Small Birds in a Big Sky

Upstart airlines, no-frills or all-frills, fill the gaps left by the majors

Dallas' Muse Air promotes itself as the only nonsmoking airline and turns away passengers who want to light up. At no-frills Sunworld International, based in Las Vegas, pilots make sales calls, work in the back office and can sometimes be seen carrying out the garbage after a flight. On all-frills Regent Air, passengers are stuffed with French wines, Beluga caviar and Maine lobster.

New carriers like these are changing the face of U.S. air travel. A few years ago, most airlines offered identical fares and service; once passengers were inside a plane, they could be forgiven for forgetting which line they were flying. Today's travelers have a bewildering abundance of choices about when and where to fly, what service is available en route and how much to pay.

Clearing the runway for these airlines was the industry deregulation in the late '70s. By giving all carriers more freedom in setting their routes and rates, deregulation made it possible and profitable for upstart outfits to search for gaps in the service provided by major trunk lines. Since 1978, at least 16 jet-flying passenger airlines have been launched, in contrast with none in the previous 20 years.

Deregulation has also made it possible for small carriers to use larger planes on longer routes, allowing them to expand and grow more profitable. Says Lehman Brothers Analyst Robert Joedicke: "An airline involves mobile assets, and if you're not making money moving people from A to B, then you can try it from A to C. This is what the small airlines have done rather effectively."

These children of deregulation are making life difficult for their larger competitors. The nine major airlines, those with annual revenues of more than $1 billion,* have seen their domestic market share slip from 95% to 87% during the past four years. Continental, TWA and Eastern are staggering under heavy losses and have launched risky strategies to trim costs. Braniff, which was pushed into Chapter 11 bankruptcy in May 1982, will probably not begin flying again under its new owner, Hyatt Corp., until March 1.

The upstart airlines are succeeding by finding markets either overlooked or ignored by the big trunk carriers. One such newcomer is Hawaiian Pacific, a new Los Angeles-based airline that has begun advertising nonstop service to Honolulu. Founded by a former TV game-show producer, Hawaiian Pacific plans to serve 15 mainland cities as far east as New York City, where nonstop flights to Hawaii have mostly been unavailable. Still awaiting the resolution of questions about its financing and Civil Aeronautics Board certification, the new airline hopes to begin service on Feb. 15 with five leased 747s. After only two weeks of promotion, the airline claims it has already booked $12.8 million worth of tickets.

Perhaps the biggest weapon in the arsenal of the upstarts is price. Hawaiian Pacific will charge only $338 for a round-trip ticket between Honolulu and Denver, vs. the usual fare of $700. The leader in bargain-basement flying is three-year-old People Express. It jolted the industry last summer by offering flights from Newark to London for only $149, vs. $275 for most regular coach fares.