Small Birds in a Big Sky

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On People Express, the price of the ticket covers little more than the actual seat the passenger occupies. It costs $3 to check a bag and 50¢ for a soft drink or coffee served on board. The à la carte formula has proved profitable. Third-quarter revenues more than doubled from a year ago, to $81.8 million; profits have rose 64.7%. Explains Harvard Professor John Meyer, an author of the forthcoming industry study Airline Deregulation: The New Entrepreneurs: "Pleasure travelers and even lower-echelon business travelers are sensitive to price and will buy from those who offer lower fares."

Such aggressive pricing has forced the bigger lines into following suit, even though their profits have suffered. During the second three months of this year, 86% of all passengers flew on discount fares. Five years ago, just 24% did. Discount fares are now available on 88% of all U.S. flights, in contrast with only 59% in 1978.

The new airlines can charge less because they are holding down costs. Few are unionized, and wage scales are well below industry standards. Flight attendants make as little as $10,800 a year; starting pay at major carriers is about $13,500. Most pilots earn a maximum of $32,500; a senior captain for a big carrier earns more than $100,000.

Despite the paltry pay, it is not unusual to see flight attendants for small lines working as reservation and ticket clerks, baggage loaders and plane cleaners. Pilots often double up in dispatching or sales. They all hope to cash in later on. Nevada-based Sunworld pays most of its workers only $10,800 a year in salary, but gives them 100 shares of stock and promises to pay out 20% of the line's gross operating profit when it makes any. Says Marketing Vice President Raymond Haley: "We're all betting on the future."

Barely four months old, America West Airlines in Tempe, Ariz., is prototypical. All the employees are nonunion. Since most have to handle several jobs, they are put through an intensive eight-week training program and must be able to type 30 words a minute as well as lift 70 Ibs. Baggage handlers sometimes find themselves working alongside Chairman and Founder Edward Beauvais.

America West is equally innovative in its operations. To attract business travelers, it added extra-large 5-ft.-long overhead baggage compartments to eliminate luggage closets, and installed expensive seats that are hinged in a way that provides an additional two inches of knee room. On board, passengers are pampered with Danish pastries during breakfast flights, croissants for snacks and unlimited free drinks in flight. Tight scheduling also allows America West to keep its planes flying ten hours a day, vs. an industry average of eight hours. That helps keep costs down to less than 5¢ a seat-mile, vs. 9¢ or more for big carriers.

So far the strategy seems to be working. America West is running 36 daily flights out of Phoenix and is on the verge of turning a profit. This month it has added 36 more flights and increased its fleet of Boeing 737s from six to ten.