Two low-cost US airlines launched service within a week of each other in late September, including a reborn ValuJet. But the experience of long-ailing Kiwi, which filed for Chapter 11 in early October, seems the more likely barometer for this sector.
Some three months after ValuJet was shut down, the Atlanta-based carrier resumed flying on 30 September. US regulators require the carrier to phase in services gradually, flying nine aircraft initially and adding a further six. Before its closure, ValuJet operated a fleet of 51 DC-9s to 31 destinations and employed 4,000 workers. Under its current operating plan, it will serve 17 destinations employing some 1,200 people. A further expansion of its fleet will require approval from the FAA.
Although ValuJet's management express confidence about the reborn carrier's prospects, analysts are not quite as sanguine. Most do not expect it to return to its previous size, in part because it is 'now under the tight leash of the FAA,' as one puts it.
The analysts also unanimously expect that Delta will compete far more aggressively against ValuJet. Sam Buttrick of PaineWebber notes: 'Delta has the unique opportunity to rewrite history.'
With a gas-guzzling fleet, ValuJet also will be more vulnerable to the higher jet fuel prices plaguing the industry - fuel in early October was some 75 cents per gallon, compared to 55 cents a year ago.
Another possible threat looming on ValuJet's horizon: USAir's management and pilots are discussing a low-cost carrier, perhaps along the lines of Delta Express. Nevertheless, Buttrick predicts ValuJet will turn a profit but not as 'the meteoric phenomenon it once was.'
Several days before ValuJet's relaunch, a yet more famous name - Pan Am - returned under the leadership of Martin Shugrue, former vice chairman of the original Pan Am. The airline relaunched with three A300s on two routes, from New York/JFK to Los Angeles and Miami.
Pan Am is offering a combination of low fares and inflight service, but most analysts are not hopeful of its survival, largely because of the fierce competition it faces from American and United.
Meanwhile, four-year-old Kiwi, shut down twice previously by the FAA for poor record-keeping, filed for bankruptcy protection, halving its fleet and paring its Newark-based route structure from seven to only two cities, Chicago and Atlanta. The bankruptcy move was not unexpected. 'I'm really surprised it took so long,' says Buttrick. 'I don't expect them to make money any time soon, and their ability to continue their operations will depend on the type of bankruptcy financing they can get.' The airline was reportedly seeking as much as $12 million to emerge from bankruptcy protection. But at presstime with a court hearing imminent, sources close to the carrier were pessimistic of getting the plan approved.
Kiwi will probably not be alone with its problems. Wall Street believes the glory days of the new entrants are over. Increased FAA oversight, in the wake of both the ValuJet and TWA crashes, will adversely affect their operating costs. The majors are competing more aggressively with Delta Express, Shuttle by United, and perhaps USAir. And the federal government is likely to offer less protection. 'They won't have their hands slapped the way they were in the past,' suggests Renee Shaker of Moody's.
Jane Levere
Source: Airline Business
