Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 8, 1995 TAG: 9508080086
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: PITTSBURGH LENGTH: Medium
When Mark McDonald launched Nations Air in March, he had a vision of an airline so cheap it would steal passengers from the bus lines.
By July, the government had grounded his two planes for almost a week because of safety concerns, forcing the airline to hire other carriers to fly its routes from Philadelphia to Pittsburgh and Boston.
Unless it has better luck than most start-up airlines, the grounding could be only the start of its troubles.
Since 1990, 76 companies have asked the Department of Transportation for permission to fly passengers in large jets, those with more than 60 seats. Only 30 are flying now.
``Failures vastly outnumber successes in the world of start-up airlines,'' said Samuel Buttrick, a New York-based airline analyst with Paine Webber Inc. ``Chances are most of them will fail.''
He and other analysts said would-be airline operators face problems that would send all but the most skilled and determined entrepreneurs scurrying for the shelter of a quiet job promising a steady paycheck.
``It's not really one single major obstacle,'' McDonald said. ``It's many.''
McDonald's challenges included picking routes, raising the $4.2 million - enough to cover the start-up and three months' operation - that the Department of Transportation required to allow Nations Air to fly.
The 35-year-old pilot raised $5.2 million, using connections made in his eight years as owner of Miami Air Charter, the charter and freight airline he has expanded into Nations Air.
Nations Air made its debut in March with bargain-basement fares - $59 one-way from Pittsburgh to Philadelphia. But the prices were quickly matched by USAir, whose lowest fare on the route around that time was $258 round-trip.
The competition from the more established carrier may have stopped the flood of passengers McDonald had envisioned. Passengers just trickled in and the airline's planes were flying with 80 percent of their seats empty.
But McDonald is determined to keep his airline flying. He moved to attract more passengers in early July by offering limited-availability $39 fares between Pittsburgh and Philadelphia.
Nations Air's passenger load has nearly tripled from March to July, increasing from 11,923 to 35,675. Airline officials refuse to divulge its earnings and won't even say if the business is profitable.
The airline offers a total of 30 daily flights on its Philadelphia-Pittsburgh, Philadelphia-Boston and Philadelphia-Myrtle Beach, S.C., routes.
Michael Boyd of Aviation Systems Research Corp. said most start-up airlines rely on outside contractors to conserve capital and to limit operating costs.
McDonald said he controls costs by having such contractors handle all the airline's functions except flying, from taking reservations to unloading baggage to maintenance. He estimated that using outside contractors lets him keep his payroll at 150 people instead of 270.
Nations Air also doesn't issue paper tickets, relying instead on a system of reservation numbers. Passengers receive boarding passes at a Nations Air desk when they arrive at the airport.
Low costs alone may not be enough to make a success of the airline, Boyd said.
``If they continue to try to compete with USAir, they have effectively brought a knife to a gunfight,'' he said. ``USAir defends its turf with all its strength.''
USAir spokesman Rick Weintraub agreed that the airline will fight to keep its share of the Pittsburgh-Philadelphia-Boston markets. ``These are major cities in our system and it's only logical that we would compete for the business,'' he said.
USAir shouldn't worry, according to McDonald.
Nations Air's low costs, McDonald said, allow him to offer fares so low that the airline is creating its own pool of new customers who otherwise would not have flown.
by CNB