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USAir's fare cuts seek to fill seats Move is called 'a pre-emptive strike' against competition

THE BALTIMORE SUN

USAir Group Inc.'s deep discounts, announced this week, reflect the airline's efforts to maintain 1995 momentum by shoring up its customer base, industry analysts said yesterday.

The Arlington, Va.-based airline matched winter-travel airfare cuts launched Wednesday by Delta Air Lines, slashing 30 percent to 50 percent off its regular advance-purchase fares for travel in the United States, Canada and Mexico.

Other airlines, such as American, Continental, United and TWA immediately followed.

But the next day, as TWA introduced reduced prices to eight European cities, USAir widened its sale to include spring and summer travel, cutting up to 44 percent for advance-purchase tickets to more than 850 cities within North America.

Other airlines haven't announced similar reductions, but analysts expect that to happen next week. "There is something to be said about being the first," said Claire Kendrick, an analyst with DLJ High Grade Research.

"If you can be the first out there, [customers] can see the USAir coverage if you can tempt them with these discounts now, then they may make their plans -- that's the key to get it into people's mind."

The initiative comes at a time when USAir is likely to post its first profitable year since 1988.

During the first nine months of 1995, it earned $59 million, compared with a loss of $362.9 million in the same period a year ago. Revenues for the second and third quarter were the highest in the company's history.

USAir is the largest carrier at Baltimore-Washington International Airport, with roughly 190 flights a day.

It handles half the airport's 30,000 daily passengers.

The airline turned itself around this year by cutting 15 percent of its 5,000 daily flights and $500 million in its nonlabor costs. USAir also aggressively reduced fares to end Continental's CalLite discount program.

It appears that the airline is using the same strategy to thwart airfare war competitors.

"It sounds like USAir is making a pre-emptive strike here," said Andrew S. Leinoff, an analyst with Duff & Phelps.

"With their battle with Continental Lite, they were aggressive with their cost-cutting. Continental ran off like a hurt dog.

"USAir suffered itself -- it didn't make any profits," he added.

"Continental cried uncle. I don't know if Delta or Southwest is going to cry uncle as easily."

Other analysts say the USAir discounts, which mainly affect flights between the East and West coasts, are unlikely to cut into profits because they are so restrictive.

Many of the reduced prices are for travel on a Tuesday or a Wednesday and require a Saturday night stay. These limitations would make it unattractive for business travelers to take advantage of the sale.

Analysts also point out that most airfare tickets are 10 percent higher than a year ago, and, even with the reductions, travelers are likely to pay as much if not more for tickets.

top of that, USAir's discounted seats are ones that would probably remain empty, if not for the sale, say analysts.

"If you can put people on your airplane with a deep discount, they aren't going to switch later," said John Pincavage, an analyst with Dillon, Read & Co. Inc.

"From a competitive standpoint, it makes a lot of sense," he said.

USAir is still faced with the difficult task of cutting its costs -- the highest in the industry partly because it flies much shorter routes and remaking itself into a long-term profitable venture.

While most analysts say there is little risk in USAir's extended sale, some analysts say it is still a gamble -- one that could make for a rocky new year.

"With the highest cost structure in the industry, it's not to their advantage to do this," said Philip Platek, an analyst with Forum Capital Markets.

"It's going to hurt profit. The only way they can do this is to get down their cost substantially," he added.

USAir shares closed yesterday at $13.25, up 12.5 cents.

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