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Amid Industry Troubles, A New Airline Starts Up

By Guy HalversonStaff writer of The Christian Science Monitor / September 25, 1992



NEW YORK

THE Greater New York area's first new regularly scheduled airline in almost a decade was launched this week amid lots of media hoopla but not too many paying customers.

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If Kiwi International Air Lines can stay financially afloat in the competitive airline industry, other regional carriers may also start up, some airline specialists say. Such a result would be beneficial to travelers in general by putting downward pressure on existing fares.

Kiwi flies out of Newark International Airport, which, like John F. Kennedy and LaGuardia airports, is operated by the Port Authority of New York and New Jersey; Newark is also the newest and perhaps most modern of the region's three airports.

The new airline is a welcome addition from the Port Authority's viewpoint since Continental Airlines, the main carrier out of Newark, has been struggling for some years. Continental, which filed for bankruptcy in December 1990, is being considered as a possible partner by Air Canada and Lufthansa Airlines. The Scandinavian Airlines System already has a $100 million, 16.8 percent stake in Continental.

Newark's new airline is owned by its employees, who are mainly former flight personnel from Eastern, Pan Am, and Midway Airlines. Kiwi has an initial capitalization of between $7 million and $11 million, 219 employees and two aircraft - Boeing 727-200s once owned by Lufthansa.

"We're on our way," says Kiwi spokesman Rob Kulat. Though only about 50 passengers filled Kiwi's maiden flights earlier this week, "our telephone lines are now flooded with calls inquiring about our service."

The company believes it can bring in revenues of $48 million its first year, based on selling only 350,000 seats, which would be less than 7 percent of the seats in its particular markets.

The last major carrier to offer new service in the Greater New York region was People's Express, which provided low-cost, no-frills service to business travelers and vacationers. But the carrier was finally squeezed out of business in the mid-1980s, unable to compete with the larger, established airlines.

Since then a number of prominent airlines - including Eastern and Pan Am - have also fallen victim to high fuel and labor costs, as well as the intense price-slashing that goes on within the industry. Meantime, a number of other major airlines, including Continental and TWA, are either in bankruptcy proceedings or considered to be in extremely difficult financial circumstances.

Still, a number of small regional carriers continue to survive and, in some cases, thrive. These "niche" carriers often operate in cities overlooked by the bigger airlines.

Mesa Airlines, for example, serves many communities in the Southwest. Robert McAdoo, an airline analyst for Prudential Securities Inc., says Mesa is well-positioned for market growth.

One new regional carrier, Reno Air, began operations out of its namesake Nevada city in July. And Key Airline, another relative newcomer, uses Savannah, Ga., as a hub for Caribbean flights.

Kiwi currently offers service between Newark and Chicago, Atlanta, and Orlando, Fla. According to Mr. Kulat, the carrier hopes to expand its runs throughout the Eastern Seaboard, possibly flying to Boston, Washington, Miami, Ft. Lauderdale, the Carolinas, Mexico, and eastern Canada.

Kiwi expects to increase its capitalization and is talking to New Jersey development officials about possible loan monies; the carrier will also be adding additional planes.

Regional carriers help to fill the void left by the collapse of larger carriers, such as Eastern.

Ironically, the challenge for niche carriers is to "stay small," says Earl Gaskins, an airline analyst with Provident Capital Management Inc., Philadelphia. "Carriers such as Kiwi and Key have to remain small to survive. As you expand, you draw attention to yourselves." The major carriers will "not allow another People's Express" to develop that could slash fares far below those offered by the big carriers.

The regional airlines tend to hire experienced people who lost jobs when bigger carriers failed, Gaskins says. Many of Kiwi's pilots flew for Eastern. Kiwi's board chairman and president, Robert Iverson, was a pilot for Eastern and subsequently director of training for the Pan Am Shuttle.

Kiwi currently offers $99 one-way fares on flights. The inaugural fare between Atlanta and Orlando is $79. Starting later this fall fares will rise, but "we will still match the lowest restricted fare in each particular market," Kulat says.