TWA Still At A Loss Over Comeback Strategy

<B> TWA Still At A Loss Over Comeback Strategy</B>

By Jay Campbell

As TWA chairman and CEO Gerald Gitner ceded his CEO spot to TWA president William Compton last week--and as even the strongest airlines scramble to win the business of high-yield frequent travelers in order to keep their earnings afloat--it is more imperative than ever that Trans World Airlines develop a turnaround strategy. But it's difficult to determine what the airline is doing wrong, other than being too small for many corporate travel needs and being left out of the alliance game.

TWA posted a loss in 1998 for the tenth straight year. Although the airline has shown a remarkable ability to rise from the dead, its strategy over the past couple of years seems to have been a dud. "We have become too much of a leisure travelers' airline and not enough of a business travelers' airline, and our fare mix reflects this," Gitner told his board of directors in May 1997. He will cede his presidency on May 25 and remain as chairman, charged with focusing on the long term.

TWA has made a multimillion dollar effort to get business travelers on board, awarding them miles for every dollar spent (<I>BTN,</I> Aug. 25, 1997) and completely revamping its frequent flyer program. It introduced a new first class product (<I>BTN,</I> Jan. 26, 1998) with 60 percent more seats to give business travelers a better chance of upgrading. It started a new business-oriented, shuttle-type service called TWQ to top business destinations from St. Louis. And in April of last year, it announced it would begin better recognizing the most important travelers by linking its frequent flyer and revenue databases (<I>BTN,</I> April 13, 1998).

Along the way, TWA improved its ontime performance, which remained first in the industry during the fourth quarter of 1998, and won awards for its service and frequent flyer program.

"The simple fact is," Gitner said to his board back in 1997, "if TWA in 1996 had been able to achieve industry-average yield--not superior yield, just industry-average--we would have earned a profit." TWA's domestic yield in 1998 was 12.72 cents per revenue passenger mile, virtually flat compared to its 12.73 in 1997. According to the Air Transport Association, average yield in the domestic market (not including Southwest) for 1998 was 13.80.

Insiders increasingly are worried about the airline's ability to bounce back. Leaders in the carrier's pilots union have stated that the airline "must grow or die" to lift itself "out of the sinkhole we seem to be stuck in." The union is even hopeful that the termination of recent acquisition talks about America West could put TWA in someone's sights. The airline is taking delivery of a new Boeing aircraft every 10 days, prompting some to consider whether it is dressing itself up for takeover.

"Targeting the high-yield business traveler continues to be the main strategy," said spokesman Jim Brown. "We're now adding aircraft and new destinations. Our whole emphasis is getting people to put TWA back into the set of airlines they'll consider."

Brown pointed out that fourth-quarter 1998 results would have been just about break-even were it not for a one-time charge for the retirement of some aircraft. TWA also is finding places to reduce costs, particularly in facilities such as reservation centers that were designed for the older, bigger TWA. And the airline will offer seven new domestic destinations from St. Louis beginning June 1.

"Anecdotally, we're hearing a lot of great things about TWA's service," said John Heilner, the Princeton, N.J.-based consultant for Management Alternatives who once was TWA's vice president of pricing. "But I think most corporate travel managers probably sign a TWA discount deal saying, 'Maybe we need you on a few routes.' TWA doesn't have the kind of coverage its competitors do. The international operation is a shadow of its former self. So I think it's hard for TWA to be an important partner for companies outside of St. Louis."

Like the airline itself, its top customers are wondering what TWA needs to do to stay in business. "In spite of everything, it's very critical to St. Louis that TWA stay afloat," said Stephen Wuller, director of meetings and travel for the Ralston Purina Co.