After an astounding growth spurt, US startup Western Pacific Airlines is slowing down to consolidate its network spanning 19 cities centred on Colorado Springs, up from five cities when service began a year ago. Though not yet profitable, the airline has boarded 1 million passengers since its first flight, and last year turned in revenues of $55 million.
The next step for Western Pacific is to increase frequencies to Colorado Springs, which is close to becoming a fully fledged hub for the airline. As with other low-fare carriers, it is the local origin-and-destination traffic that makes up the majority of Western Pacific's traffic base. While just 15 per cent of the first year's traffic was connecting, chairman and chief executive Ed Beauvais says he hopes to 'increase that number dramatically,' up to 25 per cent.
Though Michael Boyd of Aviation Systems Research believes the last thing the region needs is another east-west hub to add to Denver (United), Salt Lake City (Delta), Dallas (American), Houston (Continental), St Louis (TWA) and Phoenix (America West), he believes the newcomer is working on a sound formula. 'Western Pacific will get connecting traffic because of low fares,' much as Atlanta-based ValuJet has achieved with north-south traffic.
This could be considered a significant evolutionary step for an airline that launched on the basis of attracting passengers from Denver - and away from United. Beauvais' success up to this point has been largely defined by the fact that more than 30 per cent of the carrier's traffic comes from Denver, while its low fares have also attracted passengers from throughout Colorado and even out of state. As has occurred with Southwest when it entered new markets, Western Pacific's presence in Colorado Springs has sparked the creation of independent shuttle services ferrying passengers by coach from as far away as Cheyenne, Wyoming.
While the attention helped give the startup carrier an operating profit of $370,000 in last year's third quarter (its first full quarter of operation), it has also hit United, which last year moved into the new - and expensive - Denver International Airport, where it controls 75 per cent of traffic.
United is matching all of Western Pacific's fares out of Colorado Springs, and it has been forced to lower its prices out of Denver on a 'bucket' basis. The effect has been significant, says Boyd, especially because of United's high costs at DIA: 'United is trapped, because it has to keep its fares up. Western Pacific is probably costing United $50 million a year in diverted traffic and reduced yields.'
Beyond low fares, Beauvais is also selling direct service. But the carrier is limited on frequencies by a fleet of only 12 B737s - fewer than the number of cities it serves. Out of 19 cities served, only six have more than a single daily service. But an average load factor of 60 per cent suggests the carrier is operating enough capacity at present.
Nevertheless, Beauvais says more aircraft are needed to sustain growth. But reports that Western Pacific had entered into an agreement to spend $700 million on 20 new B737s, which had the investment community worried about overexpansion, were 'a little premature,' Beauvais says. 'We are negotiating now, but have not decided how many aircraft.' He is predicting the carrier will produce a profit in 1996.
Mead Jennings
Source: Airline Business
