Start-up Covets Spokes of Northwest's Hub
COMPANY: Pro Air Inc.
TYPE OF BUSINESS: Airline
FOUNDER: Kevin Stamper, 49
CAPITAL: $25 million in private placements and bank loans
KEY COMPETITION: Northwest Airlines Inc.
COMPETITIVE STRATEGIES: Offer low airfares and high-quality service by cutting operating costs; aggressively target the business community
The way motown's music once dominated radio in Detroit, Northwest Airlines Inc. rules the skies there. It reigns supreme. With 380 flights daily in and out of its major hub, the $9.9-billion behemoth accounts for 75% of the Motor City market. It might seem like the last place on earth for a start-up airline to challenge Northwest.
Yet Kevin Stamper, founder and chairman of Pro Air Inc., is doing just that. After scouring the country for the ideal city in which to locate his airline, he picked Detroit because Northwest's fares there were among the steepest charged by any airline in the country. Stamper spotted an opportunity to capture a share of Northwest's passengers who had become disaffected by high prices and what he considers less-than-stellar service. Among the passengers particularly in Stamper's sights were business travelers--those frequent fliers coveted by all the airlines--who crave more pampering.
In July, Pro Air began 18 flights daily between Detroit and four other cities: Indianapolis, Milwaukee, Baltimore, and Newark. Besides coach fares as much as $582 less than Northwest's, the company rolled out two spanking-new Boeing 737-400s, claiming to be the first U.S. carrier in 25 years to begin passenger service with all new aircraft. "We wanted to make a statement," says Stamper, a former Boeing Co. lawyer and a seasoned airline executive. Northwest's fleet, by contrast, includes 25-year-old planes. On its flights Pro Air provides upscale snacks, including fresh fruit, pastries, and Famous Amos cookies. "We're not just walking down the aisles and saying, 'Here's your peanuts and Cokes,' like the competition," adds Pro Air president and chief operating officer Craig Belmondo.
For Pro Air, Detroit offers another big plus: a strategically located alternative airport. Northwest operates out of Wayne County's Detroit Metro Airport, which is 20 miles from downtown. Pro Air flies from the less frequently used Detroit City Airport, which is 14 miles closer to the center-city headquarters of companies like General Motors Corp. and Stroh Brewery Co. Pro Air executives are quick to point out that new baseball and football stadiums are also under construction downtown, and casinos are on the drawing board.
When Pro Air fired its opening salvo against Northwest last summer, it undercut the jumbo carrier's rates sharply. One-way coach service to Milwaukee, for example, cost $69 on Pro Air, about one-third what Northwest was charging then, according to U.S. Department of Transportation statistics. To keep its costs down, the nonunionized Pro Air pays its captains $60,000, compared with a maximum $200,000 pilot's salary at Northwest.
Northwest, however, has fired off a riposte of its own. It has matched Pro Air's prices on some flights. "We'll do what we need to do to hang on to our customers," Northwest spokesman Jim Faulkner says. Northwest already enjoys an edge in two factors that airline analysts say count as heavily in passengers' minds as price.
The first is a wide disparity in the frequency of flights. Whereas Northwest has eight daily runs from Detroit to Milwaukee, for instance, Pro Air has one. "If you don't have enough scheduled flights, you're not going to be very attractive to passengers who don't have a lot of flexibility," says Robert A. Peiser, president and CEO of Western Pacific Airlines Inc., based in Colorado Springs, Colo., which recently filed Chapter 11 bankruptcy.
The second is Northwest's popular frequent-flier program, WorldPerks; Pro Air has no such program. "Northwest has a loyal customer base, the planes, and the schedule," says Vivian Lee, a senior airline analyst at BT Alex. Brown Inc., a New York City investment brokerage firm.
If Stamper is dancing a tricky pas de deux with Northwest, he is still stepping smartly in some respects. His coach fares are uniform, while Northwest discounts only a portion of its seats on some flights. And Northwest requires a 24-hour advance purchase for its bargains.
Pro Air will not disclose its revenues for last year. Its planes then were flying half full, exceeding expectations, according to Stamper. Its projected 1998 revenues are $78 million with earnings of $15 million, a scenario that would draw kudos in an industry known for hard knocks. Since federal deregulation of the industry, in 1978, more than 100 carriers have landed in bankruptcy, including TWA and Continental.
Meanwhile, Northwest's heft, ironically, is working in Pro Air's interest. To help neutralize Northwest's market dominance, Chrysler Corp. has pledged its support for Pro Air. "The companies of this town are absolutely fed up with the unchecked escalation of fares," Pro Air president Belmondo says. "They're tired of being gouged."