Blue-Sky Summer for Profits

In the boom-or-bust U.S. airline industry, profits have been about as permanent as a jet contrail in a wind-blown sky. Yet last week there was evidence that at least some form of profitability had returned to the nation's eleven major scheduled carriers; it is expected to stay intact through the busy summer tourist season and probably through the end of the year. One by one, the airlines reported sharply increased second-quarter earnings--or dramatically reduced losses--v. the savagely depressed similar period of a year ago, when the recession was cutting deeply into pleasure and business travel.

American, the third largest carrier, showed a $24.8 million profit for the quarter, v. a loss of $1.5 million last year. Like the other airlines, American was favored by extraordinarily good business in June as school let out, vacations began and Bicentennial travelers lined up at airline ticket counters around the nation. In June alone, TWA earned $24.4 million, more than four times the total for June of last year; the performance was enough to pull the nation's second largest carrier into the black for the second quarter and to cut losses for the first half from $81.8 million to $15.6 million. As travelers swarmed across the Atlantic and Pacific in unexpectedly high numbers, Pan American, helped by a good June, posted a net of $101.3 million for the quarter. "There's a big push to Britain," says an American Express official. "People seem to be going there for the bargains in merchandise."

Profit Plan. Some of the gains were not all they appeared to be. Pan American's net, for example, included an income tax credit of $30.8 million from prior losses; the airline has not turned a year-end profit in seven years and is selling off some of its older 707s to other airlines. At Miami-based Eastern, net income for the first half increased ten times, and the second-quarter results of $19.5 million were the best in the company's history. But part of the increase was due to a temporary wage freeze urged by former Astronaut Frank Borman, who became the airline's chief executive in December. Though unions may not go along, Borman has asked employees to consider a profit-increasing plan whereby they would receive perhaps 95% of normal wages in bad years and as much as 106% in good times.

A number of factors have come together to produce the higher second-quarter results: increased fares (up 18% domestically in 2 1/2 years); fuel costs that, while high, have remained relatively stable; and a rise in traffic of 8% to 10%. A 16% increase in travel to Hawaii in early July will probably help move United Airlines, the largest carrier, into the black for 1976, although recovery from a strike last December still kept the line in the red for the first half.

Neither Wall Streeters nor airline executives think the improvement so far this year will do much to alter the long-range problems of the industry, even though the spring quarter's performance appears to have canceled out the $115.3 million lost by the major trunks during the year's winter quarter. Most analysts expect the big lines' profits to be in the $300 million range, about where they were in the mid-1960s, when costs were far lower and passengers flocked to the then novel technology of commercial jet travel. But that would be far less than the $750 million to $900 million in earnings that the airlines say they will need to attract new capital to replace aging, first-generation aircraft, which still account for 46% of the U.S. fleet.

The most worrisome uncertainty is the Ford Administration's move toward "deregulating" the airline industry by, among other things, allowing competitors easier entry into the established airlines' markets, thus at least theoretically putting downward pressure on fares. That, say airline chiefs like TWA's Charles Tillinghast Jr., would result in a "free-for-all" and drive down revenue just when the lines most need it. The Administration seems to have tempered its initial vigor, and needed compromise will probably not come until the next presidential term.

Eastern's Borman believes that an equally serious problem is soaring operating costs, and he has proposed that they be attacked directly by a joint airline-industry effort to design a super-economical jetliner (with some variations) for the 1980s that could cut costs by as much as 50%. Such an aircraft, Borman contends, would eliminate "massive waste" caused by competing manufacturers' building essentially similar planes for identical markets.

At least for the moment, it seems that airlines are catching up to the rest of U.S. industry in the post-recession drive toward profits. Government data last week showed second-quarter earnings of more than 500 major companies up an average of 33%, about what most economists had expected. The unquestioned star: General Motors Corp., whose earnings rose 273% during the period, to $909 million, a company record for any quarter. Car and truck sales were up 34%, and company officials stood by their earlier prediction that U.S. car sales, including imports, would total at least 10.5 million units this year, up 22% from last year and only slightly behind the high-sales years of 1972 and 1973.

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