Kevin O'Toole/LONDON
THE US AIRLINE industry again failed to produce the long-awaited return to profitability in 1994 as carriers paid for their latest round of restructuring. Two airlines, USAir and Continental Airlines, have warned of further job losses and aircraft deferrals to come.
With most of the major results now published, the industry is left showing a deficit of $160 million for the year. The total losses could prove deeper than in 1993, once Trans World Airlines has reported its results and Continental has revealed the full extent of a planned restructuring charge, which is expected to amount to $400 million.
Continental plans to cut 4,000 jobs and ground 41 aircraft as part of the restructuring, which will see capacity reduced by 18% over the coming year.
USAir, which has been battling against Continental's low-fare competition on the East Coast, has also warned of the need for further reductions to stem its massive losses.
"We will take additional steps immediately to cut operating costs sharply. This will result in a USAir with fewer aircraft and fewer people," says president Seth Schofield. As a beginning, the airline plans to defer delivery of eight Boeing 757s, the last aircraft it put on order, and is close to selling its Indianapolis, Indiana, hangar.
Schofield concedes that USAir is no closer to agreeing $500 million of cuts with its labour unions after ten months of talks, but adds that the airline has achieved $400 million in saving elsewhere. "High-cost carriers simply will not survive," he adds.
The American Airlines group also set aside £278 million to cover restructuring and redundancy costs, taking some of the shine from what "...should have been a truly outstanding year", says chairman Bob Crandall.
Delta Air Lines was pushed into losses after including a charge of more than $400 million, to cover cost-cutting efforts. The charge is mainly related to its Leadership 7.5 programme, which is designed to take unit costs below ¢7.5 per available seat mile (¢4.7 per available seat kilometre). "We are on track with our programmes," says chairman Ronald Allen, highlighting a 3% fall in unit costs in the December quarter.
United Airlines was also left with lacklustre profits after paying out $150 million for the cost of its ambitious restructuring in July, when employees were given a majority stake in the group.
The effects of the employee share-ownership scheme are already beginning to show through, says chairman Gerald Greenwald. The group has recorded its first fourth-quarter profit for five years, helped by a drop of more than 10.5% in labour costs.
The best profits performance was posted by Northwest Airlines as it ended a record year with net earnings of $296 million. Northwest's strategy of retrenching around its Midwest hub network again helped the group to buck the industry trend by producing a significant growth in yields.
Southwest Airlines also managed to show record results, despite a disappointing fourth quarter, which had raised fears that the group's famed profitability may be waning.
Chairman Herbert Kelleher admits that Southwest faced "aggressive" industry fare cutting during the last quarter and warns that yields and load factors are still "running below year-ago levels". He adds, however, that unit costs have also been brought down across the group.
Passenger yields continued to decline across the industry over 1994 and most carriers predict pressure on fares continuing this year. Actions on reducing cost and capacity have begun to show through, however.
Overall, the industry saw another minor reduction in seats on offer, despite a healthy 4% rise in passenger traffic.
Source: Flight International
