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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.
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. |
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