Serving the Rest of America: Regional Airlines Take Off

Attracting neglected travelers in search of convenience, small airlines are finding market niches.

Travelers from Baton Rouge to Shreveport, La., once had two choices: four hours by car or six hours by plane with a layover in Dallas.

Not anymore. As of January, twice a day Monday through Friday two 19-seat carriers fly from Shreveport's Downtown Municipal Airport into the Baton Rouge Metro Airport. One-way tickets are as low as $69.

"There were times it would cost between $400 to $1,000 to fly from Baton Rouge to Shreveport," says Brad Galbraith, vice president of marketing for Casino Airlines. "You would have to fly to Texas and make all sorts of connections to just get to the northwest corner of Louisiana. It was crazy."

Casino Airlines is one of dozens of smaller carriers that are filling a void in small regional and city airports left by the national carriers. While most of these upstarts may never challenge the likes of Delta, they are siphoning away travelers in search of convenience and lower cost.

"Small airlines have a niche, and they go at it. Southwest [Airlines] is a prime example.... They are efficient, have extraordinarily good service, and when they come to town, airfares often get 50 percent lower," says Morton Beyer, an airline consultant based in McLean, Va.

Overall, regional airlines have fallen from 169 to 104 in the past 10 years, according to the Regional Airline Association. Small airlines took a beating after the ValuJet crash in May 1996. Several folded, and entrepreneurs wanting to get into the business had trouble attracting venture capital.

But the skies are clearing for smaller airlines, says Rich Golaszeski, executive vice president of GRA Inc., a transportation consulting firm based in Philadelphia. Money is available again - if two things exist: 1) a good business plan, which will generate the millions of dollars needed to go head-to-head with the major airlines, and 2) a good niche strategy.

For example, Midway, a Durham, N.C.-based airline, has had five straight profitable quarters, causing it to be held up as proof that a small, well-managed operation can thrive.

Countering the argument that regional airlines don't have staying power is the nation's oldest, PBA, which has been flying travelers between Boston and Provincetown since 1948.

"People are watching to see how big carriers react to some of the newer and much-smaller airlines," Mr. Golaszeski says. "The airline industry is experiencing an overextended boom cycle. It has been odd not to see new entries. As this boom continues, we will see more new airlines - small ones, granted - come in."

In the past, smaller communities have lost scheduled air service as carriers shift into markets with higher traffic densities. While that trend could continue, there are plenty of airlines eager to corner the smaller markets.

Last July, Pro Air began offering low-cost passenger service to Newark, N.J.-New York, Baltimore, Indianapolis, and Milwaukee from Detroit. And Mesa Airlines flies to 11 cities in Colorado and New Mexico out of its Albuquerque, N.M., hub.

Casino, one of the newest entries, got off the ground when its founder, Lewis McPherson, flew into Shreveport's downtown airport in a chartered plane and learned that no airline had leased space in the airport for 50 years. Sensing an opportunity, he formed Casino Airlines and bought two British-manufactured Jetstream 3101 turbo prop planes and scheduled flights.

"We employee about 40 people and do all our maintenance and reservations out of that airport now," says Mr. Galbraith. "For the first time in years, the airport is in the black, and a cafe just opened in it."

One of the challenges regional airlines face is building a loyal clientele.

"Many small airlines often die of starvation, because business travelers loathe new upstart airlines. They are uncertain of reliability, and travelers lose their frequent-flier benefits [with major airlines]. You have to earn trust, and that takes forever," Mr. Beyer says.

Both the crash of a Valujet (now called Air Tran) plane and the recent fine levied against America West for safety violations - the largest in aviation history - have eroded that trust.

But experts say that such safety concerns are misplaced. More than 66 million passengers were provided with safe air transportation on regional airlines in 1997, according to the Regional Airline Association.

"New entrants in the airline business do not have accident rates higher than established carriers," Golaszeski says.

While small airlines once had a different set of safety standards, under the old "commuter rule," he adds, for about two years they've had to meet the same safety standards as the big airlines. Because they are smaller, they frequently come under more scrutiny.

Startups do use older planes, but Beyer says this isn't a problem.

As for America West, Golaszeski says the airline had a breakdown in systems operations.

"They didn't supervise well, and they should have been fined," he says. "That was an isolated case. Regional airlines are as safe as the major carriers."

Golaszeski sees the future as bright.

"You can't just take a few million and go against Delta, but you can succeed with an airline if you have that niche and stick with it. You never know when the next Southwest may break out of the industry and make an impact."

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