ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, October 20, 1996 TAG: 9610180025
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: CHICAGO
SOURCE: STANLEY ZIEMBA CHICAGO TRIBUNE
THE VALUJET CRASH - the first for any of the recent low-cost start-up carriers - has put the discount industry on trial, with critics charging that low fares, no frills and older planes equal diminished safety.
Just a year ago, low-fare start-up airlines were soaring across the nation's sky in increasing numbers, making travel possible for tens of thousands of cash-strapped individuals who previously couldn't afford to fly.
With low fuel prices, tarmac crowded with used aircraft, a supportive administration in Washington and a deep pool of laid-off pilots to draw upon, small new carriers were popping up all over the map. Starting an airline was, relatively speaking, cheap and easy.
No more. Ever since a ValuJet Airlines jetliner plunged last May into the Florida Everglades, killing all 110 people on board, the discount airline industry has been buffeted by turbulence.
And bankrupt Kiwi International Airlines on Tuesday said it was grounding itself Tuesday and would shut down this week if it doesn't find an investor to keep it running through bankruptcy reorganization.
``People got scared after the crash, and all carriers that are perceived as low-cost airlines have borne the brunt,'' said Jerry Murphy, president and chief executive of Newark, N.J.-based Kiwi, which filed for Chapter 11 bankruptcy in September.
Kiwi, owned by its 1,200 employees, had slashed its work force and schedule since entering Chapter 11 bankruptcy protection. It twice staved off a shutdown as it struggled to arrange a multimillion dollar infusion of cash.
U.S. Bankruptcy Judge Rosemary Gambardella had been set to consider Tuesday whether the ailing carrier could continue to put cash that was pledged for debts toward its operations. But at midday Tuesday, the airline announced it would suspend service.
Gambardella set a hearing for this Tuesday at which Kiwi would present a plan to dispose of the company's assets.
``Unfortunately, the publicity surrounding the ValuJet crash left the impression that if an airline is low-cost, it's not safe,'' Murphy added.
Until the deadly accident, ValuJet Inc. had been the most admired and copied among the discount carriers. Immediately, its image changed as regulators shut down the Atlanta-based airline over its maintenance record.
Because of ValuJet's leading role, the crash - the first for any of the recent low-cost start-up carriers - has put the discount industry on trial, with critics charging that low fares, no frills and older planes equal diminished safety.
Bookings on start-up carriers tumbled during the summer, typically the airline industry's busiest season and have continued to decline into the fall.
Other start-ups are in trouble, including American Trans Air and Vanguard Airlines, which, like Kiwi, are discount carriers operating at Chicago's Midway Airport.
Last month, Indianapolis-based ATA, which began as a charter airline 23 years ago and expanded into scheduled passenger service in 1986, announced it was dropping flights to Boston, San Diego and Miami; canceling leases on five Boeing 757 jetliners; and trimming its work force by 15 percent.
And Monday, Kansas City, Mo.-based Vanguard, which began service in December 1994, said that it expects to post a third-quarter loss and will eliminate some of its flights.
The ValuJet crash and its subsequent government grounding have hurt discount carriers in other ways. Kiwi, for example, had four of its 15 planes grounded from June until Aug. 20 because of questions about pilot training and record-keeping.
Though their problems were aggravated by the ValuJet accident, the start-up airlines were up against increasingly stiff headwinds anyway.
In fact, many, such as the new Midway Airlines, which transferred its operation from Chicago to Durham, N.C., last year, had been experiencing financial woes even before the crash.
For one thing, the carriers have been finding it harder to obtain financing to expand or even to maintain current levels of service.
With so many start-up airlines taking to the skies, investors early this year started fretting about whether they could continue to make money in the business.
Moreover, the fleet of used aircraft has been depleted, making it harder to launch an airline or expand operations. Jet fuel costs headed upward, too. In fact, jet fuel costs 13 percent more than it did a year ago, and prices may increase further, analysts say.
Worse yet, low-cost carriers are, for the first time, coming up against increasing competition from the established airlines.
Tired of watching budget-minded customers abandon them for the discounters, the majors are creating their own low-cost, no-frills units.
Last week, Atlanta-based Delta Air Lines inaugurated a low-fare, no-frills operation called Delta Express on the East Coast and in Florida. USAir, based in Arlington, Va., is drawing up plans to start a low-cost carrier that would operate in the Northeast.
And Elk Grove Township-based United Airlines has had such a low-cost ``airline-within-an-airline'' in operation on the West Coast for two years.
Meanwhile, Southwest Airlines, the 25-year-old discount carrier upon which ValuJet was modeled, is expanding its operations in Florida, an area that is a prime market for ValuJet, American Trans Air, Kiwi and other start-up carriers.
Undoubtedly, at least some of the start-ups will succumb to the increased competitive and financial pressures. Indeed, according to the U.S. Transportation Department, about 97 percent of start-up carriers created since deregulation of the airline industry in 1978 have fallen by the wayside.
Still, the discount industry may regain altitude. After being grounded for three months, ValuJet is flying again, albeit with a greatly reduced route system. The company plans to resume operations at Midway Airport later this month.
And although the number of start-up applications to the Transportation Department has fallen dramatically, from more than 80 during the first five years of the decade to a handful, new companies continue to take off.
Pan American World Airways, a Miami-based start-up that bought the name of the defunct aviation pioneer, took to the sky last month.
Moreover, as memories of the ValuJet crash fade, budget-conscious travelers - who make up one in seven airline passengers today, according to regulators - will return to the start-up carriers, analysts say.
In fact, a recent CNN survey of travelers found that about two-thirds said the ValuJet accident would not affect their use of discount airlines.
The Associated Press contributed to this report.
LENGTH: Long : 124 lines ILLUSTRATION: PHOTO: AP. 1. Kiwi International Air Lines sit idle at Newarkby CNBInternational Airport. The airline suspended operations after
failing to fins an outside investor to keep it running through
bankruptcy reorganization. 2. On the day the airline shut down last
week, only a few travelers were found at the Kiwi ticket counter at
the Newark airport. color.