As discussed in greater detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the
dramatic expansion of low fare competitive service in many of
USAir's markets in the eastern U.S. during the first quarter of
1994 and USAir's competitive response in February 1994 by reducing
its fares up to 70 percent in those markets and other affected
markets in order to preserve its market share led the Company to
announce that it expected to experience greater losses in 1994 than
it experienced in 1993.
In September 1993, Southwest Airlines, Inc. ("Southwest"), a
low cost, low fare, "no frills" air carrier which had not previous-
ly provided service to or in the eastern U.S., inaugurated service
to Chicago and Cleveland from Baltimore/ Washington International
Airport ("BWI") at fares substantially below those previously
offered by USAir and other airlines in the same markets. BWI is
one of USAir's hub airports. Unlike the other major U.S. air
carriers, Southwest does not structure its operations around
connecting hub airports, relying instead on high frequency point-
to-point service. USAir responded by matching most of Southwest's
fares and increasing the frequency of service in related markets.
On March 22, 1994, Southwest announced that on May 26, 1994,
and June 6, 1994, it will expand service between BWI and Chicago.
Southwest also announced that on May 26, 1994, it will initiate its
low fare service between BWI and St. Louis, and on July 8, 1994,
between BWI and Birmingham, Alabama and Louisville, Kentucky. At
this time, USAir has not determined its response to the Southwest
announcement.
(section regarding Continental's now-long-defunct Continental Lite LFC)
USAir believes that Southwest, Continental or other low cost
carriers with a significant cost advantage over USAir likely will
expand their operations to additional markets. For example, in
December 1993, Southwest completed its acquisition of Morris Air,
a regional air carrier with operations concentrated in the western
U.S. This acquisition could enable Southwest to divert resources
to expand its operations in the eastern U.S. Furthermore, media
reports indicate that Southwest has entered into a long-term
agreement for the use of four additional gates at BWI, where it
currently operates from two gates. On March 4, 1994, Continental
further escalated prospective competition by announcing that it
will further reduce operations at its Denver, Colorado hub and
establish a flight crew base at Greensboro, North Carolina. These
measures are likely to increase losses at USAir because they could
enable Continental, which has significantly lower costs than USAir,
to expand further its high frequency, low fare service described
above in additional short-haul markets served by USAir with
substantial detriment to USAir. In addition, other low cost
carriers may enter other USAir markets. For example, America West
Airlines ("America West") announced on February 15, 1994 that it
will commence service on April 18, 1994 between Columbus, Ohio
where it operates a hub and Philadelphia, where USAir has a hub
operation. Other carriers, including some of the larger carriers,
have also indicated their intent to develop similar low-fare short-
haul service.
. Isn't PHL what this is all about anyway? US competes effectively against WN or kisses all the revenue from the "Jewel" buh bye
