Major Airlines Upset Start-Up's Aim To Link Oklahoma to Both Coasts
By Bernard Wysocki Jr.
Staff Reporter of The Wall Street Journal
TULSA, Okla. -- Just a year ago, tiny Great Plains Airlines had a dream. It would use 50-seat regional jets to fly passengers nonstop between Oklahoma and a dozen major U.S. cities -- all because the major carriers didn't offer such flights.
Today, that dream is still unfulfilled. And one by one, the major carriers are starting to offer nonstop service on precisely these routes, beating Great Plains to the punch. At the same time, the airport directors in Tulsa and Oklahoma City are actively trying to market their facilities to any carrier, large or small.
Last November, AMR Corp.'s American Airlines inaugurated nonstop service between Tulsa and Los Angeles. "We tried for years to get them to fly that route," says Brent Kitchen, director of the Tulsa airport authority. "I think American figured, 'We're going to try it before Great Plains gets there.' " Then last month, Northwest Airlines ' Express Airlines 1 unit began flying nonstop Tulsa-Minneapolis. It will begin Oklahoma City-Minneapolis in September. Other carriers are planning still more possible pre-emptive strikes.
Like Midway Airlines, which declared bankruptcy last week in the face of slowing passenger traffic, Great Plains is discovering the huge obstacles facing upstart airlines as they battle for passengers against incumbents in a sluggish U.S. economy. In the case of Great Plains, the incursions from the majors illustrate how tough it is to compete against the big guys even when your strategy is one of coexistence. Great Plains has vowed to stay away from hub airports and has a policy of matching, rather than undercutting, the majors' fares.
But the big guys never vowed to leave Great Plains alone -- although they say the tiny airline didn't figure in their added routes. American Airlines officials deny that Great Plains had anything to do with the new service to Los Angeles. Northwest says its decision was based on potential traffic wasn't influenced by the existence of Great Plains.
Now Continental Airlines has told Tulsa officials it is considering a nonstop Tulsa-Newark offering within 18 months, bringing nonstop service to the greater New York City area, a high priority of Great Plains. Last year, 68,000 passengers traveled between New York and Tulsa, but had to change planes at hub airports. Continental Airlines says it has no imminent plans to fly nonstop between Tulsa and Newark but wouldn't comment further.
Great Plains' chief executive officer, James Swartz, is trying to position these incursions as a victory of sorts. Mr. Swartz says that the very existence of Great Plains is spurring the major carriers. If somebody else decides to fly, so what? Oklahomans still win. One way or another, it's mission accomplished, Mr. Swartz is saying these days.
Perhaps. But these pre-emptive strikes undermine Great Plains' original business plan and have dashed any hopes of flying to Los Angeles or Minneapolis. And if Continental moves ahead with Newark, that would probably kill the upstart's plans for nonstop service to New York. Mr. Swartz says he just hopes that if Continental makes a move, it's sooner rather than later. "I would hate to spend the $1 million it takes to open a market and then have another carrier go in there right on top of us," he says.
More air service is probably good for Oklahomans, but if Great Plains is hurt by competition, it could sour the public investment in the airline. Before Great Plains got off the ground, David Johnson, counsel to the airline, helped push through state legislation giving Great Plains tax credits that it could sell to raise money. Late last year, through tax-credit sales and a loan from the Bank of Oklahoma, with property put up as collateral by the city of Tulsa, Great Plains amassed $30 million in start-up capital.
This past March, Great Plains acquired Ozark Air Lines Inc. of Columbia, Mo., which gave it instant federal certification to fly. With the purchase came two smaller jets -- incapable of flying nonstop to the coasts -- which Great Plains immediately put into service between Oklahoma and Nashville to the east and Albuquerque to the west.
The good news is, these routes are proving successful. Great Plains often has more than 50% of the seats filled. But to reach profitability, Great Plains needs at least three more of these smaller Fairchild-Dornier 32-seat jets, which will entail getting lease financing for them. It would then expand its shorter-haul routes, perhaps flying between Oklahoma and such cities as New Orleans, Omaha and Colorado Springs. And to carry out its original strategy, Great Plains needs a handful of 50-seat jets, but these are in short supply.
So today, Great Plains finds itself with a two-track strategy. Its short-haul business is working, but the airline needs more planes to cover its costs. Its long-haul strategy is being taken apart city by city by the big carriers, although so far, its No. 1 hope -- to fly nonstop to Reagan National Airport in Washington, D.C. -- is still intact.
At Reagan, the airline faces a different problem: All of the airport's 771 daily landing slots are taken. It has hired lobbyists to try to get some slots. The best estimate is that these won't come until spring of 2002, at the earliest -- and by then, airlines that already have slots (such as USAirways) might decide to inaugurate service to Tulsa.
Mr. Swartz says it is theoretically possible to make a "code-sharing" agreement whereby Great Plains flies to Washington under the umbrella of another airline, whether it's USAirways or somebody else. On the other hand, another carrier, including USAirways, could decide to go it alone and start serving Oklahoma and Tulsa by itself. That would sink Great Plains' plans to fly to the nation's capital.
"In that case, it's game over," Mr. Swartz says.
Write to Bernard Wysocki Jr. at
bernie.wysocki@wsj.com