Poor Management Blamed For Airline Startup Failures

Rohit Khare (rohit@uci.edu)
Thu, 09 Jul 1998 21:58:42 -0700

The Secret of Startup Success is Good Management, says Study

Of the carriers that filed for Chapter 11 bankruptcy in the
* 97% had senior executives who had been involved in a previous
Chapter 11;
* 75% had executives who were involved in 2 bankruptcy filings;
* More than 50% had executives who have been involved in at
least 3 bankruptcy filings;
* 15% had executives involved in 4 Chapter 11s;
* One person - Hap Pareti - had been involved in 5 airline
bankruptcies. DOT has since stopped certificating him.

Poor Management Blamed For Startup Failures in New Study

A study released this week examining 129 airline bankruptcies
finds that only two new entrant airlines - Gull Air and America West
[AWA] - cited predatory behavior as a reason for failure. Instead,
authors of the study found that poor management was the major culprit.
More than 97 percent of carriers filing for Chapter 11 in the 1990s
were led by senior executives who had been involved in a previous
Chapter 11.
The study, An Examination of Why New Entrant Airlines Fail, was
conducted by Darryl Jenkins, director of The Aviation Institute at
George Washington University. Jenkins acknowledged that he previously
has done work for American Airlines [AMR] and other major carriers,
but noted that this study was not sponsored by any airline.
"I'm not sure you could cause an airline to fail because of
predation," said Jenkins. "If it does, there's no anecdotal or direct
evidence to support it."
The study was generated from what Jenkins termed "deathbed
confessions," the final - and generally most honest - assessments by
airline management as the reasons why their airlines failed. According
to the airlines themselves, the top reasons for failure included
unrealistic operational plans (including inability to establish a
viable route structure), excessive debt, escalating costs, inadequate
traffic and economic downturns. Jenkins blamed the industry for
continuing to recycle old executives with old ideas.
Kevin Mitchell, chairman of the Business Travel Coalition (BTC),
which has championed the fight against predatory practices, blasted
Jenkins' downplay of predation. "No one is saying [predatory
practices] have run carriers out of business - it's running carriers
out of markets, and running them out of important markets," said
The bottom line, Mitchell emphasized, is that "investors are
telling all of us it's a problem because they're not bringing money to
the table to invest" in startup airlines.

ObTrivia: While only 1% of domestic FC seats are sold at full price,
30-50% of transpacific FC is revenue!

So I see why LAX-JFK is such a sore spot for United (special
checkin-desks, lounges, chocolates -- separate from regular FC). B/c
even one movie star in revenue first -- forget the entourage -- is more
than any other flight of the day...