ValuJet may be able to fly again, but perhaps with a different name

The Outlook

June 23, 1996|By Abbe Gluck

THE FEDERAL Aviation Administration grounded ValuJet Airlines on Monday after it found what it called "serious deficiencies" in the low-cost carrier's operations. The FAA initiated its investigation after the May 11 crash of ValuJet Flight 592 in the Florida Everglades. All 110 people aboard the DC-9 died. ValuJet said that it hoped to be back in the skies within 30 days, but the FAA said the airline won't fly until it provides a comprehensive plan to correct the deficiencies. On Tuesday, ValuJet's stock hit $4.50, a 52-week low.

Will ValuJet return to the skies? What steps will it have to take to regain consumer confidence? This is the first domestic crash involving one of the new, no-frills carriers. Does this mark the end of the lost-cost carrier industry?

Grier Graham

International and financial editor, Aviation Daily, Washington, D.C.

It's going to be pretty tough. They have a lot of cash in hand, but there's going to be a whole lot of scrutiny from the public and the government.

The 30 days [ValuJet's estimate] is a little optimistic. From what they have said, the government is going to require a lot of them from a safety point of view.

I think the economic dynamic of people wanting to travel on a cheap fare will ultimately win out over their fear of the smaller carriers. They're not going to go away because of ValuJet.

In the short run, people, particularly in this area, are going to have to pay more to travel because ValuJet convinced everyone else to bring down their prices to compete with them. With ValuJet out of the market, there are already signs the big airlines are going to take advantage.

How much money they need depends entirely on how long they're grounded. One Wall Street analyst told me it would cost them $10 million a month to stay on the ground.

ValuJet's stock is down at around $6.50. If there's a clear indication that they won't be able to start up, it'll fall further. But if they can get back in the air it can go back up.

Glenn Engel

Airlines analyst, Goldman, Sachs & Co., New York.

ValuJet will survive. In the short run, there may be some revenue impact, but in the long run, people have a taste for low fares.

In this case, there is a safety issue and a political issue. The FAA is raising standards. It's going to be tougher to start up a new airline.

ValuJet is a whipping boy. The FAA has got to show it's tough on safety, but ValuJet is being made an example of.

The market is in the first stage, feeling they'll all be hurt by this. If you look at the stocks, all the large carriers went up, even the ones that didn't compete with ValuJet, and all the low-cost carriers went down.

The biggest winner is obviously Delta. ValuJet's primary operations were in Atlanta, and Delta has 560 flights in Atlanta.

The second [winner] is USAir. ValuJet was expanding in D.C., Boston and Orlando and in the Northeast.

People will choose the big carriers first if the price is anywhere competitive. But as you reach peak periods, there are less cheap seats set aside by the big carriers and the traffic spills into low-fare carriers.

It's just a question of time.

Michael Boyd

President, Aviation Systems Research, Golden, Colo.

The question is, do they have more money or more problems?

If this was another airline, it would take three or four weeks to get back into the sky. This is a special case. As that bubbles along, ValuJet will be dragged through the mud.

We don't know how bad ValuJet's maintenance records might be. If it's a couple of planes, [they could be flying] next week, but with 50 you're not going to see them again.

The FAA will probably ask for senior management changes at ValuJet as well.

They also need to change the name. The franchise "ValuJet" is tTC irretrievably besmirched. You hear "Pan Am," you think "103." You hear "ValuJet," you think of a swamp and an FAA that said it was safe when it wasn't.

Tim Neale,

Spokesman, Air Transport Association of America, Washington, D.C.

It's evidently ValuJet's plan [to fly again] and the FAA has left the door open for them, if they meet the FAA's requirements.

I think the bigger challenge is whether they can win back public confidence.

If the FAA says everything has been done to have a safe operation, that in and of itself is reassuring to many. But the airline will have a public relations challenge to let people know what they've done.

In this industry, we very often all get tarred with the same broad brush if somebody has an accident. In the case of ValuJet, questions have been received by the whole industry, and some of them have been very misdirected.

Business at the big airlines is very strong right now, but it's hard to tell [if that's because of the crash]. The overall economy is strong right now and this summer we have things like the Olympics, which generate a great deal of travel.

Pub Date: 6/23/96

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