Sky-high losses threaten to ground US airlines
''You can't be all things to all people'' in the airline business, says Robert Joedicke, a Wall Street analyst who follows the airline industry for Lehman Brothers Kuhn Loeb Inc.
Two airlines, Continental and Eastern, are currently being forced to realize this. Since deregulation, they have been serving all kinds of passengers at all kinds of prices, with all kinds of services. They've tried to compete with newer discount airlines as well as with the service-oriented carriers in their class.
But these airlines were never set up to operate that way. For instance, their labor costs reflect an era under regulation when the airlines ''were like a cartel,'' as one airline executive puts it. And that, say Mr. Joedicke and others, is why Continental has filed for bankruptcy. Eastern may follow, depending on whether it gets the 15 percent reduction in labor costs it is seeking.
Tom Meyers, a spokesman for Eastern Airlines, says ''the biggest contributor (to the airline's losses) is low fares.'' The low fares stem from competition, he says, both from nonunion rivals and ''wild discounting'' among the major airlines. Blessings such as the recovery, which has been pushing more people aboard the airlines, and lower fuel prices are little comfort to Eastern when competition is still forcing $119 fares from New York to Miami. This kind of pricing, says Mr. Meyers, has resulted in a $106 million loss for Eastern so far this year.
In Eastern's eyes, the only way to compete with reduced fares is to lower labor costs. Labor ''is close to 40 percent of our operating costs, and has gone up the most,'' Meyers says. Eastern has already made agreements with its union and nonunion workers that would save the company $200 million by the end of 1984 . But the agreements involve loans and bonds now held by employees that must be paid back.
Labor costs have been a thorn in the side of Continental, too. By filing for reorganization under Chapter 11, the airline has been able to lay off over half its work force and set new wages that are drastically reduced. On Tuesday, Continental resumed some flights and instituted a new fare system, also drastically reduced, that offers flights at $49 or less to its nonstop destinations. Beginning Saturday, it will change that fare to $75, through Oct. 15. Continental has not said what its fares will look like after that.
Daryl Wyckoff, a professor of transportation at Harvard Business School, agrees that labor costs are the only place where these airlines can get substantial relief. But, he says, the troubles these carriers face ''are more fundamental than labor.
''The classic carriers aren't going to be able to compete in all corners of the market. . . . The airlines need to know their identity.''
It was deregulation that opened up the ''corners of the market,'' he says. A number of nonunion discount airlines went after the no-frills, low-fare passenger. These moves forced the major carriers toward fare slashes. More recently, a few airlines, also nonunion, have started providing business service , with midrange fares, more leg room, and a morning newspaper.
Professor Wyckoff's notes that the major carriers, which have built-in labor and service structures from a precompetitive era, can't afford to spread themselves over a huge range of services and prices. The industry must move toward ''a more normal market where there are different sets of price and service combinations.''
It looks like Houston-based Continental's refocus is toward the discount market, ''the biggest market,'' Mr. Joedicke says. But analysts are unsure how successful this strategy will be. People Express is scheduled to begin Newark-to-Houston flights Saturday. Fares will range from $69 to $99. And Southwest, another airline based in Texas, offers low-fare competition, too.