Air Transport World

AirCal moves in right direction.

Newport Beach, Calif.--Judging by the U.S. airline industry's performance in the first half of 1984, one of the facts of deregulated life seems to be that economic upturns bring unprecedented prosperity to carriers whose managements have had the wisdom and toughness to make the right preparatory moves.

One carrier that appears to have made the correct moves is AirCal. While profitability continues to elude some West Coast airlines, the former Air California has written four consecutive profitable quarters into its ledgers, and at the end of July it had posted new traffic records for 18 of the previous 19 months.

The tough decision making came in 1982, when AirCal lost a freightening $35.6 million on revenues of $214.7 million. The decision maker was Maj. Gen. (USAF ret.) William Lyon, a hugely successful real estate developer, who with fellow developer George Argyros had outfought Air Florida for control of Air California in May 1981, engineering a leverage buyout for $61.5 million (the 1982 loss included $11.5 million in interest on the money borrowed for the buyout).

The first decision was that costs had to come down, and, as can happen in a small company, action followed swiftly. Some 20% of AirCal's workforce, including 40% of its management, was lopped off, and an organization that had become fat and inefficient was back in fighting trim. Then a 10% wage cut and, later, a wage freeze were negotiated--eased by payback, profit-sharing and stock purchase plans. Four unprofitable destinations (Phoenix, Fresno, Monterey and Las Vegas) were dropped.

The second decision, a bold one that could well have resulted in AirCal's demise if it had failed, was to shift the carrier away from its traditional role of serving secondary markets in the California Corridor and to plunge full-bore into the PSA-dominated route between Los angeles International and San Francisco International airports. AirCal had had a minor presenece at LAX since 1980, but had avoided head-to-head LAX-SFO competition.

Redeploying the assets freed by dropping its marginal cities, the carrier in December 1982 increased its corridor capacity by 35% and launched LAX-SFO service with five flights a day. And by June 1984 it was operating 17 LAX-SFO flights daily and had a 35% share of the Corridor market--the largest market in the U.S.--compared to 38% for PSA and about 17% for United.

Commented Lyon to ATW, "It appears our strategy was the correct one."

The route restructuring, which was fully implemented last January with AirCal's move into the new Terminal One at LAX, was more or less forced on the carrier. "To turn a company around," says David A. Banmiller, senior VP-marketing services and assistant to the president, "you normally go to your strength. But at our traditional base of strength, John Wayne/Orange County airport, which was producing 20% of our boardings, the county was cutting our frequencies in half." Yields rise to 17.7^

His reference was to Orange County's decision in March 1982 that rather than raise its longtime, noise-inspired limitation of 41 average daily departures (ADDs) at JWA to accommodate new entrants, it would require incumbents AirCal and Republic to five up some of their slots. …

Log in to your account to read this article – and millions more.