National takes flight

Thursday, May 27, 1999 | 10:55 a.m.

National Airlines, the new Las Vegas air carrier that plans to capitalize on the city's growth spurt in hotel rooms, is airborne with paying customers today.

Flight 601 left McCarran International Airport for Los Angeles at 8:30 this morning, carrying the company's four co-founders, members of its board of directors and executives from the airline's hotel partners. Several National employees, hoping to be a part of a historic event, also boarded the inaugural flight.

There were 130 paying passengers on the first flight, with 150-160 revenue passengers expected on the return trip.

Less than an hour later, National loaded its second flight, a nonstop trip to Chicago's Midway Airport with 80 paying passengers and 100 paying passengers scheduled to take the return flight.

Ray Nakano, the airline's chief financial officer, Mark Suman, who heads strategic planning, and Beverly Rouse, director of economic analysis, all senior vice presidents, joined Chief Executive Officer Mike Conway on the one-hour trip to Los Angeles aboard one of National's two 175-passenger Boeing 757 twin-engine jets.

The four executives, all former leaders at America West Airlines when it started in Phoenix in 1980, announced plans to put National in the air 18 months ago.

Except for a delay in the Federal Aviation Administration certification process that moved the start-up from March to May, National has enjoyed a smooth ride from conceptualization to scheduled air carrier.

Conway would not give specific numbers for competitive reasons, but he said advanced bookings on the airline are good. Bookings originating from Las Vegas, he said, are better than he expected and better than Phoenix's response to America West's start-up.

"Nothing ever goes exactly the way you would have liked it to go," Conway said, reflecting on the events leading up to today's flight.

The certification delay, he said, was a disappointment, "but we're a better airline as a result of it."

National was the first start-up air carrier to undergo a revised FAA certification procedure. That resulted in unanticipated delays.

Conway said National's strategy hasn't changed since announcing plans to embrace a market niche he believes is underserved.

Last year, Sen. Richard Bryan, D-Nev., gathered airline executives together in Las Vegas to discuss how the city could develop more direct long-range flights from east of the Mississippi River.

Most of the major carriers had been scaling back their flights to Las Vegas -- a leisure market destination -- in favor of more lucrative business market destinations. Most carriers were dedicating their larger planes to the business markets, a move that made sense to shareholders but left leisure markets in the lurch.

Local consumers and tourists also didn't want to see fares climb, but that was one of the prospects as airlines mulled Bryan's plea.

But National looked to exploit the leisure market and keep fares low. Its hub-and-spoke traffic system makes McCarran International the departure or arrival point of every flight. Coast-to-coast travelers on National have to make a stop in Las Vegas.

While some airlines have responded with more flights to Las Vegas -- most notably Southwest Airlines, the city's largest carrier -- Conway believes the city's air transportation dynamic hasn't changed significantly.

"The number of seats coming into Las Vegas still isn't keeping pace with the number of new hotel rooms," Conway said. "It'll be at least a year before the correlation between seats and rooms are in better balance."

Part of the reason is that it's going to take National a year to boost its fleet and strengthen its schedule. The company has two jets under lease, one each from Sunrock Leasing of Ireland and Ansett Worldwide Aviation Services of Australia.

By the end of next month, it'll secure another lease with Sunrock and one each from Boullion Aviation, Seattle, and Rolls Royce, which is providing a new plane.

On June 14, National will add New York's John F. Kennedy International Airport to its schedule and on June 24, San Francisco. With five jets available, National will keep four planes in service, flying about 13 hours a day, with one backup. Conway said during the period the airline has just two planes under lease, it has another jet on standby in the event of a problem.

The airline hopes to have a dozen planes by June 2000.

Conway said with every new plane delivered, National would boost the number of employees by about 100. The company currently has about 450 on board and Conway isn't wavering from his early prediction that National would have more than 2,200 employees based in Las Vegas within five years.

As the new planes become available, the company will have two options for service -- either adding destinations or increasing flights to existing destinations.

Conway is playing those decisions close to the vest for competitive reasons. It's part of Suman's responsibility to analyze which options make the most financial sense to the airline. Conway said the five-year plan of 40 aircraft serving 22 cities is unchanged.

One possible destination on the horizon is Chicago's O'Hare International, one of the nation's busiest airports, where National has applied for landing slots. Conway said the airline would continue to serve Midway even if it is successful in securing slots at O'Hare.

Another possible destination is Washington D.C.'s Ronald Reagan National Airport. Nevada's congressional delegation is attempting to change existing rules in order to open up flights to the airport, which is close to Washington's government centers.

Another possibility: Miami International Airport. Analysts say it is one of the nation's most underserved markets and National at one time considered Miami as one of its start-up destinations.

Decisions on what destinations to serve are evaluated with National's gaming company partners. The Harrah's and Rio hotel-casino companies each invested $15 million in the airline -- Harrah's later bought Rio. The Las Vegas Harrah's and Rio properties now have National ticket counters in their lobbies and the companies cross-market passengers and resort guests.

Conway said competitors have made "mild to predictable" moves in advance of the start-up. America West added a new nonstop flight from Las Vegas to New York and Southwest announced plans to serve Chicago Midway with two daily nonstops from Las Vegas.

Fares generally are the same as competitors for restricted, advance-purchase tickets. But where National beats the competition is in first-class walk-up seats. For example, National offers a seat to New York for $600 one way. The industry standard is $841, offered by TWA, while America West and Delta Air Lines offer it for $1,032.

Those prices were quoted by a Las Vegas travel agent Wednesday.

But where Conway really expects National to shine is in its level of service. On long-haul flights, the airline plans to serve hot meals on china in its first-class cabin.

Will National succeed? Experts watching the industry say they would be surprised if it doesn't.

"Most start-ups are in the wrong place at the wrong time, run by a management that couldn't boil an egg," said Mike Boyd of The Boyd Group, an aviation consultant based in Evergreen, Colo. "That isn't the case at National Airlines. It would be pretty hard to fail with the plan they have."

Boyd said National has plenty of options that will keep planes full.

"If Las Vegas-to-Los Angeles doesn't work, he could just go into Las Vegas-Rockford," Boyd said. "There are gazillions of markets that could fill a 757 to Las Vegas once a day."

"They really seem to have their act together," said Terry Trippler, publisher of the Airfare Report, an online travel guide based in Minneapolis, Minn. "The rates they post are very competitive and they're easy to understand. They have a classy website.

"In addition, everything goes to Las Vegas, a great vacation destination. My question is, can they get more business travelers since Vegas is becoming more of a business center? To succeed, whether you are a low-fare or high-fare carrier, the name of the game is getting those briefcases on the plane."

Joseph Coccimiglio, a gaming analyst with Prudential Securities, believes additional air service coupled with increasing growth in hotel room capacity will drive visitation upward. Because there is an added emphasis on long-range flights, there is even greater value to investors since travelers from farther away tend to stay longer.

"Although the increase in room capacity exceeds our estimated increase in flight capacity, investors should note that airline passenger growth has outpaced seat capacity growth in each of the past six months," a report issued by Coccimiglio says. "Therefore, load factors are increasing, Furthermore, we believe that the strong 16 percent estimated increase in long-haul capacity will be a key driver to visitor growth."

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