Can new generation of low-cost airlines survive?
They offer discount fares and open new routes. But some, like SunJet,
NEW YORK — You've heard of a dime a minute. How about a dime a mile?
That's how WinAir, a new low-fare airline based in Salt Lake City, is hoping to attract new customers and build some long-term goodwill.
Such innovative promotions, coupled with creative business plans, are spurring a new generation of low-fare airlines. After a dearth for several years, almost half a dozen new small carriers have come on line or are in the approval process.
That's good news for consumers. Studies consistently show that in markets where low-fare carriers compete with the majors, prices are lower overall.
While aviation-industry experts warn it's still an extremely tough business to get a foothold in, let alone take off in, they are still impressed with the number of new competitors. And they credit companies like WinAir for learning to run between the legs of the giants - the four or five major carriers that dominate the airline industry.
Experts also tip their hats to the government, which, after years of condoning increasing levels of consolidation, has finally put the majors on notice that it won't tolerate anticompetitive practices.
"[The government's actions] influenced the people who supply capital," says Richard Golaszewski of GRA Consulting, a transportation consulting company near Philadelphia. "It says that maybe these guys have some better prospects for survival, they don't have to fight the battle entirely on their own."
But Mr. Golaszewski and other experts warn that even with the strong economy and record air travel, it's still a very tough business. And many of the start-ups could go the way of SunJet. Just last week the Georgia-based company suddenly suspended operations, canceled all flights, and promised refunds, but offered no explanation.
INDEED, one of the veterans of the low-fare industry wonders whether the business climate has changed that much for new entrants. "I think the jury is still out on whether the regulators are really going to do anything to support competition at this point," says Sam Addoms, president of Frontier Airlines in Denver.
"The Justice Department has certainly weighed in saying they were willing to try - and that's important because it will help to define what's fair and not fair in this industry," he adds.
Frontier is the last of a handful of start-ups that took to the air in early 1990s. All of the others have gone under, or were driven out or bought out by larger carriers. The 1996 ValuJet crash also increased consumer fears about safety on the small airlines.
Frontier survived, in part, because it was one of the first small carriers to document what it considered to be anticompetitive practices on the part of the major airlines.
In a lengthy report given to the Justice and Transportation Departments, Frontier argued that United Airlines consistently lowered its prices to match Frontier's rates, and then increased the number of seats available in an effort to drive the start-up out of the market.
That helped prompt the government's current scrutiny of the majors.
But other aviation experts contend that part of the problem with the small carriers in the early '90s was that they tried to compete head to head with the aggressive, deep-pocketed big boys.
"I think the key to a start-up airline is finding one's niche," says WinAir chairman Larry Gelwix. "We have no desire or intention to challenge the majors head to head, in fact, we want to stay below their radar screens."
WinAir found its niche at the Long Beach Airport, one of the smaller of the five airports in the suburbs of Los Angeles. Mr. Gelwix boasts that the Long Beach Airport is closer to downtown L.A. than LAX, the city's major airport, and it is close to both Disneyland and San Pedro, from where cruise ships leave.
But its flights are limited, with service from Long Beach to only three cities: Las Vegas, Salt Lake City, and Sacramento. In the fall they plan to expand with the acquisition of two new planes.
"We want to have our own little corner of the world, and run an efficient, profitable airline," says Mr. Gelwix.
Frontier's Mr. Addoms thinks that's an admirable goal, but not a realistic assessment of the aggressive nature of today's competitive skies. "I don't think you can put a plane in the air that carries a commercial passenger and be off the radar screen," says Addoms. "The big guys know exactly what you're doing, how you priced it, what's your schedule, how to compete with you, and what level of threat you might represent."
BECAUSE of the intensity of the competition, if local communities and businesses want a start-up carrier to survive they've got to play a part, says Ed Faberman of the Air Carrier Association in Washington.
"If businesses want to see lower fares, they're going to have to throw some of their business to the new carriers," says Mr. Faberman.
And sometimes that could cause problems. Many of the new companies, including WinAir, have had problems with delays and canceled flights. In some cases, the difficulties are simply growing pains.
In SunJet's case, they were a red flag the company was about to go under. Indeed, Addoms believes the only way for a new carrier to really survive is to deliver the best quality service possible.
"In that respect, I think the market is more perfectly competitive," he says. "There's nothing that would limit us in that regard."