Low-Fare Airlines Not Faring Well Valujet Crash Rattled Travelers, Set Stage For Current Troubles

Just a year ago, low-fare start-up airlines were soaring across the nation’s sky in increasing numbers, making travel possible for tens of thousands of cashstrapped individuals who previously couldn’t afford to fly.

With low fuel prices, tarmacs crowded with used aircraft, a supportive administration in Washington and a deep pool of laid-off pilots to draw upon, small new carriers were popping up all over the map. Starting an airline was, relatively speaking, cheap and easy.

No more. Ever since a ValuJet Airlines jetliner plunged last May into the Florida Everglades, killing all 110 people on board, the discount airline industry has been buffeted by turbulence.

Bankrupt Kiwi International Airlines is the latest low-fare carrier to have its wings clipped. Kiwi suspended its remaining flights last week and will be forced to liquidate if new investors don’t step forward soon.

“People got scared after the crash, and all carriers that are perceived as low-cost airlines have borne the brunt,” said Jerry Murphy, president and chief executive of Newark, N.J.-based Kiwi, which filed for Chapter 11 bankruptcy last month.

“Unfortunately, the publicity surrounding the ValuJet crash left the impression that if an airline is low-cost, it’s not safe,” Murphy added.

Until the deadly accident, ValuJet Inc. had been the most admired and copied among the discount carriers. Immediately, its image changed as regulators shut down the Atlanta-based airline over its maintenance record.

Because of ValuJet’s leading role, the crash - the first for any of the recent low-cost start-up carriers - has put the discount industry on trial, with critics charging that low fares, no frills and older planes equal less safety.

Bookings on start-up carriers tumbled during the summer, typically the airline industry’s busiest season, and have continued to decline into the fall. Other start-ups are in trouble, including American Trans Air and Vanguard Airlines, which, like Kiwi, are discount carriers operating at Chicago’s Midway Airport.

Last month, Indianapolis-based ATA, which began as a charter airline 23 years ago and expanded into scheduled passenger service in 1986, announced it was dropping flights to Boston, San Diego and Miami; canceling leases on five Boeing 757 jetliners; and trimming its work force by 15 percent.

More recently, Kansas City, Mo.-based Vanguard, which began service in December 1994, said that it expects to post a third-quarter loss and will eliminate some of its flights.

The ValuJet crash and its subsequent government grounding have hurt discount carriers in other ways. Kiwi, for example, had four of its 15 planes grounded from June until Aug. 20 because of questions about pilot training and record-keeping.

Though their problems were aggravated by the ValuJet accident, the start-up airlines were up against increasingly stiff headwinds anyway.

In fact, many, such as the new Midway Airlines, which transferred its operation from Chicago to Durham, N.C., last year, had been experiencing financial woes even before the crash.

For one thing, the carriers have been finding it harder to obtain financing to expand or even to maintain current levels of service.

Moreover, the fleet of used aircraft has been depleted, making it harder to launch an airline or expand operations. Jet fuel costs headed upward, too. In fact, jet fuel costs 13 percent more than it did a year ago, and prices may increase further, analysts say.

Worse yet, low-cost carriers are, for the first time, coming up against increasing competition from the established airlines, including Delta Air Lines USAir and United Airlines.

Meanwhile, Southwest Airlines, the 25-year-old discount carrier upon which ValuJet was modeled, is expanding its operations in Florida, an area that is a prime market for ValuJet, American Trans Air, Kiwi and other start-up carriers.

Undoubtedly, at least some of the start-ups will succumb to the increased competitive and financial pressures.

Still, the discount industry may regain altitude. As memories of the ValuJet crash fade, budgetconscious travelers - who make up one in seven airline passengers today, according to regulators - will return to the start-up carriers, analysts say.