As Merger Circles Overhead, USAir's Profits Take Off
The airline is considered a good takeover candidate because of its strong presence in the Northeast
USAIR is the ugly duckling that turned into the swan of the airline industry.
After losing $3 billion and enduring several tragic crashes in the past five-years, the carrier is suddenly starting to attract outside attention.
The company, based in Arlington, Va., last month reported a profitable quarter and now expects to post a profit for the entire year. It is on its way to cutting some $500 million in costs this year. Most encouraging of all, two of the world's largest airlines - American and United - are circling overhead in the hopes they can buy the carrier.
Earlier this week, UAL Corp., the parent company of United, announced it would take extra time to carry out its preliminary evaluation of USAir.
''It's a complex matter,'' says Joe Hopkins, media-relations manager for UAL, based in Elk Grove Village, Ill. ''When you start in on a process, you don't know how long it's going to take.''
A good takeover
USAir, the sixth-largest carrier in the United States, is considered a good takeover candidate because it has such a strong presence in the Northeast. It has more landing slots at National Airport in Washington, D.C., and LaGuardia in New York than any other carrier. It is either the No. 1 or No. 2 airline in cities up and down the East Coast. And it operates two successful hubs: one here in Pittsburgh and another in Charlotte, N.C. The carrier made its surprise announcement about merger talks on Oct. 2.
Airlines such as United, which is strong in the Midwest and West, as well as overseas in the Pacific, would benefit by extending their reach into the heavily trafficked Northeast. ''They have a presence in the Eastern Seaboard that would be a great asset to any airline,'' says Lee Howard, president of Airline Economics International, a market-research firm in Washington, D.C.
Perhaps the reason USAir put itself up for possible sale is that its long-term future doesn't look as bright as its present. ''They're going to have a tough time,'' Mr. Howard warns. ''They're improving, but not to the extent that they really need to in order to be a long-term, sound company.''
One reason is labor costs. Depending on how one counts, USAir's work force is slightly more expensive or much more expensive than the rest of the industry. As a percentage of total operating costs, USAir has the highest labor costs in the industry: 37 percent compared with 31 percent for United and less than 23 percent for Continental.