AmWest Strategy: Grow

February 28,1999

ALPA, Intl

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That means adding 28 planes in the next three years and more than 60 flights
in Phoenix, giving Arizona travelers more-frequent flights and the airline a stronger
position in the Phoenix market and its secondary hubs in Las Vegas and Columbus, Ohio.
Much of the company’s focus is aimed at higher-paying business travelers. It’s a
strategy many airline observers think is working. “They were on the right track
before the merger talks,” said Doug Abbey, president of AvStat Associates, a
Washington, D.C., aviation market research firm. “I don’t anticipate much
change.” No. 1 United’s pursuit of America West, the ninth-largest carrier,
validated the smaller airline’s business strategy, he added. Aviation consultant Mike
Boyd agrees that America West has an on-target strategy and a good long-term future, but
contends that United’s interest was solely in America West’s relatively young
fleet of aircraft.

Still, Boyd praises America West and its chairman, William Franke,
for the company’s turnaround. America West, founded in 1983, grew to $1 billion in
revenue by 1990. But it overexpanded and paid the price when a downturn in the industry in
the early 1990s sent it into a tailspin. The company filed for bankruptcy protection in
1991 and Franke took the reins in 1992.

Emerging from reorganization in 1994, America West began to expand
its route system to offer non-stop flights to traditional business markets such as Boston,
Philadelphia, Detroit, Cleveland and Miami. In 1994, the airline served 73 cities and had
87 aircraft and 709 daily departures. That has grown to 100 cities with 111 aircraft and
792 departures, which includes flights offered by its code-share partners Continental
Airlines and Mesa Air Group. The second phase of the company’s strategy is to match
the major carriers by adding frequency and offering five to eight flights per day on major
routes. Last month, America West added six flights per day between Phoenix and Los Angeles
for a total of 15 weekday flights per day. It also added a fifth daily non-stop flight to
New York and a fourth flight to Boston in January.

“Our system with one or two flights per day, as they say in
this industry, was skinny and we recognized that,” Franke said. “First, we had
to find out if the new markets worked and then we could build muscle onto the
system.” There might be one or two new cities added, but generally America West will
focus on more frequent flights, he added. As Phoenix grows to more than 300 flights per
day, America West will have a system that is better protected from competitive incursions,
according to the company chairman.

“If you look at American Airlines, its growth is around Dallas;
look at United, it’s around Chicago and Delta’s is around Atlanta,” he
said. “They’ve built what they’ve called ‘fortress hubs’ that
they then protect, and grow the balance of their system. We need that fortress hub here in
Phoenix and that has to be our primary focus.” Phoenix accounts for about 60 percent
of America West’s $2 billion in revenue, while Las Vegas contributes 30 percent and
Columbus 10 percent. Expanding in Las Vegas, one of the most competitive markets in the
country, is a secondary goal of America West’s, Franke said. Much of the
company’s expansion in the gambling mecca has been with night flights that keep its
planes in service during a time they would normally be idle. Expansion will include more
daytime flights to Las Vegas.

America West nearly jettisoned its Columbus operations in the early
1990s because it was losing so much money there, according to Franke, but that has turned
around. The company is using 50-seat regional jets, which are far cheaper to operate than
737s, to funnel passengers into its Columbus hub and then onto flights to Las Vegas and
the West Coast. The regional jets, operated by Mesa Air Group as America West Express, are
also serving new markets in the West such as Monterey, Calif., and Midland/Odessa, Texas.

While America West continues to grow, future buyout attempts by
other carriers remain a possibility. Some observers like DePaul University economist
Joseph Schwieterman, a former United Airlines analyst, think it’s only a matter of
time before the right offer comes around for America West. But in announcing the
termination of merger talks, Franke stressed his optimism about the company’s future
as an independent carrier. During an interview late last week, he did not rule out America
West acquiring other carriers if it made economic sense. “The one piece that we
don’t have, which most major carriers have, is a major distribution point in the
middle of the U.S. or in the Northeast, which is where most of the business travelers
are,” he said. “So we do look at our options in that regard.” But frequency
remains the focus of America West’s strategy, according to Doug Parker, the
company’s chief operating officer. When America West had only three daily non-stop
flights from Phoenix to Boston, it found it was losing traffic to American Airlines
because its schedule was more convenient, even though travelers had to stop in
American’s Dallas/Fort Worth hub, Parker said. In the past four years, America West
has closed the gap in its frequency disadvantage, he said.