Eastern to Lay Off 1,500, Cut Additional Expenses : Hopes Measures Will Save It $160 Million a Year; Says Moves Not Related to Takeover by Texas Air
Financially ailing Eastern Airlines will lay off 1,500 employees and take other cost-cutting measures to trim expenses by $160 million a year, its president said Tuesday.
The moves are the result of a two-month internal review, President Joseph B. Leonard said. “Every department and function in the airline was examined to determine its necessity, scope and expense in response to an increasingly competitive and unforgiving marketplace.”
The cuts are “vital to competing effectively with aggressive, lower-cost carriers hoping to strengthen their own futures at Eastern’s expense,” Leonard added.
He said the staff reductions, to take effect the middle of this month, will save $54 million a year. All employee groups will be affected to some degree, airline spokesmen said, and 442 management-level jobs will be eliminated.
Most of the employees to be fired work either in Miami, where Eastern is headquartered, or in Atlanta, where the airline has a major hub. Eastern spokesman Joe Scott said no cuts are planned among Los Angeles-based employees.
The airline serves 141 cities and has 42,000 employees, about 14,000 of them in south Florida.
Observers speculated that Texas Air Chairman Francisco A. (Frank) Lorenzo, who has succeeded in making the once money-losing Continental Airlines profitable by sharply cutting employment and salaries, may be behind Eastern’s cost-cutting moves. Texas Air hopes to acquire Eastern in a transaction valued at $600 million.
However, the deal has been sidetracked at least temporarily by the Department of Transportation, which rejected it last month, saying that it would reduce competition on the airline shuttle routes between New York, Boston and Washington. But both Texas Air and Eastern have expressed confidence that the merger can be completed under revised terms.
Bruce Hicks, a spokesman for Continental, would not confirm Tuesday that Lorenzo had instigated Eastern’s cost-cutting moves. “Eastern has recognized on its own that it needs a cost structure that is competitive,” he said. Eastern denied that Texas Air had anything to do with the new strategy.
Leonard said $106 million of the cost cuts would be achieved through “more efficient processes and the trimming or elimination of a wide range of goods and services (that) the carrier purchases.”
Scott declined to identity such goods and services. “We wouldn’t want to tell the competition,” he said. However, it was learned that such things as the promotion of new routes would be trimmed or eliminated. Such promotions--including advertising, movies, brochures and other sales aids--can reportedly cost as much as $250,000 for a single new route.
Also, public relations departments are being cut, and Eastern’s Washington-based government relations representative is being eliminated.
“In targeting areas for cost reduction,” Leonard said, “particular care was taken to avoid any impact on service quality.”
Louis Marckesano, an airline analyst with the Janney Montgomery Scott brokerage in Philadelphia, said the moves were imperative. “They know they had to streamline to survive,” he said.
However, he warned that if too many revenue-producing items are eliminated, Eastern might be “cutting some of the muscle with the fat.” For example, the firing of reservations clerks, he said, might cost the airline business.
Leonard said that the airline has completed a city-by-city route structure review and that no immediate route changes are anticipated. The airline had earlier revealed plans to drop daily round-trip flights between Miami and London. It also reduced its daily flights into and out of the Charlotte, N.C., airport to 12 from 53, effective Oct. 1.
