America West cutting costs due to losses in first quarter

Wednesday, April 18, 2001 | 11:06 a.m.

The second-busiest airline operating at McCarran International Airport is cutting costs in the wake of first-quarter losses.

Tempe, Ariz.-based America West Airlines, which has 86 daily departures to 38 nonstop destinations from Las Vegas, reported a first-quarter loss of $12.8 million, 38 cents a share, on record revenues of $587.5 million.

That compares with earnings of $14.6 million, 40 cents a share, on revenues of $562.9 million for the same quarter a year earlier.

The losses were less than expected by most analysts. Forecasts had ranged from a loss of 30 cents to a loss of 60 cents a share, with an average forecast loss of 45 cents, according to Thomson Financial/First Call.

Airline executives blamed the softening economy and higher fuel prices for the losses. They cited a 5 percent reduction in passenger yields, attributed to slower business travel, and a 4 percent increase in operational costs, attributed primarily to increased fuel prices.

Airline officials said the cost-reduction plan is a response to the softening economy and would not affect the company's passenger service levels or its recently implemented operational improvement plan.

The operational improvement plan, implemented in July, has resulted in the level of flight cancellations dropping 55 percent and consumer complaints dropping 70 percent, the airline said.

The cost-reduction plan is expected to save about $100 million over the next year, the company said. The airline said the cuts would reduce growth, but not existing operations.

America West Chairman and Chief Executive Officer W.A. Franke said growth would be reduced to 5-6 percent in 2001 and 1-2 percent in 2002 from the 7-8 percent in 2001 and 5-6 percent in 2002 that had been planned.

The company plans to return five Boeing 737-300 jets to lessors when their leases expire between September and January. America West has 47 of the 134-passenger jets in its fleet.

Company officials said they would reduce overhead with a 10 percent cut in management and clerical payroll, a 33 percent reduction in paid overtime, a reduction in advertising and the elimination of other discretionary expenses.

The management and clerical reductions would occur through attrition, deferred hiring and some layoffs.

Franke and W. Douglas Parker, America West's president and chief operating officer, said they requested that pay raises granted to them by the board of directors in March be rescinded. With previous announcements that America West officers would not be receiving cash bonuses this year, Franke and Parker's 2001 compensation would be reduced by about 40 percent from the previous year. In the 1999 fiscal year, Parker made $1.2 million while Franke was paid $1.1 million.

America West officials did not say how the cost reduction plan would affect the 990 America West employees based at McCarran or if it would impact the company's reservation center in Reno.

America West's stock was trading at $9.89 this morning, up 23 cents from its Tuesday closing price.