Failed Airline - A Boyd Group Int4ernational Review
Realistic Dreams To Outright Flim-Flam
The Airline Deregulation Act of 1978 promised to do a lot of things. One of them was to engender lots and lots of new airline competition. In that regard, the Act certainly opened the door to new carriers.
It also opened the door and let in a whole passel of interesting entrepreneurs, colorful characters, weird dreamers, and outright squirrels with airline schemes that in retrospect (as well as at the time) challenged financial gravity.
Lessons Unlearned
Over three decades later, the process continues. In 2008, we witnessed Skybus, a wallow in total fantasy that offered fares as low as $10, sold all sorts of merchandise on-board, and flew to points like Chicopee and St. Augustine. It went to glub-glub land in short order.
In 2009, the world experienced JetAmerica, nee Air Azul, nee VaporAir. It had a dimbulb plan that Ray Charles could have seen as DOA. Nonetheless, a number of communities got schnookered into tossing tens of thousands of dollars advertising the new carrier - before it even had an airplane. It never did get one.
The Captain Louie Renault Excuse: Shocked! Shocked! Common to most of these failed airlines is the usual theme that the airline plan was brilliant, earthshaking, and flawless. It was something or somebody else that caused the carrier to financially crater.
Let's see... It was fuel. The economy. Consumers not seeing the brilliance of the plan. Bad Karma. Sometimes, another airline had the nasty insistence to compete. But, by Jingo, it sure wasn't the start-up, its management or its sacred plan.
The truth is, comments from consumer twits notwithstanding, that most of these carriers were the victims of their own devices.
More Fruitcakes Than Christmas Eve
Below, we've briefly reviewed a number of these attempted airlines. To be sure, it's not a complete list, and we've left out some of the more outlandish airline attempts. Like The Smoker's Airline, where, presumably, most of the initial passengers choked to death. Or, The Lord's Airline, the first intentional attempt to literally create a wing and a prayer, flying 707s to the Holy Land. (You can't make this stuff up. If you can find a late 1984 or early 1985 World Aviation Directory, it's there, bigger than life.)
Air One
Established 1982. The intent was to offer all first class service with 727s at St. Louis. They seemed to have missed all those red and white TWA airplanes at the airport, each one with a first class section. Ran through lots of money fast.
A real hoot is that in this carrier's last days, its board was so much in la-la land that they got bamboozled by a teenage kid, who convinced them that he was a much older, suitable and sophisticated investor with access to big time dough. They actually tried to appoint this 19 year-old as the airline's CEO. The Air One board of directors weren't the brightest bulbs in the airline chandelier.
But the money didn't come when it was promised. They only found out their new CEO wasn't old enough to order a Martini, let alone run an airline, when they called looking for the money, and Mommy answered the phone. A few years later, the same guy zapped Braniff II. Then he started Braniff III, and tanked it, too. He eventually earned quite a record - including a criminal one. As for Air One - gone to airline heaven.
Access Air
Started in 1998, with a plan to replicate Piedmont's "hopscotch" strategy of the 1970s, enticing people onto multi-stop flights at lower fares. The route system included New York, Moline, Peoria, Des Moines, Colorado Springs, and Los Angeles. Nobody told the founders that the airline industry had changed since the late 1970s, and "hopscotching" across the nation was not competitive with just making a connection at a major airline hub. But they believed they had, as most of these start-ups did, the plan.
The marketing strategy documents declared that new airline survival was all about avoiding getting stomped on by elephants. (Repeat: we are not making this up.) Or, perhaps stepping in what elephants leave behind. Probably good advice if you're planning to operate in a National Preserve outside of Nairobi, but entirely meaningless in the US airline environment of 1999. Airports from Des Moines, to Moline, to Peoria all thought Access Air would bring big jobs, maybe a res center or a maintenance facility. It brought bupkis. The airline's concept simply didn't play in Peoria, mainly because nobody wanted to hopscotch anywhere. Dropped scheduled service in 2001. Did prison charters for a while, then went away.
Elephants, as far as has been found, had nothing to do with the carrier's demise.
Air Niagara
Established 1982, the carrier attempted to provide service between Niagara Falls and Newark. Not exactly two of the world's great vacation destinations. Honeymooners quit going to Niagara Falls before Ralph Cramden drove a bus. (Google it if you need to.) Despite low costs, the airline was unable to generate sufficient business at Niagara Falls. The traffic simply did not exist. After 1983, neither did Air Niagara.
American International
Established scheduled services in 1982, with a hub first at Atlantic City, and later at Philadelphia. Low cost flights were intended to compete directly with high-cost USAir. American International was initially a darling of Wall Street, which promoted its stock heavily in a 1983 public offering that provided $20 million in capital.
AIA spent the money like a sailor on shore leave. It operated a fleet of three corpulent DC-9-30QCs (complete with cargo doors and a ton or so of unnecessary weight) and 2 MD-80s. Leased some DHC-7 turboprops, which were a total flop in feeding traffic to the PHL hub from places like Buffalo. Ended up sub-leasing them at a loss to some other airline.
AIA bought a couple of B-727-100s they found on a really, really good deal in Europe, got 'em painted, and only then found out that they were totally non-compliant with a laundry list of FAA airworthiness directives. So, the 727s never got in service. And never generated any revenue for AIA, either.
The chairman*of AIA insisted on doing the flight schedules himself, and claimed he got great ideas while sitting in the bathroom. The results were appropriate to that venue. (Again, you can't make this stuff up.) He did have a shiny company limo, though, and did a nice job of lavishing money on redecorating his office, albeit a little heavy on earth tones. AIA filed bankruptcy in July, 1984, and gave up the ghost the following October.
Air South
Air South was a post-Deregulation first. And last.
Instead of being a response to a market need, Air South was first formed as an airline, and then its founders shopped it around to find some city that wanted it, and would offer the most incentives to have a hometown airline. Innovative, but not exactly textbook business planning, nor a plan for long-term survival.
But they did find a customer. Civic hubris in South Carolina resulted in a $17 million financing commitment by the state in exchange for the airline basing itself at Columbia, and promising to create - get this - thousands of new jobs. Ran through money like Sherman through Georgia. Flight reliability was on a par with a Soviet taxicab. The results were predictable. It went away, along with the State's money and about $30 million more.*
Braniff II
Not a start-up per se, but the legitimate resuscitation in 1984 of Braniff International, whose 1982 demise approximated a piano out the 20th floor window, at the hands of "visionary" messiah management brought in to save the airline, but which instead sent it into the tank. Shed of these front-office cub scouts, the airline was picked up out of bankruptcy by the Pritizker Group of Chicago, mostly for its tax loss benefits. Reportedly spent $400 million just getting up and running.
Initially, it attempted to re-create the first Braniff's schedule patterns at DFW, which generally failed. Several iterations later, it had the grand idea to buy Florida Express - a BAC-111 operator at Orlando that was adept at losing money, too. Pritzker interests sold Braniff to a group fronted by the same clown who as a teenager bamboozled the Air One board. After upstreaming cash out of the airline, this bunch took the airline directly to point of financial impact in 1989. Out of business.
Braniff III
Undaunted, and apparently having some warped fetish for the name Braniff, the former child-star who almost tanked Air One and was involved in tanking Braniff II, started a third carrier of the same name. Established in 1990, Braniff III shared no corporate DNA with the prior airlines of the same name.
An airline that redefined sleaze management, some of whom may have gone on to stellar careers in the prison laundry, Braniff III attempted low-cost service from a number of cities. Braniff III shut down, conveniently, after pre-selling millions of dollars in tickets prior to the July 4th week-end in 1992, stranding and defrauding thousands of consumers. One outcome was the founder (and former child-star of Air One fame) won an all-expense-paid vacation to the Big House.
Discovery Airlines
Discovery was planned to offer a low cost inter-island jet alternative to Hawaiian and Aloha. One little problem: there's no way of operating with low costs in the short-haul, high-cycle salt air of Hawaii.
Discovery received support from British Aerospace, which was to supply a fleet of BAe-146 jets to the airline. Claimed to have US ownership, Discovery was shut down by the DOT when, oops!, they found out that the carrier's real owner was some guy in Taipei.
Kiwi
This 727 operator established operations at Newark in 1993. Initially gained notoriety for providing good customer service and extra leg room. But it never got any traffic traction.
At one point, with great fanfare Kiwi signed a financing deal* to be the launch customer for the Romanian ROMBAC-111 airliner. (To repeat: you cannot make this stuff up.) The bazillions of ROMBAC-111s in the US skies today is testament to the success of that deal.
Later, constant management shake-ups literally left confusion regarding who was running the company. Never was consistently profitable, in part due to 1996 Gestapo-like treatment by an FAA eager to shut something down after the Agency's cover-up of ValuJet's problems. Kiwi went into bankruptcy, found a doctor to bail them out (how's that for a stereotype?) Finally went away.
MarkAir
An outgrowth of a pre-deregulation airline, MarkAir expanded within Alaska relatively successfully with a fleet of 737s, using the code of Alaska Airlines.
In early 1990s, the carrier ended its code share agreement and began to compete directly with Alaska Airlines. The fare predation in this case was from the new entrant, Mark Air, which slashed fares to gain market share. Predictably, it went into Chapter 11.
It eventually emerged in 1994, but promptly made a U-turn back toward "chapter" by failing to meet*agreements made with creditors at the bankruptcy court. Attempted to expand into lower 48 with a "hub" at Denver, but high costs there and really bad service killed it. It didn't help matters when the FAA shut the airline down in one of the agency's photo-op safety actions.
When it finally bit the dust in 1995, MarkAir left a huge number of large creditors hanging, including economic development agencies in Alaska, which had loaned the airline money in exchange for "creating jobs".
Gotta admit, at least that's what MarkAir did for bankruptcy attorneys.
MGM Grand Air
It was like sticking one's finger into a live socket, just after watching somebody else get electrocuted doing the exact same thing.
MGM witnessed an entity called Regent Air sink itself by tarting-up a couple of 727-100s with lavish interiors, stand-up bars, masseuses, and other perks, and try to spread these costs over just 33 seats between New York and Los Angeles. The whole concept landed with a thud.
So, being the suitable and sophisticated investors they were, MGM picked up the same 727s and created* MGM Grand Air. And lo! and behold! it too went promptly into the financial Crane fixture, just like Regent did. (Talk about proof of concept.)
Undaunted, they then tried mixed-class service with a DC-8, which made it no different in product than what United, American, TWA were offering, except these guys had frequent flyer programs and lots more frequency. MGM Grand Air's assets were later grandly sold off to a freight operator.
McClain Air
After a period of pre-operating gestation long enough to give birth to a generation of elephants, McClain Air attempted service from Chicago O'Hare in 1984, claiming that it would need to take only a small share of traffic from American and United to survive. Unfortunately, United and American didn't oblige.
Part of the original business plan babbled on for at least a couple pages on how the airline would have the marketing advantage of "trickle boarding." That pretty much described the carrier's revenues. Operated for a very short time before shutting down for lack of cash.
Midway "I"
Midway was one of the first of the expected dozens of new entrants that Deregulation was supposed to engender. Established low-fare service at Chicago/Midway. Couldn't get a sufficient local Chicago market share, what with AA and UA having the benefit of huge hubs supporting massive market frequencies at ORD. Ditto with gaining connect traffic over MDW.
When the low-fare scheme came up snake-eyes, Midway went frou-frou, with "Metrolink," an all-business class product. No dice. Then Southwest entered Midway Airport in a big way, putting downward pressure on fares there.
If the Windy City wouldn't work, they would expand somewhere else - in this case, buying the assets that Eastern had at Philadelphia. At least Eastern made out great on the deal. Competing with US Air, Midway was a non-entity as far as the PHL market was concerned. Load factors were dismal. Midway's most frequent flyer was sailboat fuel. Finally, it tried a last minute merger with Northwest. Filed bankruptcy and ceased service in 1992.
Midway "II"
More proof-of-concept research. Since the first Midway I was such a raging success, a bunch of investors decided to try it again, at, obviously, Midway Airport in Chicago, operating a fleet of Fokker-100s.
Nothing like trying to take on AA and UA in the overall Chicagoland market, with the added fun of having Southwest as your across-the-hall competitor. Results were predictable. In 1994, Midway II made decision to move to Raleigh/Durham, concurrent with American Airlines' pulldown of its hub there. It's never been clear whether this was a mis-fired deal to be a surrogate for AA, or just the misguided belief that AA left town because there was too much traffic to handle at RDU. In either case, the move didn't do much to keep the airline alive.
More industry history was made at RDU in 1997, when Midway became the first airline to attempt to build a hub using mainly 50-seat regional jets. Midway was also the first airline to learn that an RJ hub isn't a very good idea. Despite this, Midway got the brilliant idea to expand, and in 1999 bought a fleet of new Boeing 737s, which only hastened the airline's final descent. Went to airline heaven in 2002.
Muse Air
Muse Air was started in 1982 essentially as a "grudge" airline by the ousted founder of Southwest. Mr. Muse proceeded to establish an airline operating MD-80s at Dallas/Love, with the intention of teaching the ingrates at Southwest a lesson. Unfortunately, Muse Air flunked its own course, and Muse was eventually taken over by Southwest in 1986-1987. It operated for a time as TranStar, before being shut down completely.
Morris Air
Morris was started by a travel agency in Salt Lake City, initially wet-leasing a DC-8-62 that Hawaiian had on the ground for several hours in Los Angeles each day. Went on to get its own 737s. Not one of the sharpest operators in the sky, Morris was just a minor annoyance to Delta's hub at SLC, so the larger carrier didn't to much to competitively respond. Morris was purchased by Southwest in 1992, which is now a major annoyance for Delta at SLC.
New York Air
A product of Frank Lorenzo and Texas Air, NYA began service in 1980 as a direct competitor to the Eastern Shuttle in the NYC-BOS/WAS markets. Later on, New York Air failed at attempts at building hub operations at IAD and RDU.
New York Air assets were merged by Lorenzo into Continental in 1986, along with those of PeoplExpress, an amalgamation which for at least the next year resulted in operational chaos of mythic proportions at the combined carrier.
Pacific Express
Originally a part of commuter carrier WestAir, Pacific Express attempted low-fare service on the West Coast, starting in 1981 with BAC-111s. Received support from British Aerospace in exchange for ordering BAe-146 jets, which it never lasted long enough to get.*
It never got many passengers, either, at least many that paid fares that approached anywhere near the carrier's costs. To shore up finances, it spun off WestAir, which for the commuter carrier was the equivalent of being heli-evacuated off the Titanic. Pacific Express's revenue v cost ratio rivaled those of dot-com schemes. At the end, it tried what's become the surefire indication of big financial trouble - it sold tickets in pre-bundled books to raise cash. Went into bankruptcy - and into the history books - in 1984.
PeoplExpress
Founded in 1981 by a former associate of Frank Lorenzo, the carrier started with 737s flying from Newark. Go back and look at the early press and financial industry coverage of this carrier. Literary Rapture. It was truly the airline super-hero, revered and worshipped on Wall Street. Its growth and "unique" employee culture made PeoplExpress a favorite among airline analysts and investment houses.
Within the airline, there were almost no class-and-craft labor distinctions. Employees were all "managers" who were cross-utilized in various departments. (Telephone being answered at the airline: "Good afternoon. PeoplExpress Accounts Payable. This is Captain Skygod, how may I help you?")
Employees were required to buy stock, with the company loaning them the money on a payroll-deduction basis. This, analysts reasoned, would make employees more "loyal". (Read: hopefully keep them non-union.)
The trendy "we're all equal" stuff reached ridiculous levels that, at least from the outside, resembled an airborne Woodstock. This included executives reportedly rotating through the front lines. Yessir, there's nothing more productive than having the chief financial officer of a multi-million dollar company routinely filling in as lead flight attendant on the Monday AM rotation to Cincinnati. The CEO bragged that he answered his own phone, which simply meant he was on a first-name basis with every copier salesman in town.
Initial success led the carrier to expand rapidly. Its huge "profits" fueled acquisitions that made it clear they were getting most of their strategic advice from a Ouija Board. It purchased a large commuter in the Midwest, Britt Air, which was focused at Chicago, where PeoplExpress had very little presence. It also bought a large bankrupt commuter in Florida - another investment that gave PeoplExpress no synergies. But these did give the stock brokers an exciting story to tell unwary investors.
Hallucinations of grandeur abounded. There were 747s flying routes like Newark - London, and Brussels - Los Angeles. While PeoplExpress expanded, thereby titillating the Wall Street analysts, the carrier was cratering financially. But you gotta have a story for the 'Street. PeoplExpress purchased the original Frontier Airlines and within a year had it heading into bankruptcy.
In 1986-1987, financial realities set in, and PeoplExpress began to very quickly implode. It was acquired by Frank Lorenzo's operation, and with customer service confusion not seen since the evacuation of Saigon, was merged into a combined Continental/New York Air/PeoplExpress.