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The best guarantee that competition will persist, though, is that across the whole industry, too many airline seats are chasing too few passengers. John Pincavage, an analyst with the Paine Webber brokerage, notes that while fratricidal giveaways among the airlines may soon subside, "you'll now see fares that are properly related to the amount of unused capacity." Says he: "Unless we have a strong economy and increased passenger loads, we're going to see some fierce price competition."
All of that added up to a considerable challenge for the reigning airline merger king, Frank Lorenzo, as he surveyed his prospective Texas Air empire. He undoubtedly took personal satisfaction in his newly expanded holdings, particularly in his triumph over People Express Chairman Burr. Burr was once Lorenzo's subordinate at Texas Air's predecessor company, Texas International Airlines. The two men were virtually inseparable until Burr founded People Express; Lorenzo was said to be deeply embittered by that, believing strongly that the notion of a no-frills discount airline was originally his. Last week, as Burr insisted that the sale of People Express would allow it to "carry on," Lorenzo merely stated that Burr's baby would be folded into one of Texas Air's subsidiaries.
As he swallows People Express, though, Lorenzo must worry about indigestion. Before the deal is finally consummated, it must be approved by the Department of Transportation. Eventually, some such favorable ruling is considered probable. In the meantime, Lorenzo is pressing People Express bondholders to accept a 33% cut in interest payments on their debt as well as leaning on bank lenders to renegotiate an October deadline for the repayment of $32 million in People Express obligations.
Even then, Texas Air would be saddled with some $3.2 billion in additional debt from the People Express, Frontier and Eastern acquisitions. Those dollops of red ink will bring Texas Air's debt total to $4.5 billion. Can Lorenzo, for all his financial acumen, handle that load? Or is the merged airline itself a possible future casualty of the skies? "Texas Air is very strong," Lorenzo asserts. "We have $600 million in cash and no near-term obligations." Texas Air Spokesman Bruce Hicks is a bit more cautious. The company's best chance for survival in the tough climate of airline consolidation, he says, is to be "as profitable as possible." Exactly how that will eventually translate into the company's fare schedule is still anybody's guess.
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