Beleaguered airlines emerge from $13bn hell in the heavens

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Think the industry you are in has been a bit brutal of late? Boss a bit obsessive about cutting costs? Your company's rivals a touch more aggressive than they used to be? Not certain whether the old place will still be there in a month or two?

Well, your experience is probably as nothing compared with that of employees of the big US airlines over recent years. Hell in the heavens might just about describe it.

Just look at the carnage. Some of the most famous names of American aviation have been vaporised: Pan American, Eastern and Braniff among them. Others, such as TWA, have staggered in and out of bankruptcy.

Over five years from 1989, the US airline industry contrived to lose a fearful $13bn. Robert Crandall, the sharp-edged chief executive at American Airlines, was conceding only a short few months ago that he would not mind selling up entirely given the awful state of the industry. The battle for survival has, understandably, been intense. It was Mr Crandall again who remarked: "The game we play is closest to the old game of Christians and lions."

With every management scrambling to cut overheads, it was generally the employees who were turned into cat food. At Eastern Airlines, union members, so accustomed to being asked for ever-more painful concessions, coined the acronym Bohica - Bend Over Here It Comes Again.

Now there is convincing evidence the worst may be over. As a group, the main US carriers are on track to have made money in 1995, ending their streak of losses. Delta, Northwest, American and United all came out ahead.

While cost-cutting played the biggest part, the turnaround was helped also by fares that stayed relatively high and traffic which rose 2.4 per cent over 1994. Most importantly, load factors on the 10 largest US airlines rose 0.8 to 67.3 per cent.

Even the clouds at USAir might be revealing a silver lining. The company is expected to announce this morning, that it, too, has rebounded from five straight years of losses totalling $3bn with a profit for 1995. When USAir first mentioned it was on course for a profit last September, its share price shot up 25 per cent. One dampener on the celebrations will be the news last week from British Airways that it is declining to exercise an option to increase its 24.6 per cent holding in the company to 34.8 per cent because of the continuing deadlock in Anglo-American negotiations on liberalising access to markets and raising US limits on foreign ownership of its carriers.

Something else will be new at USAir today: from this morning it will have Stephen Wolf as its new chief executive. The appointment of Mr Wolf has thrilled analysts and investors.

Formally the boss of four airlines - Continental, Republic, Tiger International and United Airlines - the lanky Californian is "Mr Turnaround" of the airline world.

At United he engineered a $5bn employee buyout that has seen the airline return to profit and overtake American as the country's largest carrier.

Most carriers expect 1996 to be much like last year. There are still no serious fare wars in sight, and, with a generally healthy US economy, traffic projections look good.

The main carriers "are acting very rationally as far as adding capacity is concerned", says Ray Neidl, an aviation analyst at Furman, Selz. "I hope they maintain that."

Dangers, however, still lurk. Not everybody, for example, is certain that Mr Wolf will be able to work his old magic so easily on USAir, which still has the highest operating costs in the industry and famously tough unions. It will not help him that USAir's pilots have an agreement in their pockets barring any lay-offs before 1 July 1997.

Among the sceptics is Michael Boyd, an aviation consultant in Colorado. "It looks like they [USAir] looked for an outside Messiah to save their company," he said last week. "But former airline executives are like plants. They usually don't repot very well."

And there are potentially dangerous labour disputes brewing at some of the other carriers also. The pilots' union at American Airline asked last week for federal mediators to step in to end an 18-month impasse in negotiations with management for a new contract. And at Delta Air, the pilots' union has said it is preparing to ballot members on strike measures because of deadlocked talks with management.

Another worry for the big lines is the progress of their short-hop, no- frills competitors, such as Dallas-based Southwest Airlines. Led by its founder, Herb Kelleher, it has made extraordinary inroads, serving 23 US states and poised to replace TWA as America's seventh-largest carrier.

Tomorrow, Mr Kelleher will inaugurate new routes to Florida, representing a serious threat to the east coast stronghold of USAir. Less visible but growing even faster is Valujet, based in Atlanta.

Most damaged by its sudden ascendancy is Delta. The violent bumps of the first half of the decade are more or less over. But the seat-belt sign is likely to stay on a while yet.