Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Jul 13 1992 Date: Mon, 13 Jul 92 05:08:08 EDT Message-ID: 07-13 0000 BONUS: New airline takes gamble USA TODAY Update July 13, 1992 Source: USA TODAY:Gannett National Information Network Conventional wisdom doesn't count for much in a gambling town that favors long odds. Maybe that's what makes Reno a good hometown for one of the USA's newest airlines - a venture that expert opinion suggests is the longest of long shots. With just two MD-80 jets, fewer than 100 employees and the highest of hopes, Reno Air took to the skies July 1, flying twice daily between Reno and Los Angeles and Seattle. It's already expanding. WHAT ARE RENO AIR'S PLANS? By early next month, it plans to add flights to San Diego and Portland and more flights to Los Angeles and Seattle. "We've done everything we can. Now it's up to the marketplace to tell us whether it works," says founder Joseph Lorenzo, a former executive with Continental and Frontier airlines who has anticipated this moment for eight years. WHAT IS RENO AIR UP AGAINST AS IT LOOKS TO EXPAND? Never mind that U.S. airlines have lost more than $6 billion the past two years. Or that three big airlines have disappeared the past 18 months and three more are teetering on the edge. Forget that nearly every jet airline launched since deregulation 14 years ago is out of business. Reno Air executives think they can beat the odds - and they aren't the only ones. Like seedlings that sprout after a forest fire, a new crop of airlines is springing up from the industry's wreckage. HOW MANY OTHER NEW AIRLINES HAVE FORMED? At least nine proposals for jet airlines are pending at the Transportation Department or have been announced in the trade press. More than a dozen charter airlines - mostly using puddle-jumper planes - are trying to make the leap to scheduled service. Assistant Transportation Secretary Jeffrey Shane says his department receives applications for new airlines almost weekly, and he expects no letup. WHAT ARE THEIR CHANCES OF BECOMING MAJOR PLAYERS? The odds that any of them will become a major airline - as People Express and America West did in the 1980s - are slim. But the industry's top CEOs say this is the wave of the future. "It is as certain as night follows day that the years ahead will see the emergence of new competitors,..." says American Airlines Chairman Robert Crandall. WHY IS THIS EXPECTED TO HAPPEN IN SUCH A CLIMATE? Rising costs at the big airlines have left them vulnerable to low-fare, low-cost competition. And the demise of Eastern, Pan Am and Midway has sharply reduced the cost of starting an airline. Thousands of good planes and lots of talent are on the market at bargain prices. Indeed, Midway Airlines' failure turned out to be a lucky break for Reno Air. The board hired former Midway president Jeffrey Erickson to be chief executive, who in turn brought on other seasoned former Midway managers and pilots. HAS RENO SALVAGED ANY OTHER LEFTOVERS FROM THE INDUSTRY'S WREAKAGE? Much of Reno Air's equipment - from ticket stampers to computers - was snapped up for 10 cents on the dollar at Midway's liquidation last winter. Jets that used to be Midway's are being leased for two-thirds of what they would have cost in 1990, Erickson says. An abundance of people and planes doesn't guarantee success, though. "It's the best time in history to start an airline, but it's a tough time to raise money," says Bruce Nobles, a former president of the Pan Am and Trump shuttles. WHY IS IT TOUGH TO RAISE CASH? Last spring, Nobles withdrew from a group that wanted to raise $125 million for an Atlanta-based airline called New Eastern. Led by former Eastern employees, the group unsuccessfully tried for a year to raise money. An effort to start a low-fare business fliers' airline in Kansas City, Mo., also came up dry. Given the poor track record of start-ups, it's easy to see why investors are reluctant to finance them. Even America West, the biggest surviving start-up since deregulation, is in bankruptcy reorganization. WHAT MUST START-UPS DO TO GET GOING? Some say new airlines must find a niche, a market underserved by the big carriers. But "there aren't many niches left," says aviation consultant Morten Beyer. Still, Reno Air has shown that raising money is not impossible. Two years ago, Paradise Valley Securities, a small investment-banking firm in Phoenix, raised $2 million that gave Lorenzo the seed money he needed to get started. Last month, again with Paradise Valley's help, the airline raised an additional $6 million in its first public stock offering. WHY DID PARADISE VALLEY INVEST IN RENO AIR? "The experts would say you've got to be crazy to put money in an airline, but we're contrarians," says Paradise Valley partner Hayden Fleming. "We think this project has significant upside, that it can happen quickly and our investors can do pretty well." Indeed, Reno Air expects to generate $47 million in revenue in its first 12 months and operate profitably. WHY IS RENO AIR EXPECTED TO BE SUCCESSFUL? One reason for Reno Air executives' confidence is their location, which they say has plenty to offer visitors but is underserved by other airlines. The Reno:Lake Tahoe area has 32 hotel-casinos, 16 alpine-ski resorts, nine cross-country-ski areas and 20 golf courses. No airline operates a hub in Reno, and there are only five non-stop round-trip flights daily to Los Angeles and six daily to Seattle. "It's a well-rounded destination. What it lacks is decent air service at reasonable prices," says Erickson. "Therein lies the niche." HOW DOES RENO AIR PLAN TO FILL THAT NICHE? Reno Air executives plan to fill that niche by offering lower fares than do competitors - which they hope will spur a 70% increase in air travel to and from Reno within 12 months. Reno Air's full-coach fares, $160 to $240 round trip depending on the day, are $75 to $100 lower than competitors' fares. Its low fares don't require Saturday-night stays. Reno Air also hopes to skim some business fliers from competitors traveling non-stop between Los Angeles and Seattle. Its strategy: Sell cheaper first-class fares to fliers who fly through Reno. WHAT KIND OF JETS WILL RENO AIR FLY? One big decision was on the type of jet to fly. To hold down costs for spare parts and training, executives decided to stick with one aircraft type. But they wanted one capable of flying non-stop to the East Coast, which Reno Air hopes to serve. In the end, the airline chose the McDonnell Douglas MD-80 over the Boeing 737 because fewer coach seats had to be removed to make room for a 21-seat first-class section. WHAT DOES RENO AIR NEED TO BE SUCCESSFUL? The key to Reno Air's success may be the amount of support it gets from the Reno community - particularly the casinos. Lorenzo hopes to structure tour packages offering discounted air and hotel rates to attract fliers to Reno. That business eventually could account for one quarter of Reno Air's traffic. Bonus Editor: William Snoddy. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM