Fares war drives up USAir losses to dollars 45m

USAIR, the American carrier in which British Airways is taking a 44 per cent stake at a cost of dollars 750m ( pounds 395m), yesterday reported a 50 per cent increase in second-quarter losses.

The airline blamed the sharp rise in net losses from dollars 56.8m to dollars 84.9m on the fares war that hit the US airline industry in the spring.

The second-quarter deficit took USAir's losses for the first half of the year to dollars 147.9m - an improvement of a third on the dollars 225.5m loss recorded in the same period in 1991.

USAir, America's fourth-biggest carrier, said that the fare cutting that started early in the second quarter had 'sharply eroded' the positive momentum built up in the first quarter of the year. It hoped that a recently announced 4.4 per cent fare increase would help to reverse the trend.

The airline added that the benefits of a new agreeement with its pilots, which should cut operating costs by dollars 100m a year, should begin to feed through in the third quarter.

News of the increased losses came as rival US airlines stepped up their campaign to be allowed more access to the British market as the price for allowing the BA- USAir deal to proceed.

United Airlines and American Airlines, the two principal transatlantic carriers, want rights to increase services into Heathrow and to operate services to more regional British airports.

A further round of talks between British and American officials on ways of expanding American access ended without agreement earlier this week.

Under the proposed deal with USAir, BA will gain access to the American carrier's vast domestic passenger network based on the eastern seaboard. Rival American carriers are lobbying the Bush administration to seek more opportunities for US airlines in return.

BA maintained, however, that there was no case for granting US airlines new traffic rights, since its link-up with USAir did not necessitate any liberalisation of US aviation policy.

Although BA plans to take a 44 per cent equity stake in USAir, its share of the voting rights will be limited to 21 per cent. Under US law, the ceiling on foreign ownership of airlines is 25 per cent.

US airlines have responded by arguing that special terms built into the BA-USAir agreement effectively give the British carrier control by enabling it to veto investment decisions and key executive appointments.