Low-Fare Carriers Make Gains

<B> Low-Fare Carriers Make Gains</B>

By Jay Campbell

While some of the nation's lower-fare carriers have made substantial gains over the past year, it remains unclear whether this sector of the airline industry is over the hill it began climbing in 1997, when its cries of foul play put the majors' competitive style on the government's radar screen.

Following a model of lower-than-the-competitor's but not rock-bottom fares, Denver-based Frontier Airlines, Raleigh-Durham's Midway Airlines and Kansas City-based Vanguard Airlines have been breaking internal records in profitability and traffic. Elsewhere, Detroit-based Pro Air continues to grow, albeit slowly, and a number of other new entrants are either just off the ground or close to it. Among these are Legend Airlines in Dallas, Shuttle America out of Hartford, Des Moines-based AccessAir and AirPDX, based in Portland, Ore.

Meanwhile, Reno Air, despite record earnings last quarter, is merging with American Airlines largely because its leadership is unsure about long-term viability.

Wall Street analysts believe part of the reason low-fare and niche carriers such as these do not succeed is that corporations do not support them. Such is the case in Atlanta, where corporate buyers reportedly did not return to AirTran, formerly ValuJet, after the carrier's restart in September 1996 (<I>BTN,</I> Oct. 7, 1996), following an accident near Miami and an FAA-ordered shut down.

A lunchtime survey at this summer's National Business Travel Association convention found that of 262 travel buyers, just 32 purchased more than 20 percent of their tickets on low-fare carriers (including Southwest). The majority of respondents, 149, said they purchase between 1 and 10 percent of tickets on low-fare carriers. Still, more than half said it is "very important" for the government to protect small carriers.

"The failure of the start-up carriers is to attract the corporate customer," said Sam Buttrick, the Paine Webber airline analyst. "Corporations need to support start-up carriers if they want to see low fares in the market in five years. At the same time, low-fare carriers need to offer the corporate market a product it wants to buy. One flight and 35 percent ontime performance doesn't do it."

Frontier Airlines president Sam Addoms credits part of the carrier's turnaround to "acceptance and loyalty" by the corporate customer. He said, Frontier's entry into the Denver-LaGuardia route (<I>BTN,</I> Nov. 3, 1997) was shaky at first, but, "We've spent a lot of time focusing on it and we've grown a base of corporate interest in New York."

Addoms said Frontier now has 1,300 corporate accounts, a third of them in Denver. "They fly you about as much as you are represented in the market," said Addoms. "If you have 6 percent, they may fly you 6 percent. But that's all we're asking for."

Midway Airlines, too, is focusing on the corporate market in its hub at Raleigh-Durham, offering a discount for total volume. The carrier reported a net income for the third quarter of $5.7 million, up from $1.7 million in the same period last year.

Despite Frontier's record net income of $9.9 million for the September quarter, followed by the announcement of new service from Denver to Atlanta, Dallas/Ft. Worth and Las Vegas, Addoms remains cautious.

"It's hard to overlook the fact that our opportunity improved dramatically when Western Pacific went away on Feb. 4," said Addoms. "And the Northwest strike added probably $1 million to the bottom line."

Vanguard Airlines said the strike accounted for about one-third of its first-ever quarterly profits of $4.1 million for September. "We expect to finish 1998 with a modest profit, compared to a $25 million operating loss last year," said Vanguard's CEO and president Robert Spane.