Quotes of the Day
Next time you're trying to get from New York City to Chicago, you might want to try going through New Jersey. Not on the turnpike, but through Teterboro Airport, which is just 12 miles from Manhattan and forbids big airline jets. You can arrive just 20 minutes before your flight. Pull up to the "terminal" (a tidy, one-story brick building), pause for a beverage in the lounge with about a dozen other passengers, speed through security and stroll 25 feet across the tarmac to a luxuriously appointed Embraer business jet. Slide into one of the 16 spacious leather seats (there are no middle seats) and dig into a gourmet meal. Then land at another convenient, smaller airport: Chicago's Midway. The fare: $1,500 round trip, about the same last-minute fare you would pay the better-known outfits with hubs in Chicago, American Airlines and United Airlines.
Welcome to Indigo, the upper-crust company that doesn't even call itself an airline. With most of the country's large carriers suffering financially and cutting back flights and amenities, a fresh flock of new and expanding niche carriers is rushing to fill the gap with wildly varying routes and styles of service. Indigo and an unprecedented transatlantic Boeing Business Jet service offered by Germany's Lufthansa Airlines are aimed at executive travelers. Others, like JetBlue Airways and AirTran Airways, are profitably targeting bargain hunters. Some are even more offbeat: Want to fly among skimpily clad hostesses from Atlanta or Newark, N.J., for a golf weekend in Myrtle Beach, S.C.? Try Hooters Air. Feel the urge to disrobe once you're airborne? Fly Naked-Air.
Rather than route flights through regional hubs and blanket the world with service like the traditional U.S. airlines, the upstarts offer flyers a patchwork of routes and a wide choice of onboard perks. The smaller carriers are choosing routes for which demand is brisk even amid a slumping economy and lingering fears of terrorism. That means smaller markets are being turned over to regional airlines or abandoned altogether.
Price-conscious trips today require more preflight planning than simply calling one or two major airlines that serve your city, but the potential payoff is huge. The typical fare has dropped 18% since 2000, although flyers might have to arrive at a secondary airport or bring their own dinner. And to the delight of their employees and shareholders, several of the smaller airlines are finding ways to boost revenues and profits in their niches. "What are crumbs for the major airlines are a full meal for us," says Dan McKinnon, CEO of tiny North American Airlines, primarily a charter carrier that flew more than 500,000 passengers last year from its base in New York City. Traffic is up 40% so far this year.
You can thank Southwest Airlines for the changes — or curse it, if you are a competitor. Southwest, based in Dallas, created the basic-fare, point-to-point model the new discount carriers are adapting and profiting from. Five airlines today — AirTran, ATA, Frontier Airlines, JetBlue and Spirit Airlines — aspire to be the next Southwest, and at least two major carriers, Delta Air Lines and United, have launched or announced plans for low-fare, me-too subsidiaries (a second try for both).
The new low-fare carriers are obsessed with keeping costs down and treating customers well. They work hardest at employee relations, aware that labor troubles have helped sink several major airlines. The low-fare airlines shun extravagances, from linen napkins to fancy airport lounges. In contrast to some major airline CEOs, who pocketed hefty compensation packages even as their airlines were losing billions of dollars, executives at low-fare airlines are out helping load bags when necessary and are tying their pay to their firms' performance. The small airlines have also done away with or reduced the traditional charges for changing tickets or checking extra baggage — all part of the pitch that they're grateful to have your business.
A big ally for the little guys is the Internet, which has illuminated the murky world of ticket pricing and has shifted power to the consumer and a cost advantage to technologically adept newcomers. The Internet has helped these carriers sharply cut distribution expenses and has also helped in advertising. "The Internet gives us a place in the storefront window," says Sean Menke, head of marketing for Frontier. "And for the price-sensitive customer, we'll benefit every time we go up against a major carrier."
The niche airlines' low-hassle style of flying has also set them apart. Especially since 9/11, travel through big, crowded airports has been a challenge. Smaller airlines gain an advantage by flying direct and often using less congested secondary airports, like the one in Long Beach, Calif., where JetBlue, based at New York City's John F. Kennedy International Airport, has established a big presence. Spirit, based in Miramar, Fla., uses Fort Lauderdale instead of Miami International Airport.
The niche carriers are also nimbler. When US Airways made the surprising move after 9/11 to shut down MetroJet, its low-cost subsidiary based at Baltimore/Washington International Airport, AirTran, with headquarters in Orlando, Fla., moved into that airport within weeks. It has now built a successful mini-hub there, with 22 flights a day. The low fares have been a boon to these once obscure airports: Midway Airport in Chicago — which is served by AirTran, ATA, Frontier and Southwest — now offers 22% of all U.S. flights from Chicago, up from 14% in 1997. And while many major carriers have cut flights, departures from Midway have grown 16% since 2001.
The small airlines are trying to prove that flying can be enjoyable again. JetBlue offers 24 free channels of LiveTV. Delta's low-fare Song subsidiary promises it will have pay-per-view movies and MP3 players by October. AirTran lets you upgrade to business class for only $35 above full coach fares and gives you Mrs. Fields cookies. Hooters Air's hostesses orchestrate humorous in-flight quizzes and pass out free hats and T shirts. "We're just trying to bring a bit of fun back to flying," says Mark Peterson, chief operating officer of Hooters. "It doesn't have to be so serious."
But fun doesn't mean frivolous. A crucial change for the niche airlines has been in their conservative approach to safety. Only a few years ago, many new airlines were dismissed as inferior or even less safe than established carriers, in part because many of them flew older aircraft. But government regulators and carrier executives have worked together to inculcate a rigorous safety culture. AirTran, Frontier (based in Denver) and JetBlue are either flying entirely new fleets or quickly acquiring new planes to replace older stock. That not only helps with safety and the perception of safety but also is good for the books, at least in the long run. While new Boeing 717s cost $37 million each on the front end, AirTran CEO Joe Leonard says they burn 24% less fuel than AirTran's remaining DC-9s and thus cost $500 an hour less to operate.
The niche airlines know they will need every edge they can find as competition heats up. As major carriers emerge from bankruptcy protection with lower labor costs and other new economies, they will be more formidable. Some big airlines are holding on to valuable airport facilities they aren't even using, and they are strong-arming airport managers to keep out rivals. Some of those rivals suspect that the major carriers are working together to beat them back. In early May, within days of one another, the Big Six (American, Continental, Delta, Northwest, United and US Airways) said they would impose a new $10 round-trip fare hike on June 1--a move that triggered an investigation by the Department of Justice. Under a 10-year consent decree, the airline industry forbids coordinated fare increases. The investigation continues. A spokesman from American, which initiated the fare hikes, says the carrier is "in compliance" with "relevant laws and regulations." Whatever the outcome of that case, the larger picture is that there's plenty of competition for a wide variety of air service, from business carriers to discounters.
The Next-Best Thing to Owning a Jet
There are some 3,000 on-demand charter operators nationwide, and the Internet has made it easier than ever before to book one of their jets. They fly everything from single-engine prop planes to the Gulfstream V, like the one your favorite movie star uses. Even small businesses sometimes choose this option for a multicity trip that gets the execs back home the same day. Many operators report that business is holding steady despite the slow economy.
A new type of charter lets clients fly on a sleek private jet without having to buy one — or having to buy into a so-called fractional-ownership program. These services do, however, make customers prepay for blocks of flight time. Among the biggest carriers of this type are Delta AirElite Business Jets, a wholly owned Delta subsidiary based in Cincinnati, Ohio; Marquis Jet Partners of New York City; Sentient Private Jet Membership of Norwell, Mass.; and Bombardier Skyjet, based in Fairfax, Va. Through Delta's AirElite service, which launched in February, customers pay a minimum of, say, $144,500 for 25 flying hours in a six-passenger Lear 60 business jet — and get frequent-flyer miles on Delta. These providers tend to specialize in travel within the U.S.--though if you want to go to London, some operators, such as Delta AirElite, can get you there too, on a larger private craft. These companies ooze discretion, and while they don't disclose the bottom line, they all report "significant interest."
A New Business Class
The international aviation industry is closely watching Lufthansa's new all-business-class service from Dusseldorf, Germany, to Newark (offered in partnership with PrivatAir), and some are even calling it the "new Concorde." The flight's VIP service and the absence of crying babies and scruffy backpackers have pleased the route's early passengers and encouraged the airline to expand service to Munich from Newark and schedule a Chicago-to-Dusseldorf flight starting in June. The carrier will not say whether the route is profitable, but it has been flying at a healthy 60% of capacity. Among U.S. business travelers, Indigo is attracting almost as much attention for its clever use of secondary airports like Teterboro and, starting in June, White Plains, N.Y. Indigo CEO Pete Pappas, a longtime American executive, is a seasoned pro who sweats the little things — like promising a 6-ft. 8-in. frequent flyer a seat in the spacious exit row for all his trips.
Discounters
AirTran and JetBlue are bucking industry trends by making profits and adding flights, at the expense of the major airlines. Frontier and ATA (based in Indianapolis, Ind.) are trying new routes too, but their finances are under pressure. Frontier posted a $23 million loss for fiscal year 2003, its first loss in five years, and ATA reported a quarterly net loss of $11 million, though it still managed a slim operating profit. North American flew some U.S. troops during Gulf War II and the Afghanistan campaign, and it has also kept its civilian business going strong, especially on high-volume feeder flights to major international carriers like El Al. Allegiant Air, based in Las Vegas, specializes in discount flights to Sin City and has announced three new routes in the past two months: to Lansing, Mich.; Des Moines, Iowa; and Denver. Song, owned by Delta, is just off the ground, flying from New York City's J.F.K. to three points in Florida: West Palm Beach, Tampa and Orlando. Spirit has been around since 1992 and specializes in low fares to 14 destinations. The privately held carrier hasn't divulged financial details but claims it recorded an operating profit for the first quarter of 2003.
The Wild Blue Yonder
Privately held Hooters, based in Myrtle Beach, S.C., and owned by the founder of Hooters restaurants, won't say if it's making money yet, but its employees and passengers seem to be enjoying themselves. Women passengers outnumber men on some flights, and even most of the women say they like the friendly service by Hooters Girls. Naked-Air, a charter carrier organized by a nudist travel service in Houston, won't reveal much at all about itself — except that passengers really are allowed to disrobe once the FASTEN SEATBELT sign goes off. It has made one flight so far, from Miami to the Mexican resort city of Cancun. For passengers venturing back into the air, there has never been a better time to explore the possibilities.
- Sally B. Donnelly/Washington