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New Approach Lands Fliers at America West

November 01, 1987|ROBERT E. DALLOS | Times Staff Writer

PHOENIX — Other airlines call it first class. America West, hoping to snare business travelers whose belt-tightening employers prohibited them from flying first class, calls its premium passenger class "business class."

But it is a business gimmick that has backfired. And the evidence of that was clear on a recent America West flight between Chicago and Phoenix: There was only one passenger in the 16-seat front cabin of the big Boeing 757.

Instead of attracting travelers to its new non-stop service from Phoenix and Las Vegas to New York, Chicago and Baltimore, the tactic had scared them off, even though the price was lower than what other airlines charge for first class.

"We found that many major corporations do permit their people to go first class," said Edward R. Beauvais, chairman and chief executive of the young carrier, which is headquartered in the Phoenix suburb of Tempe.

"We didn't have first class, so we didn't show up on the computer, so passengers would book first class on another airline. The business-class philosophy was not working."

As a result, America West is changing the name of its business class to first class, effective Nov. 15.

That miscalculation, observers say, is about the only strategic error the airline's entrepreneurial managers have made since they joined in 1981 to incorporate America West.

The airline started flying four years ago with three second-hand aircraft, but has grown to become the nation's 11th-largest air carrier in terms of revenue passenger miles (one paying passenger carried one mile), with 59 planes serving 44 cities in the United States and Canada.

To finance the carrier initially, the little band of businessmen, which included Beauvais and Michael J. Conway, the president and chief operating officer, scratched up money any way they could.

They took second mortgages on their homes and even used their credit cards to obtain cash advances to help come up with the needed $500,000.

It all appears to have paid off.

America West's strategy of turning Phoenix into an East-West hub connecting California with the Midwest and the East Coast has been highly successful. Phoenix is not a congested hub like Newark or Dallas that travelers try to shun, yet it is located in a rapidly growing area of the country.

America West, which is the dominant carrier on most of its routes, has the advantage of operating mostly in the Southwest, where the weather is usually good for flying. Thus it has fewer delays than competitors with hubs in such cities as Chicago or Atlanta.

Recently it added Las Vegas as the second part of what it calls a "super-hub," and all of its shorter flights make stops in both Phoenix and Las Vegas. Its planes, which provide the only non-stop service between New York and Las Vegas, have been flying with 85% of their seats occupied on that route, a very high load factor.

America West has little competition, as well, on the New York-Phoenix route on which there are only two daily non-stop flights by other carriers.

For all of these reasons, even though it expects to report a loss for this year, airline experts generally say that America West has developed the critical mass needed to be a moneymaker.

In the Red

America West "is the pearl of deregulation," said David Sylvester, airline analyst with the investment firm of Kidder, Peabody & Co. in New York.

But some observers maintain that the airline has expanded too rapidly for its own good.

It expects to double its passenger-carrying capability in 1987, compared to 1986. But Conway said growth will slow next year, with an expansion of only 20% expected.

America West, which was in the red its first two years of operation, showed a profit in 1985 and 1986. It lost $15.8 million in the first six months of this year and is expected to end the year in the loss column.

In the first six months of last year it showed a loss of $3.4 million and then recovered to earn $1.02 million for the full year.

The current losses are temporary, observers predict. "If you are a company and you double the number of manufacturing plants you have in one year," said Paul Karos, airline analyst with L. F. Rothschild Unterberg Towbin, a New York-based brokerage, "the chances are you will not be as profitable on the new manufacturing plants in the first year of operation as you were with your base business preceding the expansion."

He said airlines must establish their identity in new markets before profits can be expected.

And despite the recent money-losing quarters, America West itself is convinced that its future is secure.

"We've got a strong financial position," Conway said. "We've got $100 million in cash. We've got a solid market niche. We're extremely efficient. These . . . are the ingredients of success."

Two-Engine Planes

America West also enjoys one of the prime advantages of being a new carrier: It has one of the airline industry's youngest and most fuel-efficient fleets.

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