It has more flights than any other airline in California, one of the nation's busiest travel markets. Its big jets move more than 1.6 million people around the state every year--more than any other carrier.
So it should be easy for USAir to muscle out such airline rivals as United, American and Delta. Right?
Wrong. The big airline from Arlington, Va., which swallowed Pacific Southwest Airlines two years ago, is losing its grip on the No. 1 spot in California. A study of competition in the California corridor scheduled for release today predicts that USAir--thanks to weak marketing and poor strategy--will soon drop to third place.
The $313-million purchase of San Diego-based PSA "was a mistake," said Steven Horner, who wrote the report for Avmark, a respected Washington consulting firm. "It didn't have to be, but the way they handled it, it was."
The study confirms the perception held by industry analysts that USAir's position in California has weakened. Its market share dropped to an estimated 40% at the end of last year, down from more than 55% in the months after it agreed to buy PSA.
According to Avmark, USAir's share is expected to drop to 18% over the next few years, while United moves into first place with 26% of the market, followed by American with 20%. Horner said USAir can do little to reverse the trend.
USAir spokesman Larry Pickett said the airline's top executives were too busy to be interviewed for this story, but he reiterated that USAir is committed to California and has no intention of cutting back. Commenting on Avmark's prediction that the airline will lose market share, Pickett said, "We don't see that. We are aiming (to remain) No. 1."
He said USAir has improved service by offering such amenities as free newspapers and coffee. "We are still a major player in Los Angeles," he said.
But USAir's problems in California and in the East, where it had trouble after its merger with Piedmont Airlines last year, have led it to announce cutbacks. USAir recently said it will lay off 3,600 employees to help reduce losses that totaled $113 million in the first six months of this year.
USAir hasn't said where it intends to make those cuts, but analysts expect Chairman Edwin I. Colodny to take a close look at California operations. Some industry sources say United, Delta, American and USAir are losing at least $1 million a month each in the corridor. Of the four, USAir can least afford to take such losses, analysts say.
In California, Horner said, USAir made serious mistakes. PSA lured customers with an offbeat style that let flight attendants begin safety briefings with such lines as, "There may be 50 ways to leave your lover, but only four ways to leave this plane."
USAir imposed its by-the-book style on PSA and lost the loyalty of California customers, Horner said. Besides ending the playful safety announcements, USAir put a stop to other in-flight antics, such as flight attendants in Halloween costumes, or salami raffles.
Horner said USAir's biggest marketing mistake was removing the painted PSA smile from its planes. With a few strokes of the paint brush, Horner writes, USAir changed "PSA in the eyes of the passengers in California to a virtually unknown entity."
USAir's Pickett said the smile had to go because not all the planes were dedicated to California. "We use those plans in Boston or New York or in Florida, where the smile has no significance."
The changes were part of USAir's strategy to reshape PSA as a "mirror image" of itself, a merger plan that ignored the regional differences between the two airlines.
Former PSA executives say they tried to warn their USAir counterparts that California was a bruising battleground, unlike the near-monopolies USAir enjoyed in some Eastern markets.
"It was clear they knew nothing about California," said a former PSA department head.
Another ex-PSA executive, Karl Dring, who left after the merger, said he was astonished that his new USAir bosses never asked for information on how PSA set fares or determined travel demand.
"What did we do at Easter, or in the winter, or at Christmas? On any flight, at any time of day? They never asked for any of that information," said Dring, PSA's former director of yield management and pricing.
"They could have taken what was working very successfully at PSA and used it to make them more competitive not only in California, but elsewhere in the country," Horner said.
Instead, he added, USAir's attitude toward PSA was, "We are buying them, and everything we do is right."
Former PSA executives say USAir upset customers by dropping a program that let frequent fliers write their own tickets at the gate. Travel agents were miffed when USAir broke up PSA's "Smile High Club" that rewarded them with discount tickets.
Horner said USAir's worst mistake was not establishing a California hub. Its rivals have claimed Los Angeles, San Francisco, San Jose and Oakland. Horner says USAir could try to overtake a rival at one airport, "but it is unlikely, given USAir's financial situation."
Other findings in Avmark's California corridor study:
* Delta, building on its March, 1987, acquisition of Western Airlines, is expected to grow to dominate Los Angeles International Airport. United should remain No. 1 in San Francisco, and Southwest will remain dominant in Oakland.
* Fares shouldn't rise much during the next few years, thanks to continued pressure from Southwest, a no-frills, low-cost airline.
* AIRLINE ANGUISH: Unlike 1989, this year has been tough for many airline stocks. D2
TRAFFIC GROWTH AT CORRIDOR AIRPORTS
Total Market Corridor Passenger Passenger Passenger Growth Share Share Airport 1987-89* 1989* 1989* Burbank -6.4% 3.9% 7.4% Long Beach 1.3% 1.7% 2.1% Los Angeles -2.7% 40.1% 24.6% Oakland 10.1% 5.4% 10.0% Ontario 24.1% 7.0% 6.0% Orange County 12.7% 6.2% 9.3 % San Francisco 5.1% 28.5% 28.5% San Jose 4.3% 7.2% 12.1%
*Data for year ending Sept. 30 of each period Source: DOT Origin and Destination Survey