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ValuJet cleared to fly
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September 26, 1996: 5:42 p.m. ET
Extended shutdown will put pressure on company's once-stellar profit picture
From Correspondent Katharine Barrett
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NEW YORK (CNNfn) - After about a three-month flight suspension, ValuJet Airlines will soon take to the skies again.
Airline officials received word Thursday afternoon that the U.S. Department of Transportation had granted them permission to return to the skies as soon as its equipment and personnel were ready.
The company announced it would resume service Monday between Atlanta and Fort Lauderdale, Tampa and Orlando in Florida and Washington, D.C. One-way fares will be as low as $19.
The decision caused the company's stock to jump 2-9/16 to 12-13/16 on the Nasdaq. Trading in ValuJet shares was heavy, with just under 4.1 million shares changing hands by Thursday's close.
While investors are paying close attention to the company, its financial future may be bumpy since it is being forced to essentially start over with clipped wings.
Almost no one is forecasting a profit for ValuJet this year, but analysts say that even with a fraction of its fleet flying to only a handful of cities, it is possible for the carrier to make some money.
The crucial question, they say, is will ValuJet be able to convince passengers to get back on its planes. To do that, analysts say the company may have to pinch profit margins and offer cut-rate fares.
"Initially, I think they don't have a choice but to keep (margins) as low as they were before or maybe lower simply because they have to get people back on the airplane. They have to make a splash so people know they're there.
"They've been gone for a couple of months, so they've been under the radar screen. They've got to get on the radar screen somehow," said John Pincavage, an airline analyst at Dillon Read.
Getting passengers to put their faith in ValuJet may be a hard sell. When asked whether he would consider the airline, one man said that while price is important, he would not put it above safety.
Whether they can sell tickets or not, investors have snapped up ValuJet shares over the weeks, causing its price to soar from a low of 4-1/2.
However, Mark Alther, an airline analyst at Salomon Brothers, said the shares are pricey given the company's precarious profit outlook. (111K WAV) or (111K AIFF)
While ValuJet has been out of the skies, the competition has geared up. Delta Express will take to the air Oct. 1 offering low fares to a variety of cities. And Southwest Airlines is also making moves in the Southeast.
With lower revenues and slightly higher costs, many industry analysts think ValuJet is unlikely to be the high-flier it was when the year began. However, they say if customers come back and there are no more safety concerns, the airline could be back in the black by 1997.
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