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Jet America: If at first you don’t succeed…(Part 2)

3-Jul-2009

FRIDAY REFLECTIONS, WITH RON KUHLMANN & THE CENTRE. The first part of this article documented the meteoric rise and fall of Skybus, based on Ryanair’s model: although much less successfully implemented. Yet even as that carrier wobbled on its axis, the founder, John Weikle, was raising funds to replicate the model in Charleston, West Virginia, this one to be called Jet America. And that’s where we pick up our story.

A Phoenix?…or maybe not

The Charleston venture died along with Skybus but the concept did not. On 13-Jul-2009, Jet America will take to the air – sort of. As it turns out, Jet America bears little resemblance to most other airlines or even its predecessor, Skybus. In fact, JetAmerica is actually a dba (doing business as) name for the parent company, Sun America Inc, an investment firm based in Clearwater, Florida. The website describes the company as being “privately owned and managed by a core management team consisting of five experienced men and women.”

Breaking the mold even more is the introductory statement that advises consumers that, “All flights are filed and approved by the Department of Transportation under PC 09-037. The company will provide scheduled public charter flights on an annual basis effective beginning July 2009.”

Charter?

Well, yes. Neither Sun America nor JetAmerica actually owns any airplanes or employs any crew. The actually flying part is done by an airline named Miami Air International, a company founded in 1990 that describes itself as, “the ultimate charter airline that is committed to only the highest standards of safety, reliability, and customer service.” Their past customer base is composed of “incentive groups, sports teams, Fortune 500 companies, major cruise lines, upscale tour operators, entertainers, educational and student groups, political candidates and the United States government.”

Miami Air currently operates seven B737-800 aircraft, one of which will obviously be soon dedicated to the operations of JetAmerica. In a standard single-class configuration the aircraft have 172 seats and two fully equipped galleys. Since all food service on JetAmerica will consist of buy-on-board meals, the galleys will be removed and that, and subsequent aircraft, will operate with 189 seats.

Some assembly required

Consequently, what we have is essentially a virtual airline with the “carrier” consisting of a marketing and administrative group that has contracted with a third-party operator to supply the actual flight services. Sun America also operates a call center that deals with non-internet bookings on JetAmerica’s behalf ($10, please). Access to the call center and other JetAmerica services is via a number that is not toll free.

With publicity and promotion being handled by World Satellite Television News & Media Relations, based in New York, the carrier is less an integral entity than a kit assembled from various suppliers.

And the who?

Already noted as JetAmerica’s CEO is John Weikle, familiar from Skybus and previous incarnations of JetAmerica. His background, prior to these ventures includes being the technical purchasing director for US Airways Express, field operations director for Airborne Express, operations manager for Emery World Wide and finally, a former FAA traffic controller.

The chairman of Sun America is Steven Schoen who has, according to The Columbus Dispatch on 28-May-2009, “a history with small airlines that have either failed or never materialized.”

Also involved are previous Skybus employees Chris Grazel, former Skybus chief pilot and now COO of JetAmerica and Sharon McDermott, a former station manager and now director of stations for the new airline.

Timing?

Press releases for the demise of Skybus cited a collapsing economy and high fuel prices as the primary cause of failure. That was in Apr-2008, well before the current economic meltdown that still persists. Fuel costs, while having fallen considerably, are once again on the rise with further increases anticipated.

In a press release on 27-May-2009, “Weikle says, ‘JetAmerica’s plan is to fill the gap left by big, high cost legacy airlines that have recently trimmed or eliminated services in many markets. Those airlines have removed mainline jets from smaller airports including Toledo, Lansing, South Bend, Melbourne and some of our potential future focus cities.’”

Mr Weikle must have a very long memory. Checking the Aug-1998 OAG, I found that virtually all of the service to Toledo was operated with turboprops or even 19 passenger commuter aircraft. The only “mainline jets” that served Toledo were a handful of DC-9 flights operated by Delta (3) and USAir (3) with all but the Atlanta flight operating to destinations under 200 miles away. At that time Melbourne, Florida had 8 MD-80 flights, five to Atlanta on Delta and three to New York on Spirit.

In 2000, two years later, Toledo had only two F100 flights a day – not really a “mainline jet” – with the rest of its service provided by regional jets and turboprops. Meanwhile Melbourne had the same nonstop access but with some Delta MD-80s replaced by regional jets and the Spirit service reduced to one daily nonstop.

It is possible that the majors at one point had big aircraft winging off to remote destinations from these cities, but it hasn’t happened in the past decade. This of course in no way means that viable service cannot or should not be established at these points. However, what is abundantly evident is that JetAmerica is not filling service gaps left by the majors as they abandoned the market.

Network?

It is true that both Southwest and Ryanair began with service to secondary cities. As it has grown to be the biggest US domestic carrier, Southwest has of late expanded more rapidly in major cities with Laguardia soon to be added. Ryanair, in the main, has kept to its model of choosing more remote airports.

JetAmerica claims to be using that Ryanair philosophy and yet there are some interesting variations. The carrier will begin service with a network of six cities, three of which form a tight triangle midway between Chicago and Detroit, both long-time Southwest service points. Additionally, Spirit Airlines has been a low cost competitor in Detroit flying twice daily to Laguardia and once to Orlando.

The three JetAmerica cities are Toledo, Ohio, Lansing, Michigan and South Bend, Indiana. From Toledo, the main focus city, to Lansing is 88 miles and South Bend is 139 miles away. From South Bend to Chicago, a prime point in Southwest’s network, it is 74 miles and from Toledo to Detroit, 55. These are city-to-city distances but the city-to-airport distance may be either more or less, making the nonstop service provided by JetAmerica less or more advantageous.

However, in each case the airport is waiving fees and offering subsidies for marketing and promotion so their choice has an obvious upside for the airline. Additionally, all three are in an area of the US with high unemployment and, as the automotive industry sinks, declining prospects. All of these factors combine to make one dubious of the market’s prospects.

Scheduling

Beginning with only one aircraft means that service on most routes is sporadic with many flights operating only a few times a week. The most frequently served route, Toledo to Newark with six frequencies, has three different return times from Newark. In order to maximize utilization, the flight from Toledo departs at 0600 every day but Saturday. The conditions of carriage state that passengers must appear minimally one hour before departure and that the gate will close ½ hour prior.

While the catchment area may theoretically include much of the Detroit metro region, passengers wishing to use the service would either have to get a hotel the night before, thus destroying any possible savings, or they would have to leave home in the wee hours of the morning, unpleasant in the summer and perhaps impossible in inclement winter weather.

While attracting some Detroit or Chicago passengers is certainly possible, most of the traffic is far more likely to be generated in the adjacent communities. But these are very small population bases for a 189 seat aircraft. Skybus, based in Columbus, Ohio had a metro population of 1.75 million to draw on. The metro populations of the three new JetAmerica cities are: Toledo, 651,000, Lansing, 454,000 and South Bend, 266,000.

Since the airline looks towards expansion, it has designated other possible focus cities under consideration. Not surprisingly, three of them, Columbus, Ohio, Greensboro, North Carolina and Charleston, West Virginia, are repeat players in this game. Others include Rockford, Illinois (billed as Chicago, 85 miles and two hours away), Cincinnati and Dayton, Ohio and Pittsburgh, Pennsylvania. Columbus and Greensboro, both already burned by Skybus, might benefit from a rethink – I think.

And the price?

Since the main draw appears to be the low cost aspect of its service, just how much of a fare differential is there between JetAmerica and existing service from either Detroit or Chicago? While the exact city pairs are not comparable, JetAmerica is basically selling Melbourne as “Orlando” just 60 miles away and New York is accessed via different airports.

Chart 1: Detroit/Toledo--Orlando/Melbourne Aug 8-15

Carrier Fare Bag Seat
JetAmerica 149.20 20 10
Spirit 229.00 19/25 5/10/15
Southwest* 218.90 0 0
Delta 217.19 15 0



Detroit/Toledo-Laguardia/Newark Jul 13-17

Carrier Fare Bag Seat
JetAmerica 129.20 20 10
Spirit 193.00 19/25 5/10/15

Source: Websites *connecting service


Chart 1 compares the lowest fares available on the routes shown for the dates indicated. As noted this is not an apples to apples comparison, but the JetAmerica mantra is that by using their non-hub cities, savings can be realized. There is also the unseen fact that JetAmerica offers only one flight on those days while the others, excepting Spirit from Detroit to Orlando, have multiple flight times to offer – many at the same price.

In both examples the carrier offered the lowest fare but did not achieve the 50-70% savings touted in its press release. Especially vying with Southwest, which has no ancillary fees, the differential was much less. Against the major carrier, Delta, they offered a 23% saving for a traveler with a reserved seat and a checked bag. There were no USD9 fares available on any of the sectors I chose.

Another observation

JetAmerica will begin operations with one airplane that will begin its rotation with a flight to Newark six days a week. On each of those days it arrives EWR at 07.40 and is scheduled for its next leg at 08.35 – 55 minutes later. While perhaps more than enough time at Toledo or Lansing, Newark has a well deserved reputation of being one of the most delay-prone airports in the US and it is one of the three airports serving New York, which as a metro area, is related to some 40% of all delays in the country.

As most folks are aware, a delay early in the day is likely to ripple throughout the full day’s operations. Especially with the quick turns characteristic of low cost operators, this deficit has little chance of being recouped.

During the weeks of early June, 2009, most of the airports in the Northeast were plagued by low ceilings and strong thunderstorms with delays often measured in hours rather than minutes. One airplane – pause for thought.

Having a think

One would be a fool to dismiss any possible new model out of hand. The reigning wisdom of the time believed Southwest to be a passing fad. While first tries were not encouraging, long-haul, low-cost may succeed at AirAsia X and despite his distain-is-free attitude, Ryanair continues to expand.

But this endeavor provides some reasons for reflection that are, if not unique, at least oddly combined in this venture.

  • The management teams have had a string of failures that have strong similarities to the present model.
  • The carrier’s structure, with little investment and outsourced flying presents little financial risk to the founders should the operation fail.
  • The focus cities have small population bases and significant nearby competition with a greater depth of history and service.
  • Future destinations, based on past experience, may have more enthusiasm (and cash) than potential.
  • The weak economy/high fuel cost environment that was credited with bringing down Skybus is now being seen as an opportunity for a startup.
  • A B737-800 has an awful lot of seats for a small town – even if fares are low.

We will pay close attention to the outcome.

STOP PRESS!

JetAmerica has delayed the launch of service from 13-Jul-09 to 14-Aug-09, citing problems securing landing and takeoff slots at Newark Liberty International Airport. It is having to refund approximately USD500,000 worth of tickets.


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