"Airlines See Big Opportunity in Serving Small Cities With Small Planes"

Sunday, June 27, 2004

Airlines See Big Opportunity in Serving Small Cities With Small Planes
By James Flanigan
The Los Angeles (CA) Times

   
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.


 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dcfp/dcboard.php


*****************************************