America West.

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Author: Geer Jr., John F.

AMERICA WEST

America West has been losing altitude fast. But there's reason to think the growth-happy airline that came out of bankruptcy in 1994 may rise again. This year stockholders have seen their shares fall from 23 3/4 in April to a current 12. Much of the drop comes from worries about the industry--fuel prices, new maintenance and security costs and the potential for an economic recession.

But $1.6 billion-in-sales America West has also been hurt by snafus in its plan to build capacity by 29% over the next 18 months. The stock has dropped 10% since management said last month that third-quarter earnings would be below last year's 45 cents. "It has just all snowballed," says James Higgins of Donaldson, Lufkin & Jenrette.

The problems? Count them. The company has had to cancel flights because it is short of pilots and planes. And with outsourcing of maintenance delaying plane overhaul, the FAA has pressed the company to hire more workers. Meanwhile, fare wars--particularly in the company's Las Vegas hub, where it has a quarter of the market--have crimped yields, or revenues per passenger-mile. It seems the big airlines are using Las Vegas overnight flights to soak up idle capacity and discounting fares for leisure passengers, America West's mainstay.

Finally, the airline bungled an attempt to juice revenues by cutting the number of cheap advanced sale tickets available. It overestimated last-minute demand and ended up with empty seats as a result.

Bail out? Not so fast. America West's internal problems seem under control. It is adding planes, and the 30 new maintenance workers it has hired shouldn't cause a big boost in costs. It's arguably the lowest-cost carrier in Las Vegas, so the company may be able to outgun competitors there.

More important, the company's broad strategy of expanding its hubs by adding nonstop service makes sense. America West is the biggest airline in Phoenix, with a 35% market share. To date, its limited nonstop service has kept it from dominating that hub. "They end up leaving money on the table," says Higgins. That should change as the company adds flights. Analysts expect earnings to grow by 26% next year.

Meanwhile, the stock remains dirt cheap. The forward p/e is eight, just above other airlines, and not at its usual 20% premium. And it trades at only 2.5 times 1996 cash flow--earnings plus depreciation, bankruptcy-related goodwill and unpaid taxes (it pays almost no taxes because of loss carry forwards)--compared with the industry's average of three.

"It's a very profitable airline with a very nice position in all its markets." says Art Winston, a portfolio manager at Glickenhaus & Co., who recently added to his 400,000 shares.

NYSE (AWA), 12; 52-wk. range 10 7/823 3/4; p/e 8; debt/eq. 51%; no div.

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By John F. Geer Jr.

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