— At 90 years old, Ted Vallas is hardly the new kid on the airline startup block. Having caught the flying bug during World War II, he went on to found several aviation businesses, including Air Resorts, which offered chartered and scheduled service from San Diego between 1980 and 1997.
Today, he’s the founder and CEO of California Pacific Airlines, which is currently in the process of pursuing FAA certification and, according to Vallas, planning to have “wheels up” by early 2012.
Everybody talks about the deplorable state of air travel, but Vallas' California Pacific and other startup airlines are hoping do something about it.
Then again, given the challenges involved and the fact that even the most well-established brands in the industry have lost billions of dollars over the last decade, one might ask why they would even want to try.
New players, niche markets
“The problem is the outrageous complexity and frustration that the average traveler faces in getting from Point A to Point B,” said Kent Craford, who helped launch SeaPort Airlines in Portland, Ore., in 2008.
“Entrepreneurs recognize that and think, ‘This is ridiculous; there’s got to be a better way.’ ”
Or, promoters hope, several ways, which may explain the diversity of startups currently in the works.
Building a better mousetrap
Despite their wildly divergent business models, all three carriers are committed to a similar idea — that they can fill an underserved niche and provide an alternative to an unwieldy, and increasingly unpopular, status quo.
“The industry has been raising prices for the last 18 months while getting satisfaction ratings on a par with used-car salesmen,” said consultant Robert Mann of R.W. Mann & Co. “That’s the rationale people use to justify new airlines, their solution being the better mousetrap.”
For Vallas' California Pacific Airlines, the initial plan is to offer daily nonstop flights between Palomar Airport (35 miles north of San Diego) and five southwestern cities (Las Vegas, Phoenix, Oakland, Sacramento and San Jose) using 70-seat Embraer ERJ 170s.
The goal is to offer the 1.3 million people who live in the North County area of San Diego a convenient alternative to both San Diego Airport and its largest carrier, Southwest Airlines, whose 737s are too big to land at Palomar.
“Forty percent of the people who fly Southwest out of San Diego live in North County,” said Vallas. “If we take 15 percent of that business, the numbers are really strong.”
When whales fly
The challenges to creating a successful startup airline are legendary, with sufficient capital being only the beginning. Finding available aircraft, hiring flight crews and ground staff, pursuing FAA certification (which can take 18 months or more) — it all goes into the mix of managing the multiple moving parts of a high-cost, thin-margin business.
And that’s without even considering the competitive landscape. Factor in existing carriers who can cut fares, offer added perks and absorb losses for extended periods and it’s hardly surprising that aviation history is littered with projects that didn’t pass muster.
“It’s an industry that doesn’t make sense for a lot of reasons, but people want to do it anyway,” said author Bill Diffenderffer, who clearly counts himself among the enamored. Having gotten his start in aviation as a lawyer for Eastern Airlines, he went on to become the first CEO of Skybus, which famously launched as an ultra-low-cost airline in May 2007 only to shut down 11 months later in the face of skyrocketing oil prices.
For other would-be CEOs, Diffenderffer offers the voice of experience: “Price advantage is a good thing to have,” he said, “but you have to have a marketing plan that is really distinctive because you can be sure the big guys are going to compete on price.”
“Distinctive” certainly defines LV Air, which is proposing daily 767 service between JFK and Las Vegas starting this fall. The carrier’s ace in the hole? They plan to let the casinos have first shot at buying seats, which the latter can then offer to the high-rolling gamblers, aka “whales,” who constitute their most desirable demographic.
According to Chief Marketing Officer Sean Smith, the flights will cost $400 each way, include concierge-style services and offer the casinos a way to better monetize their databases of regular, big-ticket customers. “It’s going to be more than the average consumer pays,” he said, “but a lot less than chartering a private jet.”
And the numbers pan out, says Smith, a newcomer to aviation but a 20-year veteran of the hotel industry: “We’re trading revPAR [revenue per available room] for RASM [revenue per available seat mile] and occupancies for load factors. Our break-even load factor is in the low 50s; we’re very comfortable with that.”
Big dreams and silk scarves
Clearly, launching an airline from scratch requires a leap of faith and while both Vallas and Smith insist their plans are based on viable niches and market needs, it’s also true that there’s just something about aviation that inspires big dreams.
“I call it the silk-scarf syndrome,” said Mann. “Startup people visualize themselves as Charles Lindbergh or Howard Hughes in the open cockpit, their scarves streaming out in the wind.”
“It’s a very seductive industry,” agreed Diffenderffer, who, despite Skybus’ short lifespan, doesn’t regret the effort. “Standing on the tarmac and watching that first flight take off for Los Angeles was one of the best moments of my life. It’s hard to beat moments like that.”
And there will almost certainly be other such moments to come as new (and returning) players look at the current state of air travel and decide — as so many others have before them — that there simply has to be a better way.
“At its core, entrepreneurship is somebody recognizing a problem and proposing a solution,” said Craford. “And there’s no industry with more problems than the airline industry.”