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"Great Lakes set to fly solo"



Sunday, March 25, 2001

Great Lakes set to fly solo
By Greg Griffin
The Denver (CO) Post


CHEYENNE - Great Lakes Aviation just received clearance from the control
tower to climb to a higher altitude.

After nearly a decade operating as a United Express carrier, Great Lakes
launches independent service on May 1. It will fly under its own name to
dozens of small airports throughout the West and Midwest from hubs in
Denver, Chicago and Minneapolis.

The airline's repainted turboprop planes already are showing up at Denver
International Airport, where nearly 100 takeoffs a day last year made Great
Lakes the secondbusiest operator.

Doug Voss, Great Lakes' founder, chief executive and majority owner, said
the change comes at a critical time for his airline, which is struggling to
profit by offering air service where no one else will.

"We're pretty convinced we will be able to lower our costs in this new
business format," he said. Great Lakes no longer will have to pay United
millions of dollars in fees each year to operate under the United Express
banner. The two airlines will continue to share passengers and services
under a "codeshare" relationship, but Great Lakes is free to establish
similar partnerships with other carriers, such as Frontier Airlines.

That would give Great Lakes' travelers more choices when they connect at
DIA, which Voss hopes will attract new customers and boost his carrier's
bottom line.

The airline also will have more control over ticket pricing, Voss said. When
United offered heavily discounted fares last fall to lure back customers
angered by its opera tional problems, Great Lakes also had to slash prices.
Voss said that and high fuel prices pushed the carrier $6 million into the
red for 2000, following two profitable years.

"It put us on a roller-coaster ride," he said. "That reaffirmed our decision
to continue to fly the United customers but also the other carriers'."


Mike Boyd, an Evergreenbased airline consultant, said the new arrangement
presents Great Lakes with challenges as well as opportunities.
"They will lose some traffic from people not connecting from United. There
is definitely a hit there," Boyd said. "But knowing Voss' history, I
wouldn't be too concerned about the airline. This frees them to maybe grow
much larger as a stand-alone entity."


Voss started the company in 1977 with two other pilots in the Great Lakes
region of northwest Iowa, offering flight instruction, charter service and
aircraft maintenance. In the early 1980s, Great Lakes began flying scheduled
passenger flights in the Midwest and built hubs at Chicago's O'Hare
International Airport and Minneapolis-St. Paul International Airport. In
1991, Great Lakes expanded to Denver, and a year later, it began flying for
United Express.
The carrier grew quickly in the Mile High City, and the hub eventually
eclipsed the ones in Chicago and Minneapolis. Last year, Great Lakes moved
its headquarters from Iowa to Wyoming, where it occupies a $5.7 million,
53,000-square-foot office building and maintenance hangar east of the
Cheyenne Airport. Great Lakes chose Cheyenne over Denver because of
economics, Voss said. Real estate is less expensive there, and the city gave
the carrier tax breaks. The Wyoming city is just 90 minutes north of Denver,
meaning flying planes in for maintenance isn't a problem, he said.

Great Lakes, meanwhile, has built a network of flights that serve some of
the most sparsely populated regions in the nation with 19-seat and 30-seat
turboprop aircraft. The carrier makes money by charging relatively high
fares and relying on government subsidies to provide "essential air service"
where no other carriers will.

Voss said the carrier's reduced costs eventually will translate into lower
fares. But customers would see a more immediate benefit, he said, from the
code-sharing relationship Great Lakes is negotiating with Frontier. It would
allow Great Lakes' customers to shop the competition at DIA based on price,
convenience and other factors.

"This is a big deal for consumers in the mountain region," Voss said.
"People now get another option." United Express passengers at the Cheyenne
airport said they would welcome the option to choose carriers from Denver,
but they were skeptical that Great Lakes would begin offering better fares
in Wyoming or offer a better variety of destinations. Air service in Wyoming
is among the nation's costliest, with little or no competition and few
intrastate flights.

"The fares are very high, and you can't get anywhere without going through
Denver. Maybe they'll fix that," said Helen Hart, 62, who was returning to
Cheyenne from a vacation in Hawaii with her husband, Dick. "We usually end
up driving to the airport in Denver to save money."


But why would United relinquish such a strong monopoly?
Because serving small communi ties with turboprop planes is not very
profitable, Boyd said. Though it's No. 2 in takeoffs at DIA, Great Lakes'
passenger traffic accounts for less than 2 percent of the total.

United is moving away from such service in favor of larger communities,
where it can operate faster, more efficient regional jets, which hold 50 to
70 passengers, Boyd said. The carrier has hun dreds of the bigger jets on
order, and by letting Great Lakes go it can concentrate on building those
operations.

"United wants to get rid of 19seat airplanes, and this deal accomplishes
that," Boyd said. "When those planes go, so do the communities they serve."


Meanwhile, Great Lakes has a sales job to do with its investors. The stock
is trading below $2, well off its high of $13.63, which it hit shortly after
its initial public offering in January 1994. Tennenbaum & Co., a Los Angeles
money management firm that owns 10 percent of the stock, last month offered
to buy all outstanding shares for $4 each, or about $31 million.
Michael Tennenbaum, the firm's owner, said he wants to take control of the
company because it's too small to benefit from public ownership.
Administrative costs are much higher for public companies, he said, while
institutional investors have no interest in such a small company.

"I think it's in the company's best interests as well as the shareholders'
to go private," he said.

Voss could double the value of his 5.4 million shares to about $21 million
by taking Tennenbaum's offer, but he doesn't show much enthusiasm for the
idea. "We've told Tennenbaum we'll give the offer due consideration," he
said.

Tennenbaum said that if he owned the company, he would make it grow through
acquisitions and take its business model to other large hubs. He criticizes
Voss for being too cautious and moving too slowly. And he wants the
46-year-old Iowa native to change the carrier's name.

Voss said that will happen.

"At some point, we will probably change the name," Voss said. "But given all
the confusion we are creating today, the last thing I want to do is add to
it."

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