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So Western Pacific is moving the bulk of its operation to Denver and enlisting help in its fight against United. The company announced last Monday that it will purchase Denver's Frontier Airlines for about $40 million in stock. The agreement averts what could have been a catastrophic price war between the two low-fare carriers. But ailing Frontier had fared none too well against United. Last year the company lost $12 million. Peiser says the merger, effective Aug. 1, will give both companies the critical mass they need to compete. The combined carriers will operate 34 Boeing 737s, serving 26 markets. Western Pacific plans to knock heads with United in the Denver-Los Angeles market by adding six daily flights. United has a dozen. This could get nasty.
The ceiling seems to be lowering for other niche players. Vanguard has been bleeding red ink since it began service two years ago, and is struggling to remake itself as Kansas City, Mo.'s hometown airline. Vanguard posted a $7.9 million loss for the first quarter despite higher revenues and passenger loads. Two weeks ago, CEO John P. Tague pulled the rip cord and resigned from Vanguard. He also left the helm of Air South, based in Columbia, S.C., another struggling low flyer that shares some big investors with Vanguard.
A bankruptcy court will settle the fate of New Jersey-based Kiwi International this month. Although Kiwi got great marks for service, last fall Federal Aviation Administration officials ordered the airline to ground four of its 15 planes amid concerns about the qualifications of its flight instructors. Kiwi was also forced to suspend service from Oct. 13 to Jan. 20 because of financial difficulties.
Kiwi's troubles are directly related to the horrific ValuJet crash in the Florida Everglades in May 1996, which sent the FAA scurrying after low-cost airlines following revelations that the agency had been lax in its inspections. Another ValuJet casualty, Nations Air, spent a mere 15 months aloft running flights between Boston, Philadelphia and Pittsburgh. Following the crash, 40% of its passengers canceled their reservations. To cope, CEO Mark McDonald remade Nations Air into a charter airline.
Despite this financial carnage, Pan Am's Shugrue, a former trustee of Eastern Air Lines, is pressing ahead with a low-fare, high-service strategy. Shugrue teamed up with investor Charles Cobb, now Pan Am's chairman, who had purchased the famous blue logo in 1993 on the notion that the brand had some vestigial credibility with consumers. Shugrue is sticking the brand into some markets where Pan Am got its ticket punched on the last go-around. This month, for instance, Pan Am is adding a third nonstop flight between New York and Los Angeles, a move certain to draw fire from American and United.