National Airlines turns profit, enters 2nd year

Tuesday, May 30, 2000 | 11:10 a.m.

National Airlines became profitable 10 months after its inaugural flight, nearly unheard of in an industry with high overhead and capital expenses.

That doesn't surprise airline expert Mike Boyd of the Evergreen, Colo.-based Boyd Group, who said most start-ups are doomed before the first plane leaves the gate.

"Most start-ups have a dream business plan," Boyd said. "The business plan is a bible they worship in the dark with votive candles burning everywhere."

But that hasn't been the case for Las Vegas-based National, which started its second year of operation Saturday.

"They aren't your typical start-up," Boyd said. "National is one of the very few that had a clear plan of operation years before the first flight."

That plan, engineered by National's founder, Mike Conway, included developing a hub-and-spoke flight operation from Las Vegas. That means every National flight either leaves or arrives at McCarran.

The plan also included raising more than $48.5 million in capital -- most of it invested by the Rio hotel-casino and Harrah's Entertainment Inc., which have merged since National's launch.

Conway also planned developing a fleet of Boeing 757 jets -- a twin-engine aircraft versatile enough that it could be used on short hops from Las Vegas to Los Angeles as well as cross-country hauls to New York. National configures its planes to carry 153 passengers in the main cabin and 22 in the first-class section.

National launched service with a flight to Los Angeles International Airport on May 27, 1999, and initially used two planes to carry customers to Chicago's Midway Airport, Los Angeles and San Francisco. When new planes were delivered, the airline quickly added New York's John F. Kennedy International Airport to the schedule. Today, the company serves eight cities, including Las Vegas, and will add Newark, N.J., in July.

Conway won't discuss specifics about the company's profitability, other than to say that April's numbers were even better than March's and he expects May to be even better than April.

Profits would have been even greater had the price of fuel not gone up to a nine-year high earlier this year. Conway said fuel costs were 35 to 50 percent higher than projected.

The biggest reason for National's early profitability is that passenger loads have begun exceeding the break-even point on a regular basis. Conway won't disclose the loads, but break-even is in the 60 to 65 percent range. The airline carried its 1 millionth passenger in April.

Turning a profit was one of the biggest accomplishments for National, Conway said, but he has a long list of first-year highlights.

"Picking up the first airplane in England was very significant, but bringing it into McCarran with all the fanfare and getting that first picture with all our employees with the plane was very satisfying," Conway said from the airline's corporate offices on Spencer Street, just off McCarran's northern perimeter.

National, which will add its 15th jet next month, has acquired about half of its planes through expired leases from other carriers and the other half brand new off the Boeing assembly line. National's senior vice president of aircraft acquisition, Tom Milligan, monitors leases on Boeing 757 jets all over the world so that the airline can move on lease expirations.

Conway said the graduation of the first class of pilots, inflight attendants and customer service representatives through the National system was significant, but what may be more significant is that he says turnover within the company is "almost nonexistant."

The company now has 1,240 employees, most of them based in Las Vegas. Conway said the company works in an environment of team players that are disappointed when they don't achieve perfection. His definition of the best airline in the world is one that is a great place to work, achieves results for its investors, is superior in industry benchmarks, delivers on the expectations it creates for its customers and is clearly the top choice among passengers when they have a choice.

But right now, Conway doesn't think any airline -- including his -- is clearly above everybody else.

"There are several airlines that I admire, including some competitors," Conway said. "But I don't think anyone is clearly head and shoulders above everyone else in every category."

Conway also said he is happy that Las Vegas has embraced National as a hometown airline and he said as word about the company spreads, he gets more loyal customers in other cities. The company is starting to get enough of a following, he said, that some cities are asking National to serve them.

Conway said service to New York has far exceeded the company's expectations and hopes are high for Newark flights, since the company doesn't expect to have to spend as much to ramp up that service since many New Yorkers will already know about National. The Newark airport is just outside New York City.

Conway is convinced that delivering on customer expectations is what has attracted repeat business.

"We've started to get bookings from people who have flown us before and that has really helped," he said.

Among the extras National has offered are free stopovers in Las Vegas for passengers making a cross-country trip, baggage delivery from the plane to the Rio or Harrah's properties, increased leg room in the main cabin and meals on flights.

Conway said it's gratifying to see his company ahead of rivals in customer service. He said American and United airlines had big promotions when they added leg room in their planes, a feature National had since its launch. Other companies also have jumped on National's practice of delivering luggage straight to the hotel from the plane.

Among the cities seeking out National are several Florida cities as well as Reno, which will lose flights when American Airlines scales back service. Conway said he doesn't expect National to deviate from its business plan of hub-and-spoke service to Las Vegas, but a group from Reno still plans to meet with him this week to lobby for help. Flights between Reno and Las Vegas don't appear likely in the immediate future because Conway already has a wish list of destinations he's working on and Reno isn't on it.

High on National's list of future destinations are Atlanta, Boston, Seattle, Detroit, San Diego and Houston's Intercontinental Airport. National last week received slot exemptions for Chicago's O'Hare International Airport and will offer three daily flights there, probably by fall. The airline doesn't plan to abandon flights to Chicago Midway when it goes to O'Hare.

Also on Conway's radar screen is Washington D.C.'s Reagan National Airport, where National has applied for six of 12 slot exemptions offered to airlines that fly to destinations beyond 1,250 miles of Washington. Competition for the slots is fierce -- several airlines have requested a total 40 slots from the airport. Conway said it's a political battle that, in all likelihood, will result in the 12 slots dispersed among several carriers.

"They're important to everybody," Conway said, "because they're tantamount to the establishment of a legislative monopoly in several markets."

America West Airlines also has applied for Las Vegas-Washington slots, but Conway is hopeful that National will have the edge because legislation requires new carriers get preferential treatment over established companies.

A new airline that is emerging from the proposed merger of United Airlines and US Airways won't figure into the slot battle, even though it will be based at Reagan National Airport.

Robert Johnson, founder of Black Entertainment Television, will start up DC Air, the first domestic airline ever owned and operated by an African American. The new airline is being formed using resources from US Airways at Reagan National.

DC Air plans to offer flights to 44 cities. A spokesman for the company said the farthest west DC Air would fly is Denver, although that lies outside the 1,250-mile perimeter.

Although Conway has enjoyed the triumphs of National's first year of operations, there were disappointments.

He said the airline probably would have been profitable in January had it not been for the city's poor marketing of the Millennium celebration. Many people stayed home for New Year's Eve because of overpriced accommodations.

Conway said two weeks into 2000, National's bookings picked up.

Conway said there was early frustration with the delivery of aircraft. That led to some flight cancellations early in the company's history.

He also said there is room for improvement in on-time performance.

"All things considered, we're not bad," Conway said. "But an airline with 11 aircraft is at a disadvantage because if one flight is delayed by mechanical or weather problems, it affects 10 percent of our fleet and we have a higher percentage of late flights overall."

National has about 70 percent of its flights arriving within 15 minutes of their scheduled arrival times, Conway said.

Boyd, the Colorado airline analyst, said one other pitfall that could be problematic for National is if the nation's economy slumps.

"The challenges of a severe downturn in the economy tend to hit leisure and discretionary income spending hardest," Boyd said. "If that were to occur, National would be one of the first to feel it in Las Vegas."

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