Airlines See Big Opportunity in Serving Small Cities With Small Planes


It may seem a bit loopy at a time when United Airlines is looking for a federal bailout and Delta Air Lines Inc. is threatening bankruptcy, but some of the best minds in the aviation business see bright skies ahead.

Without exception, the optimists are thinking small.

JetBlue Airways Corp. is looking to a 100-passenger airplane made by Brazil’s Embraer that will allow it to serve smaller cities at a fraction of the fares that major carriers (such as Delta and UAL Corp.’s United) and even regional players now charge. JetBlue is ponying up $3 billion to buy 100 of Embraer’s new plane, the ERJ 190, and has options on 100 more. Deliveries start next year.

JetBlue, the lowest of low-cost carriers, is taking the next step in the evolution of this segment of the airline industry, a category that includes veteran Southwest Airlines Co. and America West Holdings Corp., as well as relative newcomers AirTran Holdings Inc., Frontier Airlines Inc. and Independence Air parent Atlantic Coast Airlines Holdings Inc.


All told, the discount lines have gobbled up 29% of the U.S. passenger market and are the only growing slice of the $70-billion airline business.

But even more than their rapid growth, it is the strategy of JetBlue and the others that represents a profound shift in direction for U.S. aviation. Fly with these folks, and you’re going to find more frequent direct flights to more places -- many of them relatively short hops.

JetBlue, for example, sees the ERJ 190 giving it the ability to serve Norfolk, Va., nonstop from Boston or New York for $69 one way, a steep discount from prevailing fares on those routes. “We look to markets generating 600 passengers per day -- a third to a half the volume of major cities,” JetBlue spokesman Gareth Edmondson-Jones explains.

Other low-cost carriers are following the same approach. AirTran Chairman Joe Leonard boasts of launching nonstop service from Moline/Quad Cities, Ill., to Las Vegas. AirTran flies the Boeing 717, a 100-passenger jet that was adapted (with a new, more efficient engine) from the McDonnell Douglas DC-9.

And more small aircraft are on the horizon. The Canadian company Bombardier Inc. is pondering whether to invest $2 billion in the development of a 100-passenger, transcontinental plane. Bombardier foresees demand for 6,000 such aircraft in the next two decades, a potential $250-billion niche.

Driving the trend, in large part, is congestion at the nation’s big airports. The Transportation Department released a study Friday showing that Chicago, New York and Atlanta’s airports are among those operating at capacity. Their choices are limited: They must find ways to expand or shove traffic to other landing sites.


“It’s a mess,” says Bruce Holmes, the director of a decade-old effort by the National Aeronautics and Space Administration to reform the air transport system. As a result of that work, a major government report due out late this year will try to set a new course for American aviation.

And where will it lead?

Precisely along the path being adopted by the low-cost carriers: more direct flights to more airports in more varieties of aircraft.

“We want to change the way people travel from one place to another,” Holmes says.

He notes that most of the 4,000 or so airports in the U.S. are underutilized. Yet many don’t have the traffic-control equipment to allow instrument landings. Nor can they afford to install it.

“But what if we put the electronic intelligence and controls inside the airplane, rather than in the airport?” he muses. Were that to happen, small-town airports could suddenly handle a lot more flights, relieving congestion and giving travelers myriad choices.

Meanwhile, some are focused on aircraft even smaller than the 100-seaters. For example, Eclipse Aviation Corp. and Adam Aircraft Industries are both building advanced light planes that hold four to six passengers. These craft are designed for air-taxi service -- a way to get travelers to and from destinations for a fare that’s competitive with a commercial first-class ticket.

These planes are more than rich men’s toys. Eclipse’s offering incorporates engine advances and a friction welding technique that dispenses with rivets. “They are laboratories for the industry,” Holmes says.


That’s one reason Microsoft Corp. founder Bill Gates and Northridge high-tech entrepreneur Al Mann are among those who have backed Eclipse with $325 million in equity capital. Kent Kresa, the former chairman of Northrop Grumman Corp. and a renowned aerospace engineer, sits on Eclipse’s board.

Other notables have also been swept up by the idea of ferrying people on quick point-to-point flights. Donald Burr, whose airline People Express pioneered the low-cost model in the early 1980s, and Robert Crandall, the former bare-knuckles boss of American Airlines parent AMR Corp., are helping to finance another air-taxi company. As yet unnamed, this firm will fly planes made by Adam Aircraft.

Certainly, not everyone is enamored of the concept. Michael E. Levine, a former top executive at three airlines who teaches law at Yale University, calls the enthusiasm “romance, sheer romance.” He questions, in particular, whether a 100-seat plane can be flown as economically as a larger aircraft where the costs are spread over more passengers.

Yet JetBlue estimates that the ERJ 190 will operate at a cost only a penny more per available seat mile -- a standard industry measure -- than its 156-passenger A320.

Even the big guys are thinking smaller. Boeing Co.’s new 7E7, which is starting to attract orders, is a 250-seat aircraft designed to answer the A380, a 500-seat behemoth made by European rival Airbus.

And why pit David against Goliath?

Boeing’s thinking is that more direct flights from, say, Osaka to Mumbai will be the kind of service that busy travelers will demand in the future.


When it comes to the airline business these days, small really is beautiful.

James Flanigan can be reached at jim.flanigan For previous columns, go to /flanigan.