ValuJet makes skies friendlier at Dulles

THE BALTIMORE SUN

Price wars erupt. Passengers drive two hours to nab a $49 fare. Business perks up for rental car companies, taxis and food stands.

Sound familiar? No, it's not BWI. This time, it's Dulles.

What Southwest Airlines did for BWI, an aggressive, little Atlanta-based carrier named ValuJet Airlines Inc. is doing for Washington Dulles International. And the North Virginia airport, better known for its long, domestic flights and international service, is quickly becoming a haven for shorter, low-cost flights, with BWI no longer the only discount game around.

"People used to say, 'Oh my God who's gonna drive to Dulles,' but price is a powerful motivator," said Ponder Harrison, vice president of marketing and sales of the Atlanta-based airline.

Indeed, not since the days of the now defunct People Express and New York Air in the late '70s have Dulles passengers seen bargains like ValuJet's $49 one-way fare to Boston. Not only is ValuJet offering the low fares, it's also filling the void in the North-South discount service created by the demise of Continental CalLite earlier this year. And value-conscious passengers, who once flew from BWI, seem willing to drive to Dulles, about 30 miles west of Washington.

"It's $5 worth of gas and another hour to save $100 on your ticket," said Alan King, an Annapolis resident who recently took his wife, Dinah, to Dulles for a trip to Fort Lauderdale. She paid $152 for a round trip compared with the $260 lowest fare she could have purchased from Baltimore-Washington International.

Likewise, Robin Ginter and Ron Nebbs of Harrisburg, Pa., who usually fly from BWI, drove another 50 miles to Dulles to get a $224 round-trip fare to Orlando. "It's an extra hour, but the fares are worth it," Mr. Nebbs said.

While no passenger studies are available, it's likely that ValuJet is at least attracting bargain hunters from the "swing markets" of Montgomery and Prince George's counties -- a population that accounted for much of BWI's dramatic growth during the past two years.

But BWI officials say ValuJet's impact here so far has been

insignificant. Ultimately, its effect may hinge on how fast ValuJet grows at Dulles and whether Southwest Airlines, BWI's premier discount carrier, decides to expand to Florida and other areas where ValuJet flies. Currently, the two airlines compete only on the Washington-to-Chicago route.

"Right now I don't think their [ValuJet] schedule is that strong," said Nicholas J. Schaus, deputy administrator at BWI.

Future North-South expansion by Southwest -- the airline that spearheaded BWI's sudden growth spurt after its arrival here two years ago -- could easily reverse any momentum toward Dulles, he said. For the moment, however, Southwest flies only East-West routes, and it's expanding slowly at BWI, devoting far more energy to its battle on the West Coast against United Airlines.

With no pressure from CalLite, North-South fares offered by USAir and others have risen substantially. Last summer, for instance, a round trip from BWI to Orlando cost $170. Today, the lowest fare, with a 21-day advance purchase, is about $240.

While ValuJet officials were anxious to fly into the Washington area, they never considered using BWI, largely because of the fierce competition that existed here. In addition, it saw an opportunity to fill a gap at Dulles after United, the airport's hub carrier, scrapped a large number of its North-South flights.

With low-fare carriers coming and going at many airports, Dulles officials feel as if they bet on the right horse -- or the right horse bet on them.

Other airports, all too aware of the beneficial economic spinoff from a low-fare carrier, have been wooing the Southwest look-alike. "We are being courted by all the airports on the East Coast saying, 'Please, please bring us your service,' " said Katie deNourie, a spokeswoman for ValuJet. "The feedback we're getting is we couldn't grow rapidly enough."

Not that it hasn't grown pretty rapidly already.

Established in October 1993 by four former airline executives, it JTC first flew from Atlanta to three Florida cities, introducing a $39 one-way fare. Since then, it has expanded to 20 other cities in 15 states and Canada. In July, it will add Newport News, Va.; Jackson, Miss.; and Kansas City, Mo. Last year, the airline employed 2,800 people and carried more than 2 million passengers.

At Dulles, ValuJet operates 24 daily flights, five times as many as it did a year ago, to 11 cities. In April, it carried 82,649 passengers, compared with 17,031 in April 1994. It has become the airport's second largest domestic carrier, behind United, and handles twice as many passengers there as USAir. Recently, ValuJet leased additional gates at the airport's newly extended Concourse D. "They're a very focused airline," said Keith Meurlin, Dulles airport manager.

To simplify maintenance and training requirements, for instance, the airline uses just one model of aircraft -- DC-9s with 113 seats. It offers a simple fare structure, only one class of seats, and a ticketless system with passengers assigned reservation numbers when they book a seat. Its flight attendants dress casually and play games with passengers, but the airline offers no meals.

The no-frills operation means ValuJet's costs are the lowest in the industry. The airline spends 6.5 cents to fly a passenger one mile, outdoing even Southwest's 7 cents. Such low costs -- the industry average is 9.5 cents -- mean that ValuJet makes a profit when the 51st passenger boards its 113-seat planes.

In nearly every way, ValuJet is a clone of the highly successful Southwest Airlines. "We did take a page out of their history book and we're not ashamed of that," said Ms. deNourie. And its earnings show why.

It has been profitable since its second quarter. During 1994, its first full year of operation, ValuJet earned $20.7 million on revenues of $133.9 million. Its stock has climbed impressively; since going public at $12.50 a share last June, it split two-for-one in April and hit a high of $34.25 last month.

Last month, the carrier reported that it filled nearly 75 percent of its seats, 10 points higher than the industry norm.

But no-frills, low-fare airlines have come and gone, and ValuJet could confront the same problems that have been the downfall of others.

ValuJet's flight attendants, who are paid $11 an hour -- well below the industry average -- recently voted to unionize. Its mechanics are talking with the Teamsters. At an average salary of $45,000 for captains, its pilots also are paid well below average.

In addition, a fuel price increase -- and a federal fuel tax scheduled to take effect in October -- could be particularly severe since ValuJet's 29-jet fleet is older and less efficient than newer aircraft.

And Friday its stock lost a little more than $1 after the airline's first mishap -- seven people were injured after an engine fire broke out in one of its jets during takeoff in Atlanta -- closing at $31.75. The fire raised concerns that the age of ValuJet's plane -- the average is 23 years -- could hurt its image.

But buying only used jets has been one of the keys that has allowed the airline to expand rapidly while keeping its debt at a manageable level -- $53 million.

Still, some analysts caution that the airline, which has promised to continue adding a plane every month, may be expanding too " rapidly. "Anytime you're growing at such a rapid pace, there's a chance for a misstep," said Alex C. Hart, an airline analyst for Ferris, Baker Watts Inc. in Baltimore. "It's certainly aggressive. Is it too much? Only time will tell."

"The key is the people running the outfit," he said. "If the management is sound and has a finger on the pulse . . . they'll do OK."

Yet the young carrier can't escape the intense competition that permeates the airline industry. Perhaps most significant is USAir, which is fiercely protecting its lucrative Washington turf at Dulles.

When ValuJet started nonstop service to Florida this year, USAir introduced a $69 fare to undercut ValuJet's $89 ticket. And recently, it has added flights and matched prices to Hartford, Conn., and Boston.

That strategy is not unlike USAir's tactic in driving back the much larger CalLite operation at BWI. But ultimately ValuJet could prove a tougher competitor.

ValuJet officials say their low-cost structure provides an edge against competitors like USAir. And ultimately, ValuJet is hoping that passengers will develop a loyalty to the airline that finally brought low fares to Dulles. "After all," Mr. Harrison said, "if we go away, so do the fares."

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