In the newly competitive airline industry, a second generation of management revels in a good dogfight.
Peter Van Arsdale had the game won from the start. His competitors at the negotiating table wore business suits. Van Arsdale wore a pilot's uniform, with shoes shined and nameplate burnished. They sat fingering calculators. He had the numbers in his head. They were new to aviation, station managers for fledgling carriers struggling to survive the rigors of deregulation. He came from three generations of aviators. As president of Provincetown-Boston Airline Inc. (PBA), he was representing arguably the oldest and most consistently profitable commuter airline in the United States.
It wasn't much of a battle -- in the past few months most of his competitors had approaehed Van Arsdale for a job -- but by the end of the meeting he had saved PBA some $8,000 a year on its share of the new commuter terminal being built in Sarasota, Fla., enough, he thought, to justify the one-hour flight up from the company's home base in Naples, Fla. And he enjoys getting into the trenches, particularly if it will show up on the bottom line.
Profiting from hands-on management is nothing new for PBA. Begun by John Van Arsdale Sr. in 1949 as the successor to Cape Cod Flying Service and run by his sons since 1980, chairman and ehief exeeutive officer John Van Arsdale Jr. and president Peter Van Arsdale, the company has shown a profit for each of its 33 years.
The 1980s haven't brought prosperity to the airline industry. Recession, the air traffic controllers' strike, and escalating fuel and labor costs have all taken a toll. Among the major carriers, Braniff International Corp. went under, and DeItn Air Lines Inc. reported a loss for the first time in 25 years. Among the regionals, Air New England Inc. folded, and high-flying Air Florida System Inc., which had reported a $5.1 million profit in fiscal '80, lost $14.7 million in the 1982 first quarter alone.
But PBA has thrived. Revenues in 1981 rose to $18 million from $12 million; revenues for the first three quarters of 1982 reaehed $25 million. The company has expanded from 6 routes to 24, adding service to 17 cities -- new markets that accounted for almost half of PBA's 53% growth in the number of passengers carried in 1981. In August 1982, PBA boosted its passenger boardings 100% from the August 1981 level, to 102,815, becoming the first of the regional airlines to board more than 100,000 passengers in a single month. And even with such dynamic growth, the bottom line has still shown profit: $127,000 before t:ixes in 1981 ($267,000 after taxes because of investrnent tax credits) and a projected $250,000 for 1982.
"We're not tremendously profitable," John Van Arsdale Jr. says. "Just consistently profitable -- regardless of what we confront."
John Van Arsdale Sr. gave his sons a commuter carrier unique in the United States, one that violates many of the established rules for airline success:
* PBA flies a largely resort trade. It alternates between dual seasonal markets, concentrating on Massachusetts' Cape Cod and island vacationers from Boston, New Bedford, Mass., and New York in the summer and on sun-seekers along Florida's Gulf Coast in the winter. "The nice thing about the airline business is that your capital assets are highly transportable," John Jr. says. While PBA doesn't abandon routes during the off-season, it relocates 50% of its aircraft, some 70% of capacity, north in summer and south in winter.
* Conventional wisdom stresses the value of modern, fuel-efficient equipment for ease of operation and maintenance. But the backbone of the PBA fleet is made up of aging aircraft: 6 Martin 404s and 12 Douglas DC-3s (including "Old 36," with more hours in the air than any other commercial aircraft still in operation), all of which had seen long service with a multitude of previous owners.
* Conventional wisdom touts the value of having a limited number of aircraft types. Instead, PBA has five. Along with the 30-passenger DC-3s and the 44-passenger Martins, the airline flies 27 9-passenger Cessna 402s, 4 58-passenger Nihon YS-lls, and 7 19-passenger Bandeirantes. It is these anomalies however that give PBA its greatest competitive advantage, the ability to balance capacity and demand. Passengers holding PBA tickets rarely know on what size plane they will fly; advance reservations, time of day, major airline feed, and gut feeling determine what equipment will be rolled out to the gate. No prospective passenger is ever turned away. There is no overbooking. Load factors, the ratio of seats occupied to the number of seats available, stay high. While PBA can cut costs during light traffic periods by flying smaller planes, the airline keeps extra equipment on hand to fly additional sections of each flight if so much as one would-be fare shows up.
But the PBA story is really a tale of two airlines, a story of changing generations and a changing business environment, of changing opportunities and strategies that buiIt on the old while embracing the new. For 31 years John Van Arsdale Sr. ran PBA cautiously, buying old planes to fly in monopoly markets, growing slowly, and avoiding debt. But the 1978 passage of the Airline Deregulation Act doomed that strategy. Deregulation allowed major carriers to drop routes at will, routes that then became potential markets for any commuter line that was willing to enter the competitive fray.
"Dad's philosophy was to entrench yourself and avoid competition," says John Jr. "When someone would threaten to come in on top of Dad he would run to the state public service commissions, the Civil Aeronautics Board, nnd the FAA [Federal Aviation Administration] to complain. That's the way things were done back then."
