No Break in the Turbulence

By John Greenwald

Strife at Eastern and Continental shakes the airline industry

In Washington, customers of the Thomas Cook travel agency refused to fly on Eastern Air Lines. In Manhattan, clerks at the bustling Avos agency on Fifth Avenue stopped writing tickets for Continental Air Lines. In Houston, passengers had to pass through picket lines on their way to flights. All across the U.S. last week, the normally routine business of air travel was suddenly overtaken by confusion and uncertainty. "People are scared," said Kathy Prezas, manager of Chicago's Apollo Travel. "They used to choose an airline for its food, or fares, or times. Now they are deciding which carrier to take by guessing which ones will be flying."

The chaos stemmed largely from labor strife at Continental and Eastern, two of the largest and most financially troubled airlines. Continental (1982 revenues: $1.4 billion), which lost $84 million in the first half of 1983, was struck by its pilots and flight attendants on Oct. 1 after it had first filed for protection from creditors under bankruptcy laws and then ordered its workers to take pay cuts that in some cases exceeded 50%. At Eastern (1982 revenues: $3.76 billion), where losses reached $128.9 million during the three quarters that ended last month, Chairman Frank Borman gave employees an ultimatum: accept wage reductions of 15% by Oct. 12, or Eastern would also file for bankruptcy. In addition, Eastern's more than 5,000 flight attendants were set to strike the Miami-based carrier unless it agreed to a new contract by Oct. 12.

During the week, Continental Chairman Frank Lorenzo, looking weary and discouraged, shuttled between Denver and Houston for what proved to be unproductive talks with striking pilots. A crew shortage forced Continental to defer its plans to add ten flights to the 158 remaining on its schedule. Pilots who had crossed picket lines were already flying at the rate of 83 hours a month, well under the federally mandated limit of 100 but still some 28 hours more than Continental's pre-strike average. In view of the turmoil throughout the industry, the Federal Aviation Administration stepped up its safety inspections at the Houston-based carrier and other airlines. "There have been no safety violations so far," said FAA Administrator J. Lynn Helms of conditions at Continental.

The strikebound airline kept its flights about two-thirds full by offering $75 one-way rates between any two nonstop points that it serves. Furthermore, it announced an extension of the discount fares, which few other carriers have sought to match, until Oct. 22. Said Gladys Henn, 68, before boarding a Cleveland-bound Continental jet in Houston: "If the pilot is flying this thing, he's got his life in his hands too. I have to feel safe, or I wouldn't get on."

At Eastern, one hopeful sign emerged late in the week when Borman abruptly dropped his ultimatum. The action followed a series of labor-management talks prompted by former U.S. Labor Secretary William Usery Jr., whom Eastern had hired as a consultant. Eastern agreed during the sessions to retain a pair of outside advisers to examine its financial woes and propose solutions. The move was welcomed by the carrier's unions.

The uncertainty about Eastern's future led four Florida-based ocean cruise lines to cancel more than 3,500 bookings on Eastern flights, worth some $1.2 million. The reservations, to bring cruise passengers to Miami for embarkation, were switched to other carriers. Said an executive of a rival airline: "Frank Borman's invocation of bankruptcy could become a self-fulfilling prophecy."

Union leaders, notably Henry Duffy, president of the Air Line Pilots Association, continued to call last week for a return to regulation. Some unions want Congress to mandate a floor on ticket prices to prevent destructive fare wars and keep low-cost, nonunion carriers like People Express from flying off with more business. Hard-pressed airlines like Minneapolis-based Republic, which lost $106 million in the first half of 1983, have taken a similar position. Says Republic Spokesman Robert Gibbons: "If fares last year were just 10% higher, the industry would actually have made a profit."

Many experts insist, however, that it would be unwise to roll back deregulation, which took effect in 1978. They argue that the problems of the airline industry, which lost a total of $ 1.2 billion during the past three years, are mainly due to factors like the severe 1981-82 recession and the 97% jump in oil prices in 1979. "Basically, there is plenty of service out there now and more options in terms of price than ever before," says one Government official who has watched the deregulation process closely. Some economists also assert that under deregulation, reduced fares have spurred air travel and thus meant more jobs for the industry.

In a separate move last week, union leaders asked Congress to bar companies from following Continental into bankruptcy in order to rid themselves of costly labor contracts. If such a practice becomes common, said William Scheri, airline coordinator for the machinists' union, "the contracts will not be worth the paper they are written on." Some Congressmen sympathized with that view. "The use of the bankruptcy court to void a collective-bargaining agreement violates both labor law and bankruptcy law," maintained William Clay, chairman of the House Subcommittee on Labor-Management Relations. "Of even greater concern is the potential damage that can be inflicted on labor policy if this kind of abuse is systematically utilized."

What mainly ails airlines now, according to some executives, is a glut of capacity. "There are just too many seats out there for the available passengers," says C.E. Meyer Jr., president of Trans World Airlines (1982 revenues: $3.32 billion). Traffic on all U.S. airline flights increased by 9.4% in the first half of 1983, but the number of seats rose by 12.6%. Such problems have led parent Trans World Corp. to consider selling TWA, which posted $108 million in operating losses during the period.

Wall Street, too, has been souring on the airline industry. Airline stocks sagged 23% during the third quarter, even as the Dow Jones industrial average was reaching record highs. The biggest losers have included Eastern, which tumbled from 11 3/4 in June to 6 1/4 last week, and Republic, which has fallen from 8 1/8 to 4 1/4.

Most observers look for the beleaguered industry to remain in turmoil as carriers struggle to cut their costs in order to survive. Some may be unable to keep aloft. "A major restructuring is under way," says Julius Maldutis, a leading airline analyst for Salomon Bros. "The end result may be five or six full-service, nationwide and international carriers," he adds, compared with the eleven major ones operating today.

--By John Greenwald. Reported by Bernard Diederich/Miami and David Jackson/Houston with other bureaus

With reporting by Bernard Diederich, David Jackson This file is automatically generated by a robot program, so viewer discretion is required.