Crash Deals Another Blow to Ailing USAir : Airlines: Analysts say travelers may steer clear of the carrier. The company says any falloff will be temporary.
The fatal crash of a USAir jet near Pittsburgh--the carrier’s fifth in five years--threatens to cause further financial harm to an airline that is already struggling against massive losses and severe competition from rivals offering cheaper fares, analysts said Friday.
“This will not help,” said Michael Lowry, president of Aviation Forecasting & Economics Inc. in Arlington, Va., where USAir is also based.
“There’s a good possibility that (USAir’s) bookings may fall off, and that would exacerbate an already serious financial condition” for the carrier and its parent company, USAir Group Inc., which has lost $2.6 billion since 1988, Lowry said.
Indeed, the news of the crash could prompt a sizable number of passengers to steer clear of USAir--whose system includes California but is concentrated on short-haul routes in the East--at a time when the industry is already entering the slow autumn travel season.
Some consumers were already changing reservations Friday to avoid USAir, the nation’s sixth-largest airline, travel agents said.
“We’ve had some people ask to change their arrangements,” said Jim Roberts, president of Uniglobe Regency Travel in Rancho Cucamonga.
Roberts, echoing others in the industry, said he does not consider USAir to be any less safe than other airlines. But he said the carrier’s string of crashes “becomes a little scary to the customer because of the media attention to it.”
USAir spokesman Mike Clark said the airline expects “some drop” in traffic. But he added that “we really don’t think it will last,” because the crashes have had different causes, including bad weather and air traffic control error.
The cause of Thursday’s crash, which killed all 132 people aboard and occurred in clear weather, is still under investigation.
USAir still has strengths to help it weather this disaster. It remains a dominant force in several Eastern markets, notably Pittsburgh, Charlotte and Baltimore-Washington. As of June 30, the company also had $521 million of available cash.
Nonetheless, the financial markets registered their concern about USAir’s prospects. The company’s stock, which has already shed more than half its value in the past year, lost another 50 cents Friday to close at $6.125 a share in New York Stock Exchange trading. Volume was heavy at 2.7 million shares.
Prices of USAir’s junk bonds also tumbled. The airline’s 10% senior notes, for example, were quoted at about $700, down about $20 for every $1,000 in face value, and their yield shot up to 16%.
USAir is the product of an amalgam of airlines, including several acquired or merged during the 1980s, such as Piedmont Aviation in the Southeast and Pacific Southwest Airlines in California.
Although USAir’s passenger traffic this year is up about 10% from year-earlier levels, the airline has not sharply lowered its operating costs, particularly its labor expenses, to keep pace with its lower-cost rivals.
USAir’s cost to fly one passenger one mile--the industry’s standard gauge of operating expense--is about 11.2 cents, well above the 9.2-cent average for major carriers and the 7.2 cents spent by low-cost powerhouse Southwest Airlines, said John Pincavage, an analyst with the research firm Transportation Group in New York.
To be competitive, USAir has said it must get its cost down to at least 9.5 to 10 cents a mile, which would save the airline about $1 billion a year.
USAir is also facing growing competition from Southwest and another low-cost carrier, Continental Airlines’ Lite.
USAir’s biggest stockholder, British Airways, which owns a 24.6% stake in the carrier, has said it won’t add to its $400-million investment until USAir restructures and returns to steady profitability.
But British Airways’ chairman, Sir Colin Marshall, told reporters during an appearance in Atlanta on Friday that this week’s crash would have no effect on the alliance.
Pincavage said it remains “critical” that USAir and its labor unions reach new pacts to slash USAir’s costs. Ironically, the latest disaster might accelerate that effort, he said.
If USAir’s “traffic weakens significantly and the cash runs out faster” because of travelers’ concerns, Pincavage said, “it puts more pressure on both sides to come to an agreement sooner rather than later.”
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USAir Stock Prices
Monthly high price for USAir Group Inc. shares, except latest:
Friday: $6.125, down 50 cents
Source: Tradeline
