After its brief fling with United Airlines, USAir is settling down, if only momentarily, to its old position: alone with its high costs amidst a bevy of low-cost players. The only new wrinkle is that the airline may soon face even tougher competition, if Delta Air Lines succeeds in creating a low-fare airline subsidiary (see related story).
Under these circumstances, some may envy chief executive Seth Schofield: he's leaving. It may be a good time to retire, since this is actually a high point for the airline: in spite of 11.4 cent seat-mile costs, a $3 billion long-term debt burden and a route system that is heavily weighted to the US east coast, USAir ended losses stretching to 1989 when it made a $113 million net profit in the second quarter. Add to this $43 million profits in the third quarter, projected profits for the full year and a cash position of $1 billion and growing, and it is easier to see why Schofield believes USAir's 'survival is not in question.'
But the fallout from the failed merger of United and USAir does primarily settle on USAir. The carrier's desire to remedy its poor domestic route system is far from resolved and it is now casting around for anything - from small interline alliances to any merger possibility - that will bolster its strategic position. The carrier is also far behind on negotiations with labour that it hoped would account for half of a cost-cutting programme designed to save $1 billion a year. Speculation over the use for the $1 billion in cash centres on management taking a hard-line approach in seeking concessions from unions in 1996. If strikes result the extra cash will help.
However, the liquidity is also needed because USAir simply cannot rely on alliance partner British Airways for any more cash. Speculation is rife about a new, $200 million investment tranche by BA to add to its $400 million investment for a 24.6 per cent stake. But sources at USAir confirm this a 'moot' point. Federal statute will not permit BA any further 'control' of USAir, whether real or perceived, and BA has doubts anyway about pumping more money into a company with an extremely precarious balance sheet.
Added to this is the very real problem of an alliance that, while profitable, has nonetheless been fractious, sources say. The latest sign of this is USAir's application to serve Madrid, Munich and Rome without codesharing with BA, thereby receiving the long-haul revenue benefits that have disproportionately benefited BA in the alliance. A USAir spokesman says that the routes merit direct service, and that the two airlines don't compete because any BA service must first stop in London.
One London analyst says the failed USAir-United talks would have had little effect on the alliance with BA and believes the UK carrier's management is still 'working hard to keep things up and running.' However, he says that BA 'has signalled its intention of selling the USAir stake if the price is right. [Chairman] Sir Colin Marshall suggested at the time of the USAir-United talks that he had buyers other than airlines interested.'
A revolution in the makeup of transatlantic alliances can- not be discounted. KLM has confirmed that it intends to pursue its lawsuit against the major shareholders of partner Northwest, but maintains it will have no effect on the operational side of the alliance. The carrier also denies the latest rumours that it is in talks with BA and American Airlines about a tripartite mega-alliance.
M Jennings/M Odell
Source: Airline Business
