Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education



Front Page

World

UK

UK Politics

Business

Sci/Tech

Health

Education

Sport

Entertainment

Talking Point

In Depth

On Air

Archive
Feedback
Low Graphics
Help

Thursday, July 15, 1999 Published at 11:33 GMT 12:33 UK


Business: The Company File

Soros flies into a turbulent market

In the US, small airlines are struggling; in the UK they are thriving

Fed up with soaring air fares, American travellers have been searching for alternatives.

Some have cut back on their flights, others drive long distances to reach airports with discount airlines.

Prices have risen so much that the government announced a crackdown on unfair pricing practices by the airline giants and Congress has considered five bills to curb the power of the big players.


[ image: George Soros is planning a new service]
George Soros is planning a new service
And now financier George Soros is flying to the rescue of angry passengers. He is set to launch a new airline, undercutting existing fares by up to 70%.

Mr Soros is a brave man to launch the venture just as the low-cost airline business in the US is going through a tough time.

Some small companies fear they have lost credibility, others are struggling to compete: there are some 50 airlines - including local carriers - based in the USA.

So what has gone wrong in the discount air market?

Confidence crashed

Only this week, an aircraft maintenance company has been charged with murder and manslaughter after the crash of a Valujet plane three years ago, in which 110 people were killed.

Valujet flight 592 crashed in the Miami Everglades shortly after take-off.

Investigators found that oxygen tanks had been improperly packed in the cargo bay.

The disaster raised questions about the safety of low-cost airlines in America.

The US Federal Aviation Administration grounded ValuJet after the crash and it later merged with discount carrier AirTran.

Some low-fare carriers suffered because they were linked in the public's mind to ValuJet.

Amtran Inc., which owns low-fare American Trans Air, estimated that it lost $7m in reservations after the ValuJet crash.

Struggle to survive

The airline industry, after losing billions of dollars at the start of the 1990s, became desperate to start making money again.

Standards of service dropped and passengers were packed in as tightly as possible. Business fares rose steeply - and companies responded by cutting back travel or trying to take advantage of discount fares.

It appeared to be good news for the low-cost providers, but they have been struggling just as much as the big boys.

Earlier this month WinAir, a low-cost airline that offered flights from Long Beach, California, announced it was pulling out after financial troubles.

WinAir chairman Larry Gelwix said the carrier had hoped to "attract investment capital to grow and expand." But he said the airline was "unable to sustain operations" when no new money came forward.

Meanwhile, the US government is taking American Airlines to court, alleging anti-competitive practices.

Government lawyers argued that AA had flooded routes and slashed prices below the cost of providing seats - in a predatory pricing tactic. Once smaller rivals were forced out, the air giant then cut back its flights and put prices back up, they said.

One discount airline, Western Pacific, filed for bankruptcy.

The action was the first to target alleged price abuses at key airports after Congress deregulated the airline business in 1978.

Other small carriers and consumer groups welcomed the suit, saying it would lead to a better deal for travellers.

Mr Soros would certainly agree.



Advanced options | Search tips




Back to top | BBC News Home | BBC Homepage | ©


The Company File Contents


Relevant Stories

14 Jul 99 | The Company File
Soros to launch new airline

14 Jul 99 | Americas
Aircraft firm charged with murder

13 May 99 | The Company File
Washington sues American Airlines





Internet Links


US Department of Justice


The BBC is not responsible for the content of external internet sites.




In this section

Microsoft trial mediator welcomed

Vodafone takeover battle heats up

Christmas turkey strike vote

NatWest bid timetable frozen

France faces EU action over electricity

Pace enters US cable heartland

Mannesmann fights back

Storehouse splits up Mothercare and Bhs

The rapid rise of Vodafone

The hidden shopping bills

Europe's top net stock

Safeway faces cash demand probe

Mitchell intervenes to help shipyard

New factory creates 500 jobs

Drugs company announces 300 jobs

BT speeds internet access

ICL creates 1,000 UK jobs

National Power splits in two

NTT to slash workforce

Scoot links up with Vivendi

New freedom for Post Office

Insolvent firms to get breathing space

Airtours profits jump 12%

Freeserve shares surge

LVMH buys UK auction house

Rover - a car firm's troubles