Fare War Blamed : $10.9-Million Loss Posted by AirCal in 1st Quarter
Blaming continued stiff competition, AirCal said Monday that it had an operating loss of $10.9 million for the quarter ended March 31.
The first-quarter loss was softened by a non-operating gain of $3.5 million from the sale of several McDonnell-Douglas MD Super 80 jets. The sale of the jets, which were phased out late last year, brought the net loss to $7.4 million.
During the first quarter of 1985, the Newport Beach-based air carrier reported net earnings of $2 million.
Price War Under Way
Revenues for the quarter fell 4.6% to $76.3 million from $80 million a year ago, despite an 11% increase in the number of passengers flown.
Caught in a fierce price war since September, when Continental West air lines began offering heavily discounted fares to the Bay Area, AirCal’s fares have been slashed to stay competitive, said Bill Bell, an AirCal spokesman.
For example, some one-way fares from Los Angeles to San Jose have fallen from a high of $89 to as low as $29.
For regional carriers, such as AirCal, the recent fare wars are life-and-death struggles in which profits are sacrificed to protect turf, said Paul Salazar, a securities analyst with Crowell, Weedon & Co., a Los Angeles-based brokerage firm.
“This is going on industrywide,” Salazar said. “You either have to cut fares or go out of business. You can’t defend your margins, so you have to defend market share.”
Paul Schlesinger, who follows the airline industry for the New York investment house of Donaldson Lufkin & Jenrette, said: “The first quarter is always bad, but this one is a little worse because of the competition.” He stressed that AirCal’s increased loss for the quarter “doesn’t suggest that it’ll stay in the red all year.”
Although Bell declined to make any projections, either for the current quarter or for the rest of 1986, he said some airlines may soon raise fares. “We see some movement, but it’s too early to see if its a trend,” he said. “We hope there will be a trend toward getting fares back up to a reasonable level and ourselves back into the black.”
Ironically, during the first quarter, AirCal made the final $1.3-million payment to those AirCal employees who took a one-year, 10% pay cut in 1983 to help keep the then-troubled airline in operation. Despite the worsening situation at AirCal, Bell said the company has not yet asked its workers to make a similar sacrifice.
“You never say never, but that certainly isn’t our plan,” he said. “In fact, it’s never been discussed.”