USAir wants to go discount at BWI It would end status as a connecting hub; Struggling to earn a dollar; Carrier wants to battle Southwest for low-fare business


As part of its plan to cut costs and defend its East Coast turf against low-fare rivals, USAir wants to scrap Baltimore-Washington International Airport as a connecting hub and to launch a discount service there, according to a top airline official.

For months, rumors have persisted that USAir, BWI's largest carrier, would sharply cut its 85 daily jet flights there and officially end its status as a hub -- one of three clustered within 120 miles -- as it struggles to cut costs and overlapping service. In addition, doubts lingered about whether USAir would remain locked in its money-losing battle with an expanding Southwest Airlines at BWI.

But USAir President Rakesh Gangwal said that while maintaining a USAir hub at Baltimore makes no sense, competing with Southwest does -- provided the soon-to-be US Airways can reach critical cost-cutting agreements with its labor unions.

"It did not make sense for us to pull the trigger knowing that there's a larger purpose for Baltimore," Gangwal said during an interview after a meeting with securities analysts last week in New York. "Our employees know that BWI is not an appropriate hub, but [cutting costs] would give us the ability to create a low-cost operation out of Baltimore."

It is not clear how many discount flights USAir would operate at BWI, whether it would offer low fares in markets where it currently faces little competition or how much of its regular service USAir would retain there.

Typically, discount airlines choose relatively uncrowded airports that provide opportunities for a high number of quick-turnaround flights. "They realize that BWI represents the right place to launch their low-fare product," said Jay Hierholzer, associate administrator for marketing and development at BWI.

Such a discount operation would assure BWI passengers much better fares than those flying from USAir's fortress hubs, such as Pittsburgh, Philadelphia and Washington National Airport, where the airline faces far less competition.

A recent General Accounting Office study found that fares at airports dominated by one or two carriers are much higher than the national average.

Since USAir's merger with Piedmont Airlines in 1989, BWI has lost half of its 160 daily USAir jet departures. Yet, as USAir seeks to revamp its route structure -- at the New York meeting, the airline pointed out that it is its own biggest competitor in the East -- BWI is likely to lose even more, at least in the short run.

"When the dust settles, Baltimore is going to have less service than it does today," said Michael J. Boyd, president of Aviation Systems Research, a Golden, Colo., aviation consulting firm.

Put another way:

"Depending on where you're going from Baltimore, a discount operation there could be good news or bad," said Philip Baggaley, an airline analyst for Standard & Poor's Ratings Service.

The Arlington, Va.-based airline, which has the highest costs in the industry, has repeatedly expressed concerns about the growing number of flights by low-cost, low-fare carriers along the East Coast. Southwest Airlines began service at BWI in 1993 and has been expanding ever since, this year adding daily flights to three Florida cities and Providence, R.I. In addition, Delta Airlines began its Delta Express operation and ValuJet has resumed its low-fare service in the Southeast.

"Low-cost carriers are going to grow," said Gangwal, who was brought on board as president last spring by the new chief executive, Stephen M. Wolf. "Either we do it or someone else will do it."

After losing $3 billion between 1989 and 1995, USAir has now posted six straight profitable quarters. Yet its high costs make it more susceptible to competition from low-cost carriers and pose a danger to its long-term financial health. "Our current East Coast fare structure is too high and provides an opportunity for low-cost carriers," Gangwal said. "The issue very simply is we have to learn to compete with the likes of Southwest Airlines."

USAir is hard-pressed to cut fares, not only because its wages and benefits are higher than those of other carriers, but also because it flies more flights shorter distances and operates a wide variety of planes, driving up maintenance and training costs. As a result, it is seeking to replace its hodgepodge of planes with fewer types of aircraft and to fly longer flights.

USAir's ability to launch a discount operation hinges most heavily on reaching agreements with its pilots, flight attendants and mechanics, much the way Delta and United Airlines did before starting their express services. Both carriers effectively created separate pay scales for those operations.

Some USAir workers fear that such a USAir discount operation at BWI would result in the loss of union jobs, as the airline cuts regular service flights and substitutes lower-cost ones. Yet in its continuing negotiations with workers, USAir undoubtedly is threatening to continue downsizing the entire airline, particularly in vulnerable spots such as Baltimore, if such concessions aren't made.

"With USAir's large presence in the Baltimore-Washington area, Baltimore has competitive problems for USAir that need to be addressed," said Bob Gaudioso, president of the Master Executive Council of the Air Line Pilots Association, which represents 5,700 USAir pilots.

In the meantime, USAir says it will maintain a wait-and-see approach at BWI.

"It would be a fundamental mistake for the company to come out of Baltimore, resolve its low-cost carrier issues a few days from now, a few months from now, a few years from now, and go right back to Baltimore," Gangwal said.

"For now, we have a holding pattern there," he said.

Pub Date: 11/17/96

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