You Too Can Run An Airline

By THOMAS McCARROLL

In an industry dominated by eagles, Classic Air is more like a mockingbird. The airline has two pilots, two flight attendants and a single, 46-year-old, 28-seat DC-3. Working out of a beat-up hangar at Spokane International Airport, the upstart service plans to begin flying passengers between the states of Washington and Idaho as soon as it receives clearance from federal regulators. The brainchild of Paul Salerno, 38, and his brother Bruce, 41, who run a family-owned cargo carrier called Salair, Classic is not a joke. Insists Paul Salerno: "We expect to be taken very seriously."

United, American and Delta may not be cowering at the thought of Classic Air, but the one-plane carrier represents a competitive spirit that is sweeping the entire industry -- and may ultimately threaten the industry leaders. In the biggest burst of entrepreneurial excitement since the boom after deregulation in the early 1980s, it seems that almost everyone with a hankering to start an airline is suddenly preparing for takeoff. Despite an industrywide slump and record losses of $8 billion since 1990, some 15 passenger airlines have begun flying in the past year alone. They range from Reno Air, a full-service carrier based in Nevada that regales its passengers with California Chardonnays and fancy food baskets, to Morris Air, a low- budget, no-frills outfit started by former Salt Lake City, Utah, travel agent June Morris, the first female founder of an airline. Other newcomers include Kiwi International, a regional discounter that flies six cozy 727s out of Newark, New Jersey; Private Jet, an Atlanta-based charter service with a fleet of 12 big MD-80s; and Family Airlines of Las Vegas, a start-up backed by 65 former Pan Am pilots. An additional 26 applications from wannabe airlines are pending at the Department of Transportation, and about 14 of these could get off the ground this year.

Ironically, the industry's troubles have made it easier for new airlines to get into the business. With so many planes available owing to repossessions and canceled orders, fledgling airlines have been able to buy them at bargain- basement prices. Used Boeing 727s that cost up to $40 million new can now be bought or leased for about $2 million a plane. And with so many out-of-work pilots eager to fly, the new carriers have been able to recruit flight crews for less than half the top union scale of $150,000 a year. Says Reno Air president Jeff Erickson: "This is the perfect time for a start-up."

Starting an airline is one thing. Surviving, though, is quite another. In the decade following deregulation in 1978, for instance, about 176 new carriers were launched. All but one fell victim to intense competition from larger airlines and either were acquired or went out of business. The remaining survivor, America West, is emerging from bankruptcy. Will history repeat itself? Most observers think not. While the new carriers face uncertain skies ahead, analysts expect that at least a third of the upstarts will be able to stay aloft, thanks in large part to more protective regulators and trails blazed by their predecessors. "These new start-ups are a lot smarter and wiser because they've learned from our mistakes," says Donald Burr, founder of People Express, who is considering making a comeback.

One of the most important lessons, says Burr, is to avoid suicidal head-to- head confrontations with the big carriers. Still, collisions seem inevitable. "As much as we would like to dismiss these pesky little rascals," says John Pope, president of United Airlines, "we realize that they are a phenomenon that will not go away."

The start-ups have already received more protection from Clinton Democrats than they received in the entire deregulated Republican 1980s. When Reno Air cried foul after Northwest Airlines tried to squeeze the smaller carrier out of the Los Angeles, San Diego and Seattle markets last March, Transportation Secretary Federico Pena pressured the bigger carrier to withdraw under the threat of antitrust action.

But government intervention is no substitute for hard-core cost management, as many of the young airlines seem already to have learned. Houston's UltrAir leases everything from flight crews, custodians and ticket agents to gates, office space and six 727-model aircraft. Says UltrAir chairman Barney Kogen: "We want to own absolutely nothing."

While many start-ups are expected to master the lessons of survival, most will not. Last month, for instance, upstarts Skybus of Fort Lauderdale, Florida, and Key Airlines of Atlanta went under. Yet despite the failures, the wave of new carriers represents a healthy sign of life for the troubled industry and a renewed promise of lower fares and more choices for consumers. And who can argue with that?

With reporting by Richard Woodbury/Reno