Thursday, March 30, 2006

Northwest's Application For New Airline Hits the Dockets

Here is the DOT application for Northwest's new airline.We are posting this even though it does not excite us very much. We are not experts regarding NW's bankruptcy and there are far better sources on the web to read about those happenings than here. As of now we have no plans to follow this synthetic airline closely. It's likely to be an operator of large RJs similar to what was setup during US' bankruptcy which is called Mid Atlantic Airways. Nonetheless, here are a few bullet points to take away from the filing:

-The airline is called Compass.

-The first route will be MSP-IAD. Obviously, this has more to do with the fact that IAD was the Independence hub and that MSP is the NW HQ city than any real strategy behind the airline.

-Its team is all borrowed execs from NW mainline full-timers who are not likely to move over to Compass. If it is going to be a clone of Mid Atlantic, then there will likely be a team that is limited to very few above and beyond the "five wise men".

-The RJs are currently planned to be fitted in a 2 class configuration.

-NW has given the company $2 million to get started.

Wednesday, March 29, 2006

Offical: Hooters To Shut Down

A sincere thanks to our readers for a heads-up on this ahead of the press reports....

Sunday, March 26, 2006

More Pan Am / BMAC Growth

As was predicted here, BMAC wants to enter the DC market. They want to fly there from Hanscom. They also want to add Hanscom-Pittsburgh. We are guessing that the FAA approval mentioned in the article is just a decision on the standard ops specs of the route and has nothing to do with the ongoing DOT investigation on the company's fitness to operate or the IG's investigation.

Friday, March 24, 2006

Setback for Simmons

Update: Here is a link to a WBAL interview with Wayne Simmons about the breakdown in talks with Cape Air.


The on and off again Cape Air deal is off again. Unless they find another certificate to jump onto in time for the rapidly approaching high season, then it will be unlikely that they ever get up and running again.

Note for the "eye-rollers" out there (i.e. those that pooh-pooh any startup simply because they are a start-up): There are incredibly large differences between startups like Simmons and Skybus. Simmons is the type of startup that we have seen so many times before that deserves some rolls of the eyes. All of the classic signs of trouble are there. Most notably, they make promises again and again that they never seem to keep (and when they finally partially deliver on one of the thousand promises they made they say, "See, I told you so"), if naming the airline after the founder is not a tell then I do not know what is, they talk to the press way too much and they have gotten their investment through all local channels. A startup like Skybus is very different. Although they used to make promises they couldn't keep, once they started dealing with Morgan Stanley closely they started to clam up and get down to business. Speaking of Morgan Stanley, the fact that Skybus used the proper channels to raise capital which requires the plan and team to go through fairly rigorous due diligence processes is a large differentiating factor. At the end of the day we do not like Skybus' revenue model as it currently stands...but they are an exception to the rule that all startups are jokes to be laughed at.

Wednesday, March 22, 2006

Skybus Raises the Cash

It's done. We thought it was interesting that we had no comments on the Skybus profile we ran. The information in there was fairly unique. These guys will be just as big as Virgin, but have not attracted the same level of attention from industry insiders. They should. Obviously...we understand why they haven't attracted as much attention from industry outsiders.

We believe Skybus can be enormously successful, but we will grow very skeptical about the project if they do not change course in deciding to fly from Columbus as their first focus city and then go on to choose sparsely populated airports like Stewart, Barnes and/or Atlantic City as their subsequent F.C.s. There are far less risky options out there.

By they way...we have heard that there is yet another startup looking to fly from CMH.

Tuesday, March 21, 2006

Brooks / Hooters Interview

This interview was published in the The Sun News today.

Friday, March 17, 2006

Pan Am / BMAC to Tunica?

If the new service is 3x weekly, then it probably is BMAC.

Wednesday, March 15, 2006

Skybus Financing Rumors

This article says that Skybus' raise is done, and in this one management denies it. Given what we have heard in the market, our take is that the lead investor has been identified and that the financing is being rounded out by supporting investors, but nothing has been finalized. All of this chatter is very much in line with what we have been hearing over the last 90 days or so.

Bottom line: this is very good news for Skybus, but we all know that the financing is not complete until the cash has been wired into their account. Then, and only then, will the champagne corks pop at Skybus HQ.

We wish they weren't cornered into starting out in Columbus...

Tuesday, March 14, 2006

Out and About

We don't have good access to the internet this week, so the posts are likely to be sparse. We've certainly taken notice of Hooters' negative signals. We also hear that this report that we referenced in this post seems to overstate the chances of Hooters' growth of its "network" (in quotes because it really isn't a network, is it?).

Friday, March 10, 2006

New Startup Dies On The Vine

This startup was based in St. Cloud, MN.

Wednesday, March 08, 2006

Paul Casey's Take On Hawaiian Market

Paul Casey, the former Hawaiian CEO, wrote a feature for the Star-Bulletin about the possible negative effects of Mesa's infiltration on the Hawaiian market. We agree that all three inter-island carriers are not likely to survive more than a year or two competing against one another. We believe this type of independent experiment is the first of many for the regionals. They are all worried about how their mainline counterparts are trying to minimize losses of their regional ops by taking advantage of the over-supply of 50 seat RJ capacity that these carriers provide. Consequently, they will seek opportunities such as the inter-island Hawaiian market.

Tuesday, March 07, 2006

Profile: Skybus

Skybus was started by John Weikle and Ken Gile. Gile led the development of Heartland Airlines in the late 1990’s. The plan for Heartland was to use 717s to build a traditional hub out of Dayton Airport offering business class comfort at low price points. After bringing on former Piedmont CEO Bill Howard as Hearltand’s CEO and working with JP Morgan, Heartland came very close to raising the capital it needed to get up and running. Ultimately, however, the venture failed before getting off the ground. We think they were better off having it turn out that way as we never believed in the viability of the business plan.

A few years later Weikle and Gile regrouped and came up with the Skybus concept. This time it would be a low cost offering. They tried to take advantage of the Columbus’ Mayor’s damaged ego after the America West pullout of Columbus and built a solid relationship with him. That led to the widely known investment into Skybus by local businesses including the town’s newspaper. For a while they were toying with a single route concept of flying only between Columbus and Chicago for a very low fare priced at $29 per seat. Well, that concept went by the way-side. They started pinging contacts at Morgan Stanley and a plan to serve many destinations out of Columbus was developed.

While they were dealing with Morgan Stanley in an unofficial capacity they filed for DOT certification in January of 2005. In our opinion, this was a mistake. Without significant capital, without a formal banking relationship, and without a CEO or CFO they decided to put themselves through the scrutiny of the DOT and the press. One lesson startups rarely understand is that you cannot raise capital through the press. All you do is haphazardly raise expectations and let competitors know what you are up to. At the stage Skybus was in at that time, no press was good press. Unsurprisingly, the DOT application attracted attention from the press and from the DOT. It did not take long for Bill Bertrand's team at the Financial Fitness Division of the DOT to start asking for some detailed answers to questions that arose from their read of Skybus’ application. Of course the whole world got to read about in the DOT dockets. We thought Skybus was near death at that point.

Eventually their string of relationships at Morgan Stanley led them to the right people at the bank. Investment banker Nelson Walsh is widely regarded as the most industry savvy of his peers. One of the people under him, Eli Gross, also has a strong understanding of the industry. From what we can gather, Walsh and his team helped refine Skybus’ models to a viable state. More importantly, they introduced them to the right people. Between the help of Morgan Stanley and a previously built relationship with Ann Rhoades of Peopleink (formerly of Southwest and Jetblue), Skybus went out and found a CEO named Bill Diffenderfer, and other team members with experience at Ryan Air. Most importantly, in our opinion, they got Nelson to sign on the dotted line to have Morgan Stanley officially represent Skybus in their equity raise. All the pieces are in place from the team standpoint.

The Skybus Business Plan:

Put simply, Skybus wants to be the Ryan Air of the US. As noted in the primer to the series on startups, there is a strong case to be made for new entrants in this country based on the fact that the lowest cost providers of air transport in the US have relatively high costs versus the low cost leaders in the rest of the world.

Skybus touts a number of factors that will drive their costs more than 25% lower than Southwest. The unimpressive list of Skybus’ cost “innovations” include that they plan to fly only point to point so there would be no baggage transfer or interlining. They also tout technology innovation including 100% internet distribution, 100% automated check-in and wireless flight ops. They expect to rely heavily on outsourcing including maintenance, the HR function, and all ground operations. They plan to have the highest block hour utilization and highest productivity. All of these items are well and good for a startup low-cost airline, but it only shows a mild understanding of why a low cost airline is a low cost airline. The only one that interests us is their claim of having the highest productivity. To this point in time, Skybus has done little to show us that they understand how to achieve that level of productivity. High aircraft block hour utilization does not drive employee productivity. High aircraft block hour utilization is a possible output (not an input) of making networking decisions that drive high productivity. Ryan Air’s secret to its success is not only its legendary tenacity to go after every cost in the system like some of the items listed by Skybus, but its:

-Ability to fly very low stage lengths which enable high levels of productivity of aircraft and people measured by the potential revenue generated per unit.

-Leveraging of the scalability of its network by either creating more revenue opportunities per airport per day than other carriers and/or arranging for near zero (or even positive) cost at outstation airports that they use sparsely.

To this point Skybus has not acknowledged those factors to our satisfaction, but some of their hiring decisions hint to us that they understand a little more than they let on.

Skybus plans to have their low costs be the enabler to their motto, which is “America’s Ultra Low Fare Airline”. Any of you who have had exposure to Michael O’Leary know that he is seemingly programmed to answer any question about the marketability of his product by saying that Ryanair has the lowest fare and that makes his product the best. He is also throws in that they have a great ontime performance and low baggage loss rate. Skybus is using the same marketing justification. What does that really mean for those who would fly Skybus? Well, the onboard product will probably be fairly painful, you won’t pay much for the ticket, and you will be nickled and dimed as Skybus tries to generate high levels of ancillary revenue. We often hear from airline marketers in the US who say that this country is not ready for a Ryan Air-type product. We disagree. Although we think an easyJet-like product would be more acceptable to Americans at this point in time, we do not feel that a Ryan Air-like product will be rejected. If average fares can stay in the $60-$80 range, then there will be a large market that will be willing to consider flying Skybus.

Because of its Ohio roots and the departure of America West from the airport, Skybus’ team has concentrated their efforts in Columbus, Ohio. As we mentioned above, they have strong political support that has led to local financial support. It seems as if they are tied to Columbus tightly and they have no other choice but to make Columbus their focus city. We fully expected Skybus to say that they would not be flying from Columbus’s main airport, Port Columbus (CMH), but instead from Rickenbacker where we assumed they could maximize their incentives and keep airport costs the lowest. Initial reports suggested that they will from CMH, but subsequent reports say they have not yet decided which Columbus airport they will fly from. Either way, we do not like the choice of Coloumbus as Skybus’ first focus city. There is far too much competition there and if any of the airlines decide to fight, then Skybus’ investors will likely be forced to wait an extended period for an IPO…if that ever comes. Last time we checked Columbus' flight schedule, it said that Delta flys non-stop to 13 destinations and Southwest flys non-stop to 8 destinations. In total, there are non-stop flights to 35 destinations. CMH is hardly an underserved airport. As weak as Delta may be, they are equally irrational. They could match Skybus’ fares to all of their destinations out of CMH or Rickenbacker, increase capacity, and/or start various SkyMiles promotions…all in less than 10 minutes time from the comfort of their headquarters in Atlanta. Will they do it or won’t they? Our opinion is that opinions on the answer to that question are irrelevant. If Skybus has to answer that question at all, then they are putting themselves in a perilous position. If I were an investor in Skybus I would want to minimize the reliance on the actions (or inaction) of an irrational competitor to determine the fate of my investment. They must seek airports where they can develop a sufficient passenger base whose first choice would be flying on Skybus, thus mitigating the impact of the worst case scenario response from irrational competitors. From what we can tell, Skybus is working on this very important aspect of their plan, but only with the objective of finding suitable focus cities after Columbus is fully developed.

They have hired Ryan Air employees on short-term contracts to gallivant around the country with Skybus executives in search of underused airports that would provide them a discrete passenger base and would give them large incentives. Among many other airports, they have been looking closely at Barnes Airport outside of Springfield, MA. Now…we like the concept of looking at underserved airports, but we do not like Barnes. The demographics are not strong and the first choice flying population would be dissected between Barnes and Bradley, which is closer to Springfield than it is to Hartford. It seems that the Ryan Air people who have been hired for this assignment believe that the fact that the fares will be so low will draw customers into relatively sparsely populated airports like Barnes. Other than the fact that the outlying airports generally have longer runways, we cannot figure out why they would take that chance. There are airports closer to stronger population bases without competition that could be tapped.

Perhaps even more important than what appears to be a spotty record of focus city airport selection is the approach that Skybus representatives have made to these airports. All that we hear indicates that they are turning off local governments up and down the eastern seaboard with their arrogant demands for incentives and airport improvements. We hear that many of these airports that happen to be desperate for new service very quickly came to a conclusion that they simply did not want to do business with such a smug set of people. That is a bad sign. We hope to hear of improvement in that area soon. There is no reason for that kind of approach and if they keep it up, it will come back to haunt them sooner rather than later. Just because Ryan Air is the king of Europe does not mean that Skybus automatically inherits the throne in the U.S.

Financing Status:
With Morgan Stanley onboard, Skybus has a good chance of putting together the $70+ million they need to operate. They have been hiring executives and putting people on contract from Ryan Air at a brisk pace. That spending spree was made possible by the investments from the local Columbus community and, from what we hear, a commitment of $5 million in capital from Declan Ryan of the Ryan family. Morgan Stanley has brought the plan before various private equity firms and we hear that they have been successful so far. We will let you know as soon as we hear confirmation of that report.

Sunday, March 05, 2006

Rockford, Ryan International, and Festival Airlines

We haven't heard anything to substantiate this connection, but we find it very interesting that that those who bought Ryan International in 2004 year are based in Rockford and have 757s.

The fact that Festival Airlines has:
1. indicated that they may be using another carrier's certificate (such as Ryan) to start flying before they attain a certificate on their own
2. said that they are using Rockford as their initial base
3. said that they are planning to use 757s

...seems to be a bit more than a coincidence to us.

By the way...
Ryan International is not the Ryan Air of Ireland. They are based in Wichita, KS and are a charter/contract flyer that usually works with travel companies that market their flights under a brand name and use Ryan International on a wet lease basis or use Ryan for operations that an established or even new carrier doesn't have the ability to fly. An example of the former would be Funjet Vacations. They sell vacation packages to customers and instead of using the traditional airlines as the air portion of the vacation package, they often decide to work with Ryan International who will generally have more scheduling flexibility and be more cost effective. An example of the latter is Ryan's deal with AirTran. Air Tran wanted to fly longer-haul while waiting for the delivery of their new 737 aircraft. Ryan international flew those routes on A320s for Air Tran during that period. That is why if you flew on a longer haul Air Tran flight in 2003 it read on the schedule that the flight was being operated by Ryan International d/b/a Air Tran. When they started taking delivery of the new aircraft the contract with Ryan expired soon thereafter and Air Tran began flying the 737s on their own.

(edited for correction regarding the aircraft type Ryan used to serve the routes for Air Tran)

Saturday, March 04, 2006

Youngstown Airport Community Activists

We feel that there are far too many not-in-my-backyard activist groups (or "NIMBYs") that fight airport development. We certainly encourage anyone to stand-up and fight for a cause they believe in & we would even be willing to help if the anti-airport cause was just in our view. However our experience has been that the majority of the communities we have worked in are pro-airport, but do not have a proportionate impact with politicians because the anti-airport groups are usually much better organized than the pro-airport groups.

That is why we are so fond of pro-airport community activists and we try to do anything we can to help. One such activist group that supports development of the airport at Youngstown, OH can be found at We were pleased to do a Q&A with the blog recently and it is now posted on their website.

Thursday, March 02, 2006

Pan Am Poised to Grow Again

If you want the long story, you can find most of it here, here, here, and here. The short story is that Pan Am, aka Boston–Maine Airways, aka BMAC has been neck deep in a war with ALPA for quite some time. It is no secret that the reason management changed their name from Pan Am to Boston-Maine was to shed Pan Am of its unionized pilot base. Though it turned out to be a legal move, that’s a big no-no and it has cost them. ALPA has been waging a smart war against Boston-Maine ever since. They dug up some serious allegations of financial fraud by BMAC and clearly have Dave Fink and friends on the run. All this has led to a Federal investigation by the Inspector General to determine exactly who in Boston-Maine did what. The investigation was ordered last year and is still ongoing.

Management’s pleas that BMAC's former General Counsel was the only one who knew about the fraud do not come across as convincing to us. We certainly hope it goes no further than the former General Counsel…we will have to wait and see.

Until the Inspector General comes back with its findings, the DOT will not issue an order regarding BMAC’s request to add 4 more aircraft to its current fleet of 3 727 aircraft. As a result, all they have is weekend 727 service between ATL and SFB (Orlando-Sanford) and a few daily J31 runs that start at Portsmouth, go down to Bedford, and continue to Trenton and back. BMAC picked up the TTN-BED service after Shuttle America backed out of it two years ago and it continues to perform well. They also plan to add infrequent Sanford - San Juan & Aquadilla service next month.

BMAC filed an “Emergency Motion” with the DOT late last year asking them to rule on the proposed additional 727 aircraft in the absence of a ruling from the IG because of the financial hardship that the delay was causing them. As mentioned above, the DOT would not rule until the investigation is complete and that stance was affirmed soon after the motion was filed. Of course that “Emergency Motion” raised the antenna of the DOT. The claim of financial hardship caused the department to question their financial fitness (again) and as a result BMAC had to show that they were financially fit and had access to additional capital through the company’s Guilford rail affiliation.

Now, without a ruling on the additional 727 service, Boston-Maine wants to grow its J31 service. Word has it that they are poking around the Northeast looking at some under-the-radar-screen airports in New England and initiating service to DC. Unfortunately for Boston-Maine, the word is out on the problems internally. We hear that because of the swirling allegations, some past broken promises made to others, and because of some of the financial incentives that they are demanding, they are running into problems convincing some airports to agree to their terms that would lead to the initiation of service. We expect them to find someone who will take them. Of course there are regulations that explicitly state that airports cannot keep them out if they have the room for the service. So wherever the growth is installed, we would guess that they either do not go to their first choice airports or they do not get the incentives they are asking for.

All of this points to an airline that is in very poor condition and the company's financials back up that assertion. They lost $25 million in 2001, $32 million in 2002, $32 million in 2003, $33 million in 2004, and $9 million through the end of 3Q 2005 (they were on pace to lose less because they were flying less). But like many others that we have seen before, it appears that poor financial performance will not necessarily mean the death of BMAC. They have access to capital via the rail operations and they are tightly connected to the Mellon family. The only way we see them going away in the next 12 months is if the Inspector General comes down hard on the company or if those on the inside who are cross-subsidizing the operation finally decide to pull the plug.

So Pan Am may indeed be poised to grow again...we just can't figure out why.

Techincal Note: We've Enabled RSS

We've enabled an RSS feed to this site so you can get headline updates on MyYahoo and other readers. The link is the icon down at the footer. Let us know if you have any problems with it. There appears to a bug with Yahoo that deletes the title of the site from the MyYahoo homepage. We're working on that with the feed provider.

...Now back to the airlines (we'll be publishing a short summary of the recent goings-on at Boston-Maine/Pan Am tonight or tomorrow morning).

Many Festival Airlines Reports Today

And there is a Pensacola press conference upcoming that the PNS people do not seem to know much about. We're not big proponents of PNS' revenue potential (let's hope it's just a mx base) and the fact that the pre-existing relationship there seems to be relatively weak is not a good sign. We like the reports and space in the website dedicated to explaing how the venture plans on relying heavily on other travel-related revenue streams. They appear to have the team to execute that aspect of the business. From what we can see that aspect of the business appears to be more like Allegiant (acting as an agent for packages) as opposed to the USA 3000 model (equity stakes in the vacation supply chain).

Other links from today:

Wednesday, March 01, 2006

More Festival Airlines News

More news on Festival can be found here. And the homepage went live tonight.

A few comments:
-We disagree with the quoted consultant in the article about being nervous about a d/b/a arrangement for Festival to get started quickly. As a matter of fact, we think that if they use a good airline like Ryan International it could be a quick and cost effective way to get up and running.

-We have never liked Rockford as Chicago's third airport. It's too close to O'Hare's primary catchment. RFD's 30 mile radial touches on to too much rural area for our comfort. As a matter of fact, our records show only 600,000 people live in that 30 mile radial. Ouch.

-Of course the devil is in the details. We need to see the schedule to determine whether this is viable. A slightly expanded Allegiant-type of operation might be feasible. But if you put a gun to our head right now without having knowledge of the details we would say it's not going to work. Midway? Yes, Mayor Dayley will bend over backwards to get more LCCs in there, but there is too much competition at MDW to lesiure markets. Detroit? NW and Spirit are both going to Flordia now. Cleveland? CAL out of CLE and Air Tran out of Akron are serving the market well. What's the plan to fend off against competitive response? Flying a 757 could certianly help in that area, but can the volume that the plane has bring fares down low enough to avoid being matched? Probably not. Speaking of fares...

-Fares starting at $150? Is that one-way or roundtrip? Let's hope it's round trip. If not it would be a big concern and we'd love to see their models that built up to that fare. The majors wish they could fetch $150 as an average one-way coach fare to Orlando or Las Vegas. Even if it starts at $75 each way...that's still about double what they should start with.

We definitely like the secrecy that Festival has been working under. We also like what we have seen of the certification strategy (though we reserve the right to change our minds on that one), but we think their revenue strategy needs least from what we have seen so far.

Skybus Receives Conditional DOT Approval

Another step forward for Skybus. They are a serious contender for being one of the few business plans that makes it to flight, though the filing states that they have not notified the DOT that their funding is finalized (though we hear it's lined up).

Festival Airlines Set to Announce Rockford Base

It has now been reported that Festival Airlines will announce that it plans its initial base in Rockford, IL. We have been watching Festival with interest since 2004. Management expereince includes some Fedex veterans (no, this isn't the team from the Pittsburgh startup called Victory which also has former Fedex execs). We do not have confirmation, but hear that Blackwater Capital may be involved in its capitalization. Festival has been doing a great job at staying underneath the radar screen up to this point, which is what smart startups like Festival and DJ Air do. There has been no application to the DOT by Festival as of yet, but if they have their capital we would expect a filing soon unless they plan to work with a Ryan International-type carrier to get started. We hear that they have been shopping for 757s. More details to come...

Hooters Keeping Them Guessing

As it widely known, Hooters shut down service to Gary and are keeping the good people of that town waiting to learn if service will be re-started (including Gary’s very solid airport director Paul Karas). All signs were pointing to Hooters being in not good, but decent enough financial health to begin dedicated service centered on the brand’s newly opened Las Vegas casino. But two recent items suggest otherwise. One is that they owe Allentown about $1 million and another is that they started adding back service or were looking at other airports in the northeast to serve Myrtle Beach.

SkyTaxi Joins the Startup Graveyard

This northeastern Ohio charter carrier that was in operation less than a few months is a goner.