who retired.

In recent years, USAir has faced increased competition, particularly in its East Coast stronghold, from low-cost carriers offering discount fares.

"They have to face the idea that short-haul markets have gotten a lot more competitive," said Alex C. Hart, airline analyst for Ferris, Baker Watts Inc. of Baltimore. "Cost levels have to come down to meet the competition.

"Sure, they're sending a message to labor, but it's a true message."

While USAir experienced a far better year in 1995, other carriers are expected to report similar -- or better -- results judging from their performance during the earlier part of the year. Like USAir, they have been reducing costs, cutting flights and enjoying a surge in ticket prices. The performance by other airlines could be an arguing point for USAir in its negotiations with labor, Mr. Hart said.

"If USAir was not as profitable as the rest of the industry that ought to make the unions a bit more amendable to the notion of getting it all together," he said.

Last week, Dallas-based AMR Corp., the parent company of American Airlines, said it had net income of $167 million, or $2.11 a share.

USAir's 1995 results came as no surprise since company officials months ago predicted that 1995 would be a profitable year.

For 1995, profit per common share was 55 cents on 62.4 million shares outstanding, compared to a loss of $12.73 per share on 59.9 million shares outstanding in 1994.

The airline showed a net profit of $60.3 million, or 61 cents a share, in the fourth quarter, on revenues of $1.85 billion, compared to a loss of $322 million, or $5.63 a share, on revenues of $1.7 billion in the fourth quarter of 1994.

Revenues for 1995 were $7.5 billion, an increase of $477.1 million over 1994.

USAir's stock closed at $15.75 on the New York Stock Exchange yesterday, up 75 cents.

The airline got a significant boost from sharp declines in fuel costs, which fell 9 percent to $156.7 million during the fourth quarter, and 5.6 percent to $634.3 million in 1995. It also experienced significant drops in other expenses, such as aircraft maintenance and rental, as a result of the downsizing its fleet.

Because of cost-cutting and downsizing, the airline now needs fewer passengers per flight to break even.

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