Learning to Fly Softly : Little Airlines in Danger of Being Swatted by the Majors

By JESUS SANCHEZ

Feb. 27, 1993 12 AM PT

TIMES STAFF WRITER

In the beginning, not many competitors noticed Reno Air, and the fledgling carrier liked it that way.

The 8-month-old airline met with little resistance as it expanded along the West Coast from its home in Reno, Nev.--building its business in an overlooked market.

But all that changed when Reno Air decided to begin April service to Minneapolis-St. Paul. Northwest Airlines, which dominates the Twin Cities, retaliated by adding competing flights to Reno from Minneapolis, Los Angeles, San Diego and Seattle.

“Their intent is to punish us for flying into their hub,” Reno Air President Jeff Erickson said. “They think they can drive us out of business because we are small.”

Several small airlines such as Reno Air have recently begun flying in skies that are far from friendly. Besides attracting customers and paying the bills, the upstart carriers have to worry about retribution from their much larger brethren.

“You need to make sure that you don’t bother the major players,” said Rick Arscott, vice president of marketing for Skybus, a new low-fare airline that flies between Florida and the Northeast. “We will not put on so many flights that we start hurting them.”

It would seem that the major airlines have little to fear from the newcomers with tiny fleets and unfamiliar names like Kiwi, UltrAir, Morris, Skybus and Reno. For example, Skybus soon expects to board its 100,000th passenger after flying for about five months. Industry leader American Airlines, in contrast, boards an average of about 230,000 passengers in a single day.

But the major airlines learned a costly lesson when they ignored airline upstarts in the early 1980s. Many of those low-fare carriers--such as People’s Express--grew up overnight into pesky challengers that forced the majors into fare wars.

So it is not too surprising to see a large airline respond harshly to a small start-up, said Jon F. Ash, president of Global Aviation Associates, a Washington-based consulting firm.

“The big guys went to the cleaners with the People’s Expresses of the world,” Ash said. “They learned a very expensive lesson. Now, it’s hard-ball time.”

Despite its early success, People’s Express ultimately went under. Upstarts often run into financial problems after their initial flush of success.

One of the most damaging things major airlines do to young rivals is matching or undercutting their fares. Given the same prices, most passengers would rather fly with an established carrier than chance an unknown beginner.

Bob Iverson, chief executive of Kiwi International Airlines, said his young company lost about $200,000 in revenue when rival Continental Airlines started undercutting its low fares late last year. Kiwi’s approximately 300 employees contributed some of their pay to help boost the airline’s advertising and attract customers.

“When you are a small carrier, every dollar is important,” said Iverson, whose Newark, N.J.-based carrier flies to Chicago, Orlando and Atlanta. The major airlines “can cause a lot of damage.”

The new airlines avoid angering their big competitors by settling for small portions of markets or for the customers the major airlines would rather not serve. Skybus, for example, caters to low-budget travelers with bare-bones service and a $99 one-way fare. Checking a bag costs $5 extra, as does a meal prepared by the Subway sandwich chain. Even making a reservation costs extra.

“We are not threatening to (the major airlines) because we are a totally different product,” said Arscott of Skybus. “They are not interested in $99 fares or charging people to check in their baggage.”

While Skybus goes for the bargain hunters, UltrAir has set its sight on full-fare business travelers between its hub in Houston and Los Angeles, Newark and eventually Washington. The new carrier is not interested in undercutting the fares of rival Continental Airlines, UltrAir President Barney Kogen said. Instead, the carrier, which began flying in January, is committed to offering high levels of service--such as extra leg room--to attract affluent business flier.

“We don’t want the (low-fare) vacation travelers,” Kogen said. “They can have them.”

Reno Air apparently broke the rule about not offending a major airline. Erickson at Reno Air said he first approached Northwest Airlines in November about flying Northwest customers from Minneapolis to Reno, which the big carrier did not serve.

After a warm reception, Northwest turned icy. If Reno Air flew to Minneapolis, Erickson was told that Northwest “would be our archenemy.”

But Northwest said its planned Reno service is not retaliatory or intended to drive Reno Air out of business. “We are doing this in an effort to remain competitive between our hub and the West Coast,” Northwest spokesman Doug Miller said.

Erickson said Northwest’s actions will have a “modest impact” on his airline, but it won’t drive it out of business. Reno Air can still make a profit under its current fares while Northwest--with higher costs--would lose money on competing flights, he said.

Most new airlines succeed only by finding ways to peacefully coexist with their larger brethren.

If the newcomers avoid the temptation of growing too large and too fast, they might have a good chance of surviving under the shadow of the giants, aviation experts say. Most of the new carriers cite Southwest Airlines as a model of a carrier that has stuck to a specialized strategy--low fares, low frills and low costs--and has managed to survive and profit.

“A new carrier has to have a niche philosophy,” said Iverson at Kiwi. “If they get out of it, they will go out of business.”

The New Carriers

Several new airlines have cropped up across the nation in recent months offering a variety of features and low fares to attract passengers and compete with much larger carriers.

Kiwi International Airlines

Headquarters: Newark, N.J.

Competitors: Continental Airlines, Delta Air Lines and United Airlines

Major destinations: Newark, Chicago, Atlanta, Orlando

Type of service: Low fares, all seats same price

Started service: September, 1992

Morris Air

Headquarters: Salt Lake City

Competitors: Delta Air Lines

Major destinations: Salt Lake City, Phoenix, Las Vegas, Seattle

Type of service: Low fares, low frills

Started service: November, 1992*