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http://www.usatoday.com/money/biztravel/2003-12-18-atlanticcoast_x.htm
Atlantic Coast tackles 2 challenges
By Chris Woodyard, USA TODAY
While the nation prepares for the holidays, Kerry Skeen is waging a battle for the future of Atlantic Coast Airlines.
Atlantic Coast Airlines CEO Kerry Skeen.
By H. Darr Beiser, USA TODAY
The 51-year-old CEO is simultaneously tackling the two greatest challenges since he co-founded the regional airline 14 years ago — to reposition the company into an entirely different kind of business while at the same time fending off a hostile takeover attempt.
Skeen wants Atlantic Coast (ACAI), which carried 7.2 million passengers last year as the nation's sixth-largest regional airline, to end its affiliation with financially troubled United Airlines. Instead, it would fly solo. He would re-create the airline as a low-fare venture to be called Independence Air.
Just as Atlantic Coast is now, it would be based at Dulles International Airport outside Washington, D.C., and serve 50 cities around the nation.
But taking a consistently profitable carrier into the uncharted airspace of low-fare flying is full of risk. In breaking away from United Airlines, Atlantic Coast would be leaving a benefactor that last year accounted for 82% of its revenue.
No longer would Atlantic Coast fly as United Express, making flights connecting with United's big jets at the Dulles and Chicago hubs.
The low-fare airline plan is deemed so risky that it's opened the door to a takeover attempt by Phoenix-based Mesa Air Group (MESA), another regional carrier that would keep Atlantic Coast's current commuter flying intact. CEO Jonathan Ornstein says Atlantic Coast has embarked on an untested plan and would be wiser instead to become part of his growing regional airline empire.
Skeen says Mesa and United are ganging up to pulverize Atlantic Coast's plans. In a letter to stockholders sent last Friday, he points to an agreement between United and Mesa that requires United to increase the fees it pays Mesa if the commuter carrier succeeds in gaining control of Atlantic Coast's board. Skeen has also gone to court, awaiting a ruling from U.S. District Judge Rosemary Collyer in Washington on its motion for a temporary court order that could slow Mesa's bid.
The takeover issue has drawn attention from what Skeen views as the sheer logic of what he's trying to accomplish. With United fighting its way through a bankruptcy reorganization, the glory days of serving as a regional partner have faded. Atlantic Coast broke off talks with United in July. United hopes to emerge from Chapter 11 in 2004, but Skeen asserts that 70% of airlines that have filed for bankruptcy reorganization eventually have to file again. He noted that US Airways, which emerged from reorganization earlier this year, is still losing money.
"With the restructuring of US Airways (UAIR) (and) of United, these contracts that were very lucrative in the past are being rewritten under the forces of bankruptcy to the point where there's a lot more risk," he says.
At the same time, the low-fare world beckons. Southwest (LUV), JetBlue (JBLU), Frontier (FRNT), AirTran (ATAH) and others blossomed as low-fare airlines. Yet none of them are adequately serving Washington, D.C., through Dulles, he says.
Atlantic Coast already has the most daily departures at Dulles of any airline, with 159, or 43% of the total. It says Dulles ranks fifth among airports for having the most passengers from the local area going through it.
To capitalize on that market, Independence Air would be able to start operating more than 300 flights by late next year. It would have a fleet of 87 aircraft, a mix of existing commuter aircraft added to the large Airbus A-320 and A-319 big jets that were recently ordered. "No low-fare airline has started with the mass that we will have," Skeen says.
Freed from its contract with United, Skeen says, Independence Air would be able to offer fares that are 30% to 70% lower than today.
The airline's commuter aircraft could serve some of the small and midsize markets that may have been passed over by the low-fare revolution. And it would maintain the same relationship it has today as a regional partner for Delta Air Lines.
"We will bring lower fares to communities that quite frankly don't have low fares," he pledges.
The company, which earned $8.5 million in the third quarter, projects the changeover would slow net income to $11.6 million for all of next year, but it would rise to $68.9 million by 2006.
Industry analysts' opinions are mixed. Michael Linenberg of Merrill Lynch says, "Timing couldn't be better for (Atlantic Coast) to utilize its industry know-how and resources" in the low-fare venture. Jamie Baker of J.P. Morgan has said he is "highly skeptical" given the trouble of operating smaller aircraft in a low-cost arrangement, expected retaliation by United and other factors.
At least Skeen appears to have employees behind him. Many have rallied around plans to form Independence Air and denounced the hostile takeover attempt. In a Dec. 4 letter to Mesa's board, Atlantic Coast's pilots union says employees want to exit commuter airline flying that they believe will be a "low-growth, low-margin business" in the foreseeable future. They have created a Web site, aero2003.org, which it says stands for "ACA Employees Repelling Ornstein."
Skeen is buoyed by the support. "We made a strong case ... about prospects for Independence. We intend to bring a new level of service with lower fares," he says.
Atlantic Coast tackles 2 challenges
By Chris Woodyard, USA TODAY
While the nation prepares for the holidays, Kerry Skeen is waging a battle for the future of Atlantic Coast Airlines.
Atlantic Coast Airlines CEO Kerry Skeen.
By H. Darr Beiser, USA TODAY
The 51-year-old CEO is simultaneously tackling the two greatest challenges since he co-founded the regional airline 14 years ago — to reposition the company into an entirely different kind of business while at the same time fending off a hostile takeover attempt.
Skeen wants Atlantic Coast (ACAI), which carried 7.2 million passengers last year as the nation's sixth-largest regional airline, to end its affiliation with financially troubled United Airlines. Instead, it would fly solo. He would re-create the airline as a low-fare venture to be called Independence Air.
Just as Atlantic Coast is now, it would be based at Dulles International Airport outside Washington, D.C., and serve 50 cities around the nation.
But taking a consistently profitable carrier into the uncharted airspace of low-fare flying is full of risk. In breaking away from United Airlines, Atlantic Coast would be leaving a benefactor that last year accounted for 82% of its revenue.
No longer would Atlantic Coast fly as United Express, making flights connecting with United's big jets at the Dulles and Chicago hubs.
The low-fare airline plan is deemed so risky that it's opened the door to a takeover attempt by Phoenix-based Mesa Air Group (MESA), another regional carrier that would keep Atlantic Coast's current commuter flying intact. CEO Jonathan Ornstein says Atlantic Coast has embarked on an untested plan and would be wiser instead to become part of his growing regional airline empire.
Skeen says Mesa and United are ganging up to pulverize Atlantic Coast's plans. In a letter to stockholders sent last Friday, he points to an agreement between United and Mesa that requires United to increase the fees it pays Mesa if the commuter carrier succeeds in gaining control of Atlantic Coast's board. Skeen has also gone to court, awaiting a ruling from U.S. District Judge Rosemary Collyer in Washington on its motion for a temporary court order that could slow Mesa's bid.
The takeover issue has drawn attention from what Skeen views as the sheer logic of what he's trying to accomplish. With United fighting its way through a bankruptcy reorganization, the glory days of serving as a regional partner have faded. Atlantic Coast broke off talks with United in July. United hopes to emerge from Chapter 11 in 2004, but Skeen asserts that 70% of airlines that have filed for bankruptcy reorganization eventually have to file again. He noted that US Airways, which emerged from reorganization earlier this year, is still losing money.
"With the restructuring of US Airways (UAIR) (and) of United, these contracts that were very lucrative in the past are being rewritten under the forces of bankruptcy to the point where there's a lot more risk," he says.
At the same time, the low-fare world beckons. Southwest (LUV), JetBlue (JBLU), Frontier (FRNT), AirTran (ATAH) and others blossomed as low-fare airlines. Yet none of them are adequately serving Washington, D.C., through Dulles, he says.
Atlantic Coast already has the most daily departures at Dulles of any airline, with 159, or 43% of the total. It says Dulles ranks fifth among airports for having the most passengers from the local area going through it.
To capitalize on that market, Independence Air would be able to start operating more than 300 flights by late next year. It would have a fleet of 87 aircraft, a mix of existing commuter aircraft added to the large Airbus A-320 and A-319 big jets that were recently ordered. "No low-fare airline has started with the mass that we will have," Skeen says.
Freed from its contract with United, Skeen says, Independence Air would be able to offer fares that are 30% to 70% lower than today.
The airline's commuter aircraft could serve some of the small and midsize markets that may have been passed over by the low-fare revolution. And it would maintain the same relationship it has today as a regional partner for Delta Air Lines.
"We will bring lower fares to communities that quite frankly don't have low fares," he pledges.
The company, which earned $8.5 million in the third quarter, projects the changeover would slow net income to $11.6 million for all of next year, but it would rise to $68.9 million by 2006.
Industry analysts' opinions are mixed. Michael Linenberg of Merrill Lynch says, "Timing couldn't be better for (Atlantic Coast) to utilize its industry know-how and resources" in the low-fare venture. Jamie Baker of J.P. Morgan has said he is "highly skeptical" given the trouble of operating smaller aircraft in a low-cost arrangement, expected retaliation by United and other factors.
At least Skeen appears to have employees behind him. Many have rallied around plans to form Independence Air and denounced the hostile takeover attempt. In a Dec. 4 letter to Mesa's board, Atlantic Coast's pilots union says employees want to exit commuter airline flying that they believe will be a "low-growth, low-margin business" in the foreseeable future. They have created a Web site, aero2003.org, which it says stands for "ACA Employees Repelling Ornstein."
Skeen is buoyed by the support. "We made a strong case ... about prospects for Independence. We intend to bring a new level of service with lower fares," he says.
