Mildly improved financial results, of late, belie the desperate condition of Trans World Airlines. Without help from outside, the carrier will be hard pressed to right its ship, but on present standings, TWA is unlikely to attract a buyer.
Despite an apparent turnaround in results for the second quarter (showing a modest net profit against a loss a year ago), the carrier again showed an underlying fall at operating results. Although there was considerable improvement in revenues and yields, the damage largely came from a $53 million increase in fuel charges (see Analysis section).
Such fuel-exacerbated cost-side problems should be alleviated significantly by the imminent addition to TWA's fleet of the first 15 of 50 new Boeing 717s, and the accompanying retirement of its ageing 727 fleet.
In addition to its much-hyped fleet modernisation, TWA is also retooling its route network to include more regional jet feed to its St Louis hub and to continue its "focus city" campaign.
To capture more traffic in the extended catchment area of St Louis - its sole hub - TWA has introduced a regional jet (RJ) service through its on-going arrangement with Trans States Airlines, as well as a recently-signed agreement with Chautauqua Airlines. Trans States has begun flying RJs between St Louis and four cities in the US midwest and southeast. Chautauqua has begun flying 50-seat Embraer ERJ-145 aircraft to Jackson, Mississippi, and will operate 15 additional ERJ-145s for TWA by December 2001.
On the mainline side, the company is building on last year's capacity growth at San Juan, Puerto Rico, by making Los Angeles this year's "focus city." In addition to adding flights from LAX to Kona, Hawaii, TWA has increased frequency to Los Angeles from St Louis and JFK and signed an agreement with regional carrier American Eagle to provide commuter feed at LAX from seven California cities.
The cornerstone to TWA's LAX focus city programme is the carrier's non-stop LAX-to-Washington's Reagan National Airport flight, (monopoly) rights which the US Department of Transportation awarded TWA in July and which it will begin flying in September.
Small financial gains
Sam Buttrick, airline analyst at investment house PaineWebber, believes that neither TWA's latest quarterly results nor its route network changes represent much more than the carrier's history of "three steps forward, two steps back".
Buttrick is unswayed by TWA's small financial gains, or its explaining away losses by pointing to fuel price rises. Like other analysts, he is dismayed that TWA continued to lose money in a period where strong consumer demand more than compensated for fuel cost increases.
Additionally, Buttrick sees little reason to believe these results will reverse themselves any time soon. "To be successful," he says, "an airline needs competitive costs or a competitive network. TWA hasn't excelled in attaining either."
Many industry experts believe that ultimately the only future for TWA will be as part of another airline after a merger or, more likely, a buyout. This conjecture was fed in July when TWA was the subject of two takeover rumours. The first centred on AirTran Airways and arose when TWA unions approached Joel Leonard, chief executive of the Orlando-based carrier, offering serious concessions as a means of catalysing an AirTran buy-out. The second revolved around dark horse Global Airlines of New York. Neither materialised into anything serious and analysts remain sceptical that TWA will attract a serious suitor.
Looking at the carrier as a whole, the analyst community sees a geographically desirable hub and little else. Indeed, even the airline's St Louis hub is viewed as being of decreasing value, owing to its relatively small market size and the downward pressure on its yields exerted by the large presence there of Southwest Airlines. Consequently, many believe that if TWA is to be the target of a serious takeover campaign, some sort of cost correction - most likely induced by bankruptcy - will have to occur first.
Source: Airline Business
