Airlines -- some still in the red -- tout discount fares

US airlines are flying headlong into mounting competition even as several of them are showing loses. But air passengers can expect a new round of discount fares which, to a large extent, may rival and even surpass the results of last summer's air-fare price wars.

On the positive corporate side, however, some airline stocks continue to soar despite lackluster profit pictures. In fact, some Wall Street analysts are downright bullish on airlines. Their outlook is bright because of the moderating price of jet fuel, coupled with recently increasing passenger traffic -- itself fueled in large measure by the proliferation of discounts.

Edward Greenslet, a highly respected airline industry analyst for Merrill Lynch, Pierce, Fenner & Smith Inc., wrote May 28 in a report on the industry that there was "continued strength in the group [of airline stocks]." A basic reason, he noted, was "the favorable oil price development" -- with fuel accounting for roughtly 33 percent of airlines' operating costs.

But major problems remain as these interlocking trends point to:

* Poor profit records. Most of the major "trunk" carriers are still deeply in the red, reports the Air Transport Association, which represents them, despite improved earnings for the first quarter of 1981 of approximately $150 million compared with the first quarter of 1980. Although passenger traffic is picking up as it traditionally does in the spring, hugh fuel bills, coupled with escalating wages, are crimping the profit surge, spurring price wars -- and job cuts.

* Job cutbacks. Thousands of employees have been laid off in the last year with additional layoffs and pay cuts expected at many carriers. Pan American, which reported an operating loss of $92.3 million for the first quarter of 1981, has reduced its number of employees -- through attrition, early retirement, and direct layoffs -- by 2,800 in the last year. Now, in addition to the likelihood of new cuts, management is seriously considering a 10 percent pay cut.

* Labor strife. In the last year, there have been employee strikes against Pacific Southwest Airlines and Continental Airlines and more labor strife is a distinct possibility, airline industry and labor union officials say. Along with layoffs and increasing talk about pay reductions has come a major productivity push, which often means more tasks for employees. In some cases calls for greater productivity have come in the wake of new competition from such budding airlines as New York Air.

* New carrier competition. New York Air, which got off the ground officially only last December, and which competes with Eastern on its New York to Washington and New York to Boston shuttle, now has 25-to-30 percent of the New York-Washington air passenger business, according to New York Air spokesman Bruce Hicks.

New York Air, which is having some labor turbulence itself because it is nonunion, offers one $29 midday and one $29 night flight from New York to Washington. Eastern now offers the same rate from Saturday noon to Sunday noon.

The Airline Pilots Association (APA) filed suit in federal district court in Washington D.C. against the Civil Aeronautics Board, charging the federal agency did not adequately consider New York Air's safety in issuing the airline a license. But the APA lost both this suit and a subsequent appeal.

Quent David, a spokesman for the 10,000- member Airline Employee Association in Chicago, which represents mostly white-collar airline "ground employees," says that for the most part growing labor unrest is not over dissatisfaction with wages and benefits. Rather, "Labor unrest is primarily due to the giant cut in employees. . . .

Against this background, the discount boom has begun again. Airline industry officials forecast (and fervently hope) that there will be no return to the $99 one-way coast-to-coast fares of last summer.

American Airlines, in order not to be outdone by competitors, announced this week its new "AmeriFare" discount package will put a $179 ceiling on domestic one- way fares. The package will also include a savings of up to 65 percent on New York-Los Angeles flights.

* Starting next week, Braniff Airways will offer passengers "points" (for each domestic fare they buy) that can be used toward the purchase of another ticket, including flights to London and Hawaii.

* Spurred by new competitors on its New York to Cleveland route, United Airlines is offering a new $39 one-way fare between these two cities. United also has put a $179 ceiling on any flight to a point within the US.

Airline operating profits and losses (quarterly, millions of dollars) 1980 1981 1st 2nd 3rd 4th 1st American -- $75.32 -- $45.80 $13.96 -- $5.52 $1.77 Braniff -- 24.31 -- 35.76 -- 27.63 -- 32.98 -- 3.96 Continental -- 13.94 -- 18.86 -- 0.98 -- 28.24 -- 20.23 Delta 28.70 45.15 36.68 53.66 28.27 Eastern 17.29 -- 12.77 -- 9.60 6.94 13.90 Northwest -- 31.82 -- 18.85 25.26 1.73 -- 19.08 Pan Am -- 63.18 -- 45.33 -- 39.32 -- 60.42 -- 93.23 TWA -- 65.40 4.12 58.54 -- 32.88 -- 67.63 United -- 67.20 -- 44.88 5.55 38.60 -- 42.55 Based on Civil Aeronautics Board data Chart by Leon Poindexter

QR Code to Airlines -- some still in the red -- tout discount fares
Read this article in
QR Code to Subscription page
Start your subscription today