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US Airways' Woes Reflect Industry In a Tailspin

By Jerry Knight
Monday, September 20, 2004; Page E01

Washington investors have just two more days to exorcise their investment in US Airways before shares of the Arlington airline are exiled to the land of the living dead.

As the result of US Airways' decision to go into bankruptcy, the stock is being delisted by the Nasdaq Stock Market after tomorrow, banished to that part of the over-the-counter market where shares of bankrupt companies are branded with the letter Q appended to their initials.

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The ticker UAIRQ is a clue that for the second time U.S. Airways' investors have been left holding shares worth not much more than a bag of airline pretzels. (Remember the good old days when they used to give us peanuts?) The shares, which traded between $2 and $3 for most of the summer, closed Friday at 75 cents, their lowest since the company came out of bankruptcy last year.

But unloading your investment in US Airways isn't good enough because airlines are like zombies. Better to drive a stake through the heart of airline stocks, shoot them with a silver bullet, spin around three times and throw a magic potion over your left shoulder to drive out the demons.

You'd think that investors would have learned long ago that taking a flier on airline stocks is a bad idea. But no. That is one reason the airline business is such a mess, says Kenneth J. Button, director of the transportation policy program at George Mason University.

No matter how much money people lose on airlines, "there are always going to be some stupid people willing to invest in them," Button said.

And as long as there are investors ready to put up the fuel, there will be executives eager to pour buckets of cash into jet engines so they can lose money on every passenger who straps on a seatbelt.

The zombie phenomenon explains why US Airways' bankruptcy is not going to benefit competing airlines in the same way the bankruptcy of Kmart Corp. was good for Wal-Mart Stores Inc. and Target Corp. When Kmart went into Chapter 11 two years ago and began closing stores, nearby Targets and Wal-Marts got more business and became more profitable. In retailing, competition works the way it is supposed to. Obsolete operators go the way of Woodies, Hechinger and Garfinckel's, while successful stores thrive.

If only the airline business worked that way.

If US Airways stopped flying today, someone would probably step up tomorrow and offer to buy its planes. As soon as they could strip off the old paint, spray on new colors and spiff up the interiors, that fleet would be flying again -- profitably or not.

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