Takeoff to Recovery

THE airline industry is like the little girl who had a little curl right in the middle of her forehead. When the industry is good, it is very, very good; but when it is bad it is horrid. After nearly two years of being absolutely awful, largely because the U.S. economy was sluggish, the highly cyclical air-travel business appears headed for good times once again.

The Civil Aeronautics Board is forecasting pretax profits of up to $350 million for the eleven domestic trunk lines this year, up from last year's $25 million and 1970's $85 million loss. Executives of six U.S. airlines that either lost money or made only minor profits last year (American, Eastern, National, Northeast, Pan Am and TWA) expect to do much better in 1972. As CAB Chairman Secor Browne says, "the airlines have essentially turned the corner."

Not only is passenger traffic running 3.2% ahead of 1970, but the lines have laid off some 10,000 employees, deferred $185 million worth of new plane orders, eliminated about 700 flights from their schedules, and otherwise cut operating costs to the leanest levels in years. The CAB last April granted the trunks a 6% fare increase and is expected to permit another 3% rise this spring. The wage controls of Phase II will probably help hold down the industry's labor costs, which have risen at least 43% per employee since 1966 and account for nearly half of all airline overhead.

Of all the flights toward recovery, TWA's has been one of the most dramatic. The line lost $64 million in 1970 and did little better than break even last year. Wall Street analysts figure that TWA will earn $30 million this year. TWA carried out an aggressive cost-cutting program, laying off 4,000 employees and dropping a number of minor passenger services--like eyeshades on night flights. No further economy moves have been announced, but TWA Chairman Charles Tillinghast cautions that "both TWA and the industry are still far from out of the woods."

Mating Season. American Airlines, which lost $26 million in 1970, made a small profit last year. The company could earn $36 million this year. One factor in the recovery is President George Spater's successful campaign to focus on the growing leisure market by picking up routes to Hawaii, the South Pacific and the Caribbean. Pan Am lost $48 million in 1970, and its future looked so bleak last year that the CAB's Browne raised the possibility of some kind of federal assistance for the line. Now Wall Street analysts figure that Pan Am will break even this year and turn a substantial profit in 1973. United Air Lines reduced its losses from $41 million in 1970 to about $3,000,000 last year. "I think there will be a turnaround for us in 1972," says U.A.L. President Edward Carlson.

There are exceptions to the riches-rags-riches cycle, mostly among smaller lines that have consistently kept a close check on costs. Delta Air Lines has been profitable for 32 of the past 33 years, and Chairman W. Thomas Beebe this month will report earnings of close to $40 million for the 1971 calendar year. Despite a five-month airline clerks' strike in 1970, President Donald Nyrop's Northwest Airlines has a 23-year string of profitable years. For 1971, Northwest should come in with $19 million in profits, second only to Delta. Continental Airlines, under President Robert Six, has become the industry's most "productive" airline, generating $33,600 in revenues per employee, compared with an average of $29,000 for the Big Four (American, Eastern, TWA and United).

This year also holds the promise of more mergers. Five are either before the CAB or being consummated: Allegheny-Mohawk, Eastern-Caribair, Delta-Northeast, American-Western and Northwest-National. Meanwhile, Eastern Chairman Floyd Hall and Pan Am's Chairman Najeeb Halaby are said to be talking about a merger. Braniff Chairman Harding Lawrence has said that he would be willing to discuss a marriage with any major airline. And agents for Billionaire Howard Hughes, owner of Air West, are scouting for acquisitions to create a new transcontinental carrier. Even though the industry will be flying high in the near future, there will probably be fewer airlines.

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