Eastern Airlines is facing a dilemma as it tries to shrink its operations further to make up for a poor financial performance in the first half of 1988, stock analysts say.
To minimize further losses, the Miami-based airline is trying to cut less- profitable operations. But because a federal court order is blocking it
from pawning its assets, its efforts probably will fall short of returning Eastern to health.I don't think they're under any illusions of being able to shrink to the point of profitability, said Edward Starkman, who researches airline stocks at Paine Webber Inc. in New York.
Eastern lost $31 million in the first quarter of 1988 and $181.7 million in all of 1987.
In its official 10Q quarterly report filed with the Securities and Exchange Commission, Eastern said it expects losses, at least through the first half of 1988. It also said that it may shrink operations.
The Air Line Pilots Association, which represents 3,500 union pilots at Eastern, said Eastern plans to reduce its current schedule of 1,350 daily flights by about 20 percent by September.
ALPA officials said that figure was quoted by Eastern executives in briefings last month. But Eastern said it is preliminary.
We have not finalized our flying levels beyond July 1, said Karen Ceremsak, an Eastern spokeswoman.
Some moves already have begun. Eastern dropped a bank of 30 late-night flights from Atlanta on June 1. It also plans to scrub Dulles Airport near Washington, and Evansville, Indiana, from its schedule, trimming six daily flights.
By shrinking, Eastern can put its resources into its most profitable flights. But it can't sell the gates and planes idled by the moves, because of an order by federal Judge John Pratt, who said such actions would violate Eastern's labor contracts.
Down-sizing is a holding action, says Paine Webber's Mr. Starkman. These aren't strategic moves designed for Eastern to make money, he said. Although Eastern won't say where new cuts are planned, Mr. Starkman had some guesses.
I would look for operations where Eastern has too much service given the level of competition, he said. The kind of thing you saw at Charlotte (N.C.) last year made very good operating sense for Eastern.
Eastern dropped 41 flights in Charlotte in late 1986, conceding the city to Piedmont Airlines.
Planners also have discussed scaling back in Kansas City, Mo., where Eastern is pitted against Braniff Airlines.