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This time, Shugrue reasons, by offering everyday transcontinental fares as low as $386, roomier seats, decent food and a generous frequent-flyer program, Pan Am can lure both frequent business travelers and leisure flyers. The company is also trying to position itself as a domestic feeder for a network of medium-size international carriers, such as AeroPeru in Latin America and Iceland Air in Europe, that serve Miami, Los Angeles and New York. "We have a global outlook," Shugrue says. "We're not trying to dominate a particular market." The airline has its fans. Says Xose Alvarez-Alfonso, 38, who has started flying the carrier's Miami-to-New York route: "I like the historical aspect. I used to fly Pan Am before, and now I'm flying them again."
Pan Am had a hard time just getting off the ground. Post-ValuJet, the FAA got very particular about certifying new carriers. Pan Am was forced to postpone its July 4, 1996, launch to Sept. 26. Delays in the delivery of aircraft required the company to lease other jets, resulting in higher than projected costs. "The only reason we were able to avert a financial crisis is because we had enough start-up capital," says Shugrue. Having collected some $40 million, he had a cushion to withstand the unexpected losses, though Pan Am has yet to turn a profit.
To get into the black, Pan Am must reduce its available seat-mile costs, a standard industry measure, to 6[cents] a mile on the Airbuses it flies. In the first quarter, the company was spending 9.28[cents] per available seat-mile, slightly higher than the majors. Like other low-cost carriers, Pan Am outsources maintenance and uses nonunion workers. (A jet was recently vandalized after the company announced a decision to shift its maintenance contract from TWA to a nonunion shop.) The company posted a first-quarter loss of $14.7 million, but Shugrue insists the airline will ratchet down costs by the end of this year.
Pan Am's acquisition of Carnival Air Lines, expected to be completed by the end of summer, may help. Carnival was started by cruise-ship magnate Micky Arison, chairman and CEO of Carnival Corp., to ferry passengers seamlessly from air to sea and gain control over airline seat costs, since most cruise passengers buy a combination fly-cruise ticket. But Carnival couldn't fly as well as it could sail, so Arison will acquire 42% of Pan Am's stock and invest $30 million in the new company. Carnival can now feed shipbound passengers to Pan Am; the combined company should improve its operating ratios. Says Paine Webber's airline analyst, Samuel Buttrick: "There's enough juice between the two companies to make it work."
And what of ValuJet, whose Everglades crash staggered the industry? The company, perhaps the most inspected airline in history, is struggling back, a mere shadow of its precrash, fast-growing, profitable self. In the three years before the disaster, sales had tripled, and the carrier had expanded service to 31 cities from three and laid claim to a booming passenger roster. Grounded for three months and forced to scale back its fleet from 51 to 28 aircraft, ValuJet lost $41.5 million in 1996. It has begun reinstating routes and inaugurating new ones, but the company is now flying at 52.7% capacity, well short of what it needs to make money.