Shuttle Sales May Drive Fares Down
THERE'S some good news for air travelers, at least for those on the East Coast of the United States. Competition may well increase in the months ahead on the busy northeastern corridor served by the Trump and Pan Am shuttles, according to airline experts. Both shuttles are now up for sale. If the two airline routes are quickly sold and that does step up competition, it won't necessarily translate into immediate fare reductions. But that could occur sometime later, analysts say.
Effort for market share
Whatever happens to ticket prices, the companies that eventually purchase the two existing shuttles are expected to make an all-out effort to boost their respective market shares as quickly as possible.
And that, say some analysts, could result in improved service, scheduling changes, and other inducements for customers, especially business travelers.
Moreover, the new owners of the shuttles could replace some of the older aircraft currently in use on the existing services.
The experts figures there is no immediate threat of one of the two shuttles, which operate in the well-traveled Washington-New York-Boston corridor, being forced out of business. ``The two shuttles can easily continue to exist if they're well run,'' says Kevin Murphy, an analyst with Morgan Stanley & Company.
That would particularly be the case, Mr. Murphy says, if the new owners, as widely expected, are other airline companies.
``Donald Trump [who owns the Trump Shuttle] is not an airline operator,'' Murphy says. ``He doesn't have other airline operations to share his expenses with.''
Pan Am Corporation has broad experience in maintaining various international routes. However, it ``apparently needs to raise cash,'' Murphy says.
The possible sale of the two shuttles comes at an ironic moment in the East Coast air wars. Financier Donald Trump, after all, had only purchased his shuttle - the former Eastern Shuttle - a year ago, following a long strike at Eastern. Mr. Trump paid some $365 million for the shuttle, which had seen its market share plummet as the rival Pan Am operation roared into undisputed dominance.
Pan Am began its shuttle operations in 1986, after paying about $76 million for gate rights at New York's LaGuardia Airport. It quickly captured over 50 percent of the overall passenger business on the routes.
But today, following a vigorous upgrading of service by the new Trump team, the Trump shuttle is back to about a 50 percent market share.
One of the important pluses about the two shuttle operations is that they have confirmed gate and landing designations at both LaGuardia Airport in New York and National Airport in Washington, both especially busy airports because they are relatively close to the center of their respective cities. Such slots will look very attractive to potential buyers, says Samuel Buttrick, who covers the airline industry for Kidder, Peabody & Company.
Mr. Buttrick, for his part, sees ``no radical resurgence of price competition'' stemming out of the sale. Airlines, he says, are very price and cost-sensitive, reflecting such variables as fuel and labor costs.
Analysts here expect each shuttle to be sold in the $200 million to $300 million range, probably closer to the latter amount. If so, that would mean a clear profit for Pan Am, but a possibility of a loss for Trump.
Who will buy the shuttles?
``The big question is, `Who will the federal government allow to buy the shuttles?' '' asks Earl Gaskins, an airline analyst with Provident Capital Management Inc., based in Philadelphia.
If the government blocks larger airlines such as American and Delta in favor of a smaller-sized company, the financial position of such a smaller airline could be threatened by the expenses incurred in maintaining the shuttles and ensuring vigorous competition, says Mr. Gaskins.
Although its shuttle is believed to be a money maker, Pan Am has continued to post huge losses overall ($437 million last year alone). As for the Trump organization, there is speculation that it has become financially over-extended through its extensive real estate ventures.
Donald Trump, however, has repeatedly insisted that he is merely seeking to raise cash to take advantage of new investment opportunities.