Larry Risley, chairman and chief executive officer at Mesa Air Group, has become an expert hurdles jumper over the last 18 months. After meteoric growth turned Mesa into one of the largest regional airlines in the world - and certainly the most complicated - the company has had to face a string of awkward problems.
'Exciting as well as frustrating' is how Risley sums up 1996. During that time Mesa turned in its most profitable year ever - a $30.4 million profit on $500 million in operating revenues - but also faced a series of operational setbacks that are now cutting deep into this year's results.
Like all US regional airlines, Mesa has had to make the transition from Federal Aviation Regulation 135 operating rules to full large-carrier FAR 121 standard. But for Mesa, the scale of that transition has been enormous.
Not the least of the operational headaches has been the retraining of the company's 950 pilots to the new standards. Mesa was also at loggerheads for months with those same pilots as it negotiated, for the first time, a single contract that would apply across the group.
Simultaneously, under pressure from the Federal Aviation Administration in what many are calling the PVS (Post ValuJet Syndrome) era, the Mesa Air Group has reorganised and consolidated the flight and maintenance operations of its widely dispersed divisions. They now operate under the centralised, pyramid type of management structure preferred by the FAA.
Then the FAA slapped down a $500,000 civil penalty for maintenance and training shortcomings, while Senator Ben Nighthorse Campbell of Colorado launched a public campaign complaining about Mesa's service in that state. What's more, Texas proposed a new aviation tax on airlines operating within the state at the same time as Mesa was launching a regional jet service out of Fort Worth.
New challenge
'We have learned to wake up every day with the expectation of a new challenge,' says Risley, whose relaxed demeanour suggests he must thrive in the face of turmoil. 'I think the biggest change of all has been our transition from the world's largest FAR 135 commuter carrier to a large regional FAR 121 carrier. That has probably had more impact on Mesa than any other commuter carrier because we were so large,' says Risley.
The Mesa Air Group's four divisions employ 4,100 people, and its 183 aircraft serve 166 US cities. 'It caused a dramatic change in the structure of the company and caused some disruptions in service as we progressed through them,' admits Risley. 'A lot of those changes were about the flight crew and we had a lot of problems as we changed their training to FAR 121. But the disruptions have mostly been addressed and we are moving very smoothly now.'
Risley says the Group is also working out its problems with the FAA in a 'professional and productive' manner, although he was clearly annoyed when details of an agreement struck with the FAA were leaked last year.
Half of the $500,000 penalty has been set aside while Mesa completes the changes set out in the agreement, which calls for Mesa to restructure its management system, improve and expand its training department, establish a single maintenance control centre, and add several new maintenance inspectors.
This September, one year after consenting to the agreement, the FAA will conduct a new inspection to assess whether Mesa is in full compliance. If it is, then the outstanding civil penalty will be forgiven. Risley is confident this will not be a problem, and indeed says Mesa is already in full compliance with the consent order. But Mesa has received a sharp wake-up call.
'We work very closely with the FAA today. I am not sure that this, in fact, is not the new world going forward and not just an issue for Mesa. There has been such a dramatic change since the ValuJet accident and the resulting criticism of the FAA,' says Risley, who goes on to add that he has seen a material difference in the attitude of the FAA since its charter was changed from that of dual safety overseer and commercial promoter to one where safety is the prime focus.
'We had operated on a divisional basis,' says Risley. 'We were essentially a number of airlines operating autonomously of each other, but under one FAA operating certificate. The new view from the FAA was that we needed to have more centralised operational control; that we needed to be managed by one team of people. Part of the agreement we entered into with the FAA agreed to change to the new pyramid type of operation, so we now operate as a single company with three operational certificates - for Mesa, Air Midwest and WestAir Commuter- with Mesa being far and away the largest certificate.'
As part of the reorganisation, names such as Desert Sun Airlines and Liberty Express disappear, replaced by four divisions aligned by their codesharing agreements when appropriate - America West Express, Mesa Airlines, United Express and US Airways Express.
'It's been tremendously expensive and not without its pitfalls,' admits Risley. 'It has yet to be seen whether or not it's a good thing. There are certainly some benefits and it should be possible to create cost cutting opportunities as we explore our synergies. I certainly hope that once we are in a 'steady state' world there will be at least a balance to the cost of consolidation, but it's probably another year away - at least into 1998 - until we have a daily, consistent operation.'
The cost has, indeed, been high. Mesa posted a loss of nearly $1 million in its 1997 first quarter, compared with a $12 million profit for the same quarter in 1996.
Major hurdle
The FAA-mandated costs have been compounded by Mesa's other major hurdle - public perception. 'We have had a tremendous setback in the past two years,' admits Risley. 'We have diminished credibility with our passengers and with our shareholders. Some of that was third- party induced, some self induced and some perception induced. But we are working our way back. We are not accepting that this is the way it is. We are working diligently to re-establish credibility.' In Denver, where Sen Campbell launched his campaign, Mesa has held a series of meetings with congressional members and staffers, organised community town hall meetings, and established various focus groups to identify and resolve problems such as overbooking.
'We have set some performance goals recently to improve the performance of the airline. We are bringing in our employees as direct participants, or cheerleaders, in this effort,' says Risley.
Motivation of employees has been a key issue. Although protracted, the pilots' negotiations eventually led to a comprehensive group-wide settlement. 'We have established a formula for a good relationship,' says Risley. But he is concerned that the same is not yet true for the majority of the group's employees. 'We were very successful at creating an identity for each of those former divisions that we, at a company level, managed almost as a transparent identity,' he explains. 'Then one day they woke up and found it was all Mesa and the company they thought they worked for has disappeared. It has been very difficult for them to be motivated. We have to get the message over that it has not really changed - we have always been one big company. But the identity is new.'
That same identity crisis also exists at the passenger level, admits Risley. 'Customers tend to see us as United Express or whatever. They do not identify with Mesa. We operate in 166 cities, so anybody who travels to any degree at all has most probably travelled with us - but they don't know it.'
This should not be the case with Risley's newest venture - an all-jet, regional service operated out of Fort Worth's Meacham Airport and offering a high-frequency service within Texas. This service has Mesa Airlines stamped loud and clear on its fleet of Canadair Regional Jets, 10 of which will be acquired over the next 12 months. 'We feel there is growth potential for us, even with the restriction to Texas,' explains Risley. 'Texas is in many ways a unique state. It has a big population that does lots of travel within the state. There are several large cities that are spread widely apart. We see this as a local service for Fort Worth to other destinations in Texas, for which there was zero opportunity before. This is a totally new environment.'
Risley says the availability of regional jets made the new service possible. He says he has had his eye on Meacham for ten years: 'But our analysis, using the equipment available, which was only the turboprop, never showed it to work. Then the RJs came along and it caused us to look again. The RJ was our only hope of success because it is a marketplace in which you cannot be viewed as second class - there are too many choices available. We had to have a jet.'
Huge experiment
The Meacham operation, which began in May, contains several experiments. 'This is the first time we have operated an RJ that is not part of a codeshare,' says Risley. 'It is also a new airport - there was no other scheduled service there before we came along. We are not participating in a CRS environment, which is a huge experiment for us, and we are not taking reservations. People buy their ticket when they ask for the flight, so we don't overbook planes. And we started service with a high frequency - 11 round-trips a day to Houston/Hobby - because the whole of our focus is the business traveller.'
Risley says that such policies demand a degree of patience. 'You cannot expect 60 per cent load factors at the start.' But daily increases in 28-day advance bookings will indicate that the operation is on track for a goal of profitability within 12 months, while the flexibility to 'massage' each or any of the experiments will be called on if booking levels disappoint.
Risley may not yet be in sight of the finishing line, but he is quietly confident that the track ahead is now clear. 'There have been a lot of hurdles, but it is improving every day,' he says. 'I feel now that we have got beyond the stumbling blocks and are operating as a reliable airline. We just have to keep working at it.'
Source: Airline Business
