Living Up to Promises : MGM Grand Air On Course With Luxury So Far

A dozen or so people gathered in comfort at Los Angeles International Airport’s Imperial Terminal one recent sunny afternoon to wait for a flight bound for New York City.

Some arrived in limousines reserved for them by the airline’s “concierge.” The seats in the passenger lounge were soft; the drinks were cool. There were no crowds, no lines and no stranded passengers tripping over each other. Passenger Mary Hart, co-host of the “Entertainment Tonight” television program, was able to make a last-minute telephone call without needing to worry about the usual airport din of flight announcements and paging messages.

Across the room, Bob Percopo relished the relaxing atmosphere before taking his first flight on year-old MGM Grand Air, which flies only between New York and Los Angeles and offers only first-class service. “Flying is so hectic. It’s very important to me to get away from the noise and the hassle,” said the international banker, who lives in New York and flies up to 200,000 miles a year on business. Accustomed to traveling in style--transatlantic hops on the Concorde and privileges in airlines’ private clubs--he said he decided to fly MGM Grand Air after hearing about its reputation for luxurious service.

33 Seats a Flight

But he also remembers Regent Air, a defunct carrier that also offered premium service, and wonders whether MGM Grand Air will be around for long.

After just one year in business, however, MGM Grand Air appears to be delivering all that it promises, according to travel agents and a random sampling of passengers’ opinions.

Of course, customer satisfaction is only part of the story. MGM Grand Air’s continuing challenge is to consistently fill each of its specially appointed, 33-passenger Boeing 727-100 airliners with enough satisfied customers to break even. It has not reached that point yet but continues to have high hopes.

A handful of companies have tried offering exclusively premium air service, but MGM now has that corner of the market to itself. The others flew from three to five years before disappearing from the skies to become footnotes to the history of the turbulent era of airline deregulation.

MGM Grand Air, which is 98% owned by financier Kirk Kerkorian who once controlled Western Airlines, is better capitalized than its predecessors. Kerkorian put up $20 million in start-up capital, and that is one reason that many people familiar with the industry give MGM Grand Air a good chance to become a viable concern.

But will it become a valuable business? “Let’s say it’s successful. How do you then make a lot of money with it?” asked Walt Gillfillan, a Berkeley-based transportation consultant. “You have a huge investment just to barely break even. Then you hang on for dear life.”

MGM Grand Air is trying to woo passengers flying between Los Angeles and New York’s John F. Kennedy Airport who can afford the regular first-class fare but who do not have access to private jets. The closer you look, Gillfillan said, the more apparent it becomes that that market is relatively small.

Since last October’s stock market crash, luxury business travel is not as popular as it used to be, he said, explaining that few companies will now allow the vast number of middle managers on the road each week to travel in opulence. “The top guys may have private jets, or access to charters. Maybe, you allow the senior vice presidents (to fly first class) as a perk,” he said.

Businesses are increasingly limiting travel budgets, said Chuck Tilbury, president of Beverly Hills Travel, which specializes in business travel management. Many of the agency’s corporate clients ask for computer printouts on employee travel to keep tabs on those who abuse policies designed to cut costs, he said. “There are a lot of defense contractors who are under a strict mandate on cost. The government won’t reimburse them beyond a certain cost,” he said.

MGM Grand Air may find a market among attorneys and others who have more flexibility to pass on costs to someone else, Tilbury said.

Even people not on tight budgets are looking for deals, he added, citing a “very wealthy” client who is vigorously pursuing frequent-flier credits and who takes the cheapest possible flights in order to earn them.

But the airline seems to have found a significant number of customers in the entertainment industry. Although business in general is cutting back on first-class travel, “it’s hard to get those (entertainment business) people to sit in the back of the plane,” said Eric Lassiter, managing editor for business travel at Travel Weekly, an industry newsletter.

The only problem with that market, Tilbury added, is “that those people are very fickle. They are usually holding three or four reservations and they don’t care about no-shows.” Ordinary airlines know that most of the time they will not sell all of their first-class seats, he said, so they oversell the back of the plane. “The worst that can happen is that you have to move someone up to first class,” he said.

$898 One Way

But with only 33 seats on each of its 727-100s, no-shows are costly for MGM Grand Air.

The airline does not promise more for less, but more for about the same price.

It charges $898 for a one-way transcontinental flight and has two or three flights each way daily except Saturday, when it has one flight each way. The fare is about average for first-class flights on other airlines, said Charles L. Demoney, MGM Grand Air’s president and chief executive officer.

The carrier spent $1.5 million renovating the Imperial Terminal to create office space and a posh, private lounge away from the usual bustle of the airport. Then, once on board, the passenger finds that he or she has 75% more space than on an ordinary 727-100 with a 110-seat configuration.

The oversized seats are set in cabins decorated in burgundy and pink hues. Also, four staterooms decorated in royal blue are available per flight. The staterooms, each with four seats, can be reserved for a total of $3,200 one way.

(The staterooms, when ordered for a party of four, represent the only fare discount available on MGM. But the carrier offers an “Air Plus program” that allows a passenger to earn a free round-trip ticket after five paid round-trip flights.)

Each flight is staffed with a crew that includes one flight attendant for each six passengers. The attendants serve gourmet meals (made with all fresh ingredients) on fine china and with silver cutlery. The food is accompanied by Moet & Chandon champagne and Chandon Brut wine.

Passengers can also munch fresh popcorn while viewing the three films shown during each flight. Shortly before landing, fresh baked cookies and hot fudge sundaes are served.

The airline’s costs are higher than average, Demoney said, explaining that food costs alone are $17 a person, not counting the cost of preparation. “That is a significant commitment for an airline,” he said, adding that he believes most other airline first-class operations spend no more than $12 a person on food.

Demoney, a marketing specialist who spent 25 years with Frontier Airlines, said MGM Grand Air made some critical decisions early on that he believes will ensure its success. “We participate heavily in the travel agency system. We make it easy to do business with us. We elected to charge the same first-class fare--for superior quality,” he said.

The carrier is a member of all five of the computerized reservation systems that are used by travel agents, he added, and is offering incentives to the agents. About 65% of the passengers are booked through travel agents, he said, adding, “This distribution system is very important to us.”

MGM also has interline agreements with 40 major carriers that, among other things, allow for single ticketing and automatic baggage transfers. From its East Coast base at Kennedy airport, MGM Grand Air is wooing international passengers, Demoney said.

The carrier will spend more than $2 million this year on carefully targeted advertising--about two-thirds of which will buy television time, with the remainder devoted to the Los Angeles Times, the New York Times and the East and West Coast editions of the Wall Street Journal, Demoney said.

As of Sept. 8, the anniversary of its first flight, MGM Grand Air had carried about 25,000 passengers, he added. About 80% of the traffic consists of people traveling on business, he said, predominantly members of the entertainment and financial services industries, lawyers and “many independent business people.”

MGM Grand Air is not yet profitable, Demoney said, “but we’re close.”

In its preliminary prospectus, filed last year before a stock offering, the carrier’s parent, MGM Grand Inc., said the airline expected to lose $3.9 million during its first 21 months of operation and needed to fill 27 of the 33 seats (a load factor of nearly 85%) to break even. Demoney said those estimates are no longer valid but would not discuss current data. He would say only that the carrier’s current average load factor is “well above 60%.”

London Flight Nixed

In its second-quarter financial report, MGM Grand Inc. said the airline had $9.2 million in revenue during the first half of 1988. The parent company, which also owns the Desert Inn and Sands Hotel and Casino (until execution of an agreement to sell the Sands for $110 million) in Las Vegas, raised $200 million in a stock offering in February. Since shares were offered only to former shareholders of MGM Grand Hotels, the lion’s share was gained by Kerkorian’s private investment company, Tracinda Corp. of Beverly Hills.

MGM Grand Inc.’s chairman and chief executive officer, Fred Benninger, said the airline’s prospects are obviously limited as long as it flies only between Los Angeles and New York. “However, you can expand from there,” he said. “Once the concept catches on, then you can expand into other areas.”

An earlier plan to fly to London from New York was nixed by the U.S. Department of Transportation because of concern that the route would drain the upstart airline’s reserves. There are no expansion plans now in the works, Demoney said.

“We’ve looked at the domestic markets that have reasonable first-class traffic,” he said. “While some of them have appeal, we do not have any plans to enter those markets.”