New Entrants Target Biz Travel
<B> New Entrants Target Biz Travel</B>
By Jay Campbell
Following the demise of low-cost, no-frills new entrants Air South, Western Pacific and Pan Am, it would seem the prospects of new entry in the airline industry are dim. Not so, if you ask some new and prospective startups who still believe--and again are proving--that focusing on business travelers is a profitable model.
Like 14-year-old Midwest Express Airlines and four-year-old Midway Airlnes, these new carriers are taking the high road, offering first class service to business travelers in unserved or underserved markets. With those two making money, analysts are suddenly big on new ones.
Legend Airlines out of Dallas Love Field is the greatest domestic hopeful in the area of what analyst Jim Parker, of Robinson-Humphrey in Atlanta, calls "specialty airlines." Meanwhile, Access Air in Des Moines will include "Corporate Coach" in its business model and Paris-based Fairlines International already is flying its business class-only service between Paris, Milan and Nice. Even traditionally no-frills carriers, such as AirTran and Vanguard, have modified their products to be more attractive to business travelers (<I>BTN</I>, Jan. 12).
"The outlook for low-fare, no-frills airlines, with the exception of Southwest, in our opinion, is not particularly promising," Parker said. "But we think there are more markets where the Midwest Express and Midway specialty airline concepts will work."
Advantages to such a model, he said, include: jet service to medium and low density markets, a low-cost post-deregulation structure, competitive pricing, stability and relative price inelasticity of business passengers and, sometimes, major airline frequent flyer program participation.
So far, the highest profile "specialty" start-up has been Legend Airlines, which already has a few things in common with Southwest. Legend is planning to fly out of Love Field. Closer and more convenient to downtown Dallas than Dallas/Fort Worth International, Love Field currently is served only by Southwest, which was founded and is headquartered there. Also like Southwest, it is fighting the legal and political machinery of AMR Corp.'s American Airlines and other backers of DFW to get off the ground.
But if it does get off the ground--and Congress already has indicated it is willing to put aside the decades-old arguments that gave life to the Wright Amendment--Legend will have very little in common with Southwest.
Since Legend plans to fly 56-seat aircraft, it is not affected by the existing Wright Amendment rules that restrict the free market operation of airlines at Love Field. But credit the Wright Amendment, in part, for shaping Legend's business plan: 56 first-class seats on (initially) six DC-9-32 aircraft, with full meals, flying to three business destinations within 900 miles of Dallas and three beyond 900 miles, such as Boston and/or Seattle. Legend's fares will be comparable to the majors' discount coach prices.
The carrier has a lot of money--approximately $30 million-- behind it and a lot of management muscle, from ex-head of the Federal Aviation Administration Allan McArtor, who is president and CEO, to vice chairman Thomas Plaskett, former CEO of Pan American (the big one) and Continental, and CFO of American Airlines.
Legend also is targeting November as the completion date for a new terminal at Love featuring six gates, an executive business/conference area and a private garage.
It will start flying fourth quarter this year, assuming timely approval of its U.S. Dept. of Transportation and FAA applications, and success in either delaying or defeating lawsuits by AMR Corp. and DFW. McArtor relishes the challenge: "Concentration in our industry is the single biggest risk to airline deregulation and competition. It was never the intent to use public funds to create airports to be the sole sandbox of one airline, and DFW has the highest business fare market in the country," he said.
AccessAir is estimating a start-up in early August for its B-737 operation, with 117 seats in two classes of service. The airline's "Corporate Coach" includes extra legroom, complimentary beverages, never-restricted tickets and fresh meal service on longer flights. The carrier plans to fly between Des Moines and Peoria, Ill., and/or Quad Cities, Iowa, and New York and Los Angeles. AccessAir also is proposing to fill in where WestPac left off in Colorado Springs.
Perhaps the most interesting aspect of the AccessAir story is that--as with Midwest Express's former parent Kimberly Clark--corporations are doing the investing. Investors include Caterpillar, Mid-American Energy Company, Pioneer HiBred and Principal Financial Group. "Lack of service and high fares had a lot to do with the business opportunities AccessAir presented," said Duane Coben, director of corporate development for Mid-American.
Paris' Fairlines, meanwhile, has been compared to Midwest Express in Europe as an operator of posh morning and evening flights between Milan, Nice and Paris. The carrier's MD81 aircraft, normally fitted for between 130 and 169 seats, carry only 72 seats, all leather, with 43 inches of pitch, plenty of carry-on space, hot meals, an on-board lounge with sofas and business class pricing. Fairlines already has deals with large European firms.
It looks like these business traveler airlines may have something. Said Robert Peiser, president and CEO of the defunct Western Pacific, "You really need to get some business travel. Repeat leisure travel is difficult to get.