The dimensions of Horizon's Pyrrhic victory soon became evident. For the first six months of fiscal 1985, the company had reported a loss of $3.2 million, the bulk of which was directly related to the struggle with Cascade. At the time, there were hopes that the second half of the year would show a return to profitability. But when the year ended on September 30, 1985, Horizon was forced to record a loss for the year of $4.9 million on a 35% increase in revenues to $65.9 million -- this despite an operating profit of $345,000 in the fourth quarter. As it turned out, the operational profit was more than offset by two extraordinary charges against earnings, one of them an unexpected inventory write-down.
Horizon clearly had its work cut out. That point was driven home in November 1985, when Edward Keaney, a securities analyst at Burns, Pauli & Co., in St. Louis, released a report that, among other items, presented selected operating statistics for the "top 10" commuter airlines in the country during comparable reporting periods. Even in fiscal 1984, its best year, Horizon placed only ninth in one vital measure of operating efficiency (the breakeven load factor) and eighth in another (yield per revenue passenger mile).
In Horizon's defense, vice-president of finance Michael K. Lowry argues that such comparisons are inherently misleading. He notes, for example, that all regional airlines do not use the same aircraft, and thus their operating expense ratios will naturally differ. But even Lowry admits that Horizon "has substantial room for improvement." Commenting on the swing from a net profit of $3.4 million in fiscal 1984 to a net loss of $4.9 million in fiscal 1985, he says, with only half a smile, "We are a major regional carrier that's forgotten how to make money."
That was an exaggeration, but there is no doubt that the mad rush to squeeze through the precarious "window" of deregulation took a toll. The management team simply did not have much time to concentrate on issues beyond sheer revenue growth. "There were brush fires every hour," says Lowry, "and people's energies were sapped by fighting the fires." Now that Horizon has established its market dominance and operating base, Lowry and his colleagues say that the current year, a year of consolidation, will be devoted to making the company profitable again.
Exactly what this involves remains to be seen. Not that Horizon's managers are oblivious to the problems. They know that they must pay close attention to cost-control procedures, which have lagged far behind Horizon's expansion. They know that the company needs more sophisticated information systems. It also needs better coordination among departments, and a more realistic balance between what customers want and what the company can profitably provide.
Identifying the problems is one thing, however. Solving them is quite another. "Basically," says Ayer, "[the problems are] related to some emotional feelings about the way you know a bigger company should operate, and the fact that we haven't changed our style. We've been acting like we're a brand-new start-up company just sort of making decisions on emotion and not very much information."
And, to solve that problem, they need help from Milt Kuolt.
Kuolt admits that he was shocked to learn of the inventory write-down. "I went simple," he says, referring to an angry, frustrated stupefaction so great that it renders him momentarily speechless, an otherwise unthinkable condition. "Wouldn't you? I mean it makes us look like we don't know what we are doing."
The write-down put a strain on his relationship with Lowry, who bore the news, but there were other things on Kuolt's mind as well. He instantly recognized the significance of the event. Something had to be done. The company clearly needed stronger management. But if the name of the game was now systems and carefully orchestrated departmental maneuvers, maybe it was a game that he could no longer play.
If the truth be told, that unsettling thought had crossed his mind before. He had already tried, and failed, to bring into the company the type of experience that he thought would correct some of these problems. Had he not, in 1984, hired a man with long executive experience in a major airline to become Horizon's chief operating officer? That hadn't stuck. "For a while he was useful and helpful," Kuolt says, "but within a year, the pace was too fast, and he was used to large staffs."
And what about that other experienced fellow, brought in to run the maintenance program? He didn't last either. "He tried to manage through intimidation," Kuolt says, "the old boiler shop, management is 'we,' and you guys are 'they.' All that kinda shit was totally foreign to my style, but I didn't sense it when this person was brought in." Neither man had worked out, Kuolt concluded, because they were big-airline people with the wrong mind-set for a start-up. They weren't the "shirt-sleeve, hands-on, management-by-shoeleather-type guys."
So what was he to do now? Here he was, back where he had started, back where he had found himself five years earlier at Thousand Trails. And, Lord, wasn't he just as frustrated as he had been then? All these thoughts frayed the edges of his mind until he began to dwell excessively on the minor irritations he would see in his travels. The free coffee at the gate hadn't been brewed yet. Or, the station attendant was five minutes late, and now there were 10 people in line. "You see the same errors over and over and over," he says. "Your patience runs out. They're minuscule, but I'm absolutely baffled that they keep happening. I can't stand it. I lose my perspective."
