It is more than three years since ValuJet crashed into the Florida Everglades, shutting down operations and dashing the hopes of a host of US low-cost imitators.
But while many of those trying to emulate the carrier's early successes are no longer around, ValuJet has reinvented itself and is back in profit. Sitting on a pile of cash it had accumulated when the going was good, the parent company soon saw the futility of ploughing it into the irreparably damaged brand name and in July 1997 merged with fellow low-cost start-up AirTran Airlines. It relaunched three months later as AirTran Airways.
In January, to capitalise on the new beginning, directors appointed Joseph Leonard chief executive. He came to the airline's new home in Orlando, Florida, with senior management experience at American, Eastern and Northwest Airlines. His most recent success was as chief executive at AlliedSignal Aerospace, where, under his leadership, the company doubled revenues in just five years.
Return to profit
AirTran's former chief executive, Joseph Corr, says Leonard is a "person of great integrity" with the "experience and skills necessary" to build the airline. In just a few short months, he has brought the airline into the black and increased flights to key markets, running 280 daily frequencies to 31 cities in the US south-east corner. Net profits for the first six months of this year were up to $18 million, having been little better than breakeven a year ago. That does not quite recapture the heyday in 1995 when ValuJet was turning in net margins of close to 20%. But the first half figures suggest that sales revenues will break the $500 million for the first time this year.
Not that Leonard can afford to relax. Operating costs for the second quarter also went up 8% due to increased maintenance bills. The third quarter results, while still good, will be down from original estimates due to the cancellation of 17% of flights for nearly three days after Hurricane Floyd. Even so, analysts expect AirTran to hold steady in the second half, certainly bettering the sizeable losses a year ago.
Leonard recently received a welcome boost with a one-year contract from the General Services Administration worth $8 million, to transport federal government workers. He has also begun expanding in express freight.
To cope with growth and boost efficiency the low-cost airline is embarking on a considerable fleet modernisation. Leonard believes the 50 Boeing 717s on order will dramatically improve operations, offering "increased seats per departure, improved operational reliability and overall flexibility for growth," as well as cutting maintenance costs. Eight 717s have already been added to the existing fleet of 48 McDonnell Douglas DC-9s and Boeing 737s, while another 16 717s will be delivered in 2001 and the remainder in 2003.
The first 717 has been put into operation out of Atlanta, original home of ValuJet and from where AirTran operates 135 daily departures. The market seems to be working well again for AirTran, but Atlanta, headquarters for Delta Air Lines, might still prove the biggest challenge.
Tom Arnhold, an airline analyst with S. Bleichroeder says: "Delta is an 800lb gorilla, no matter what AirTran's plans are. It's not in Delta's interest to let them get too much market share."
Many analysts agree that Delta will never again allow a low-cost carrier to have the runaway success that ValuJet enjoyed before the Florida crash. AirTran's success, they believe, will be dictated by Delta. "Delta now has a lot more weapons, including its own low-cost airline Delta Express, and is competing in an east coast market that has seen a lot of carnage lately," says Arnhold. But Leonard remains convinced that his airline's very low fares will win the day. "Our fares are considerably lower than those of our competitors," he says.
Growing with caution
Leonard is positive about Congressional moves to allow low-cost carriers greater access to slots and gates at key US hub airports. "Basically, major airlines with extra gates are hoarding them," he says. In some cities, the Department of Transportation has ordered airlines to give up their gates to AirTran and other start-ups under "use it or lose it" provisions.
The airline plans to open routes to other cities, but growth will "be conservative", says Leonard. There is no room for complacency, however. "I wake up scared every morning. I think it's a good way to behave. People who run scared don't get into trouble. We come to work every day and look as hard as we can for problems to solve."
Source: Airline Business
