Move over, JetBlue (NYSE: JBLU), Allegiant (NASDAQ: ALGT) and Spirit — there’s a new low-cost carrier taking flight. Vision Airlines raised the ante in the cheap seats niche last month with an eye-catching gimmick: a one-week, $49 seat sale. But given the havoc rising fuel costs are wreaking with other airlines — particularly in the low-cost niche — can the new kid on the block hold its own?
To no one’s surprise, travelers in the 23 cities served by the new carrier quickly warmed up to the idea of flying to Florida without breaking the bank. Vision Air’s reservations center was swamped with phone calls and its website took more than 50,000 hits before its servers crashed under the load. Within 48 hours, Vision had sold out of the $49 fares on flights that will begin taking off on March 25 – 12,000 tickets in 120 hours.
Offering cheap seats is smart if you can control operating expenses: the low-cost business model is a profitable niche that’s nipping at major carriers’ heels. Low-cost leader Southwest (NYSE: LUV) kicked off the success model of cheap fares and low costs. JetBlue Airways, Allegiant Airlines and Spirit Airlines have embraced the strategy, but unlike Southwest, charge baggage fees.
But despite having a successful model, fuel price increases have begun to take their toll. Fuel costs at Southwest and JetBlue rose 18% in 2010; Allegiant, which doesn’t hedge fuel, saw its fuel expense jump by 47.7% last year. The crisis in Egypt, which has caused oil prices to spike in recent days, triggered a slump in airline stocks. The Arca Airline Index and related Guggenheim Arca Airline ETF (NYSE: FAA) on Wednesday dropped its lowest level since last October thanks to these influences.
Bottom Line: Vision is entering a tough competitive environment at a time when fuel prices are squeezing airline profits. Vision’s play is to offer primarily non-stop, Boeing (NYSE: BA) 737-jet service to Florida from secondary U.S. cities that are not profitable routes for major airlines. Passengers are allowed one personal item and one carry-on bag free; checked bag fees range from $15-30 (sports equipment is $50; overweight bags cost $75). The airline will be serving Niagara Falls and 22 other destinations in the South and along the Gulf Coast.
That’s a long journey for a company that started out in 1994 flying tourists from Las Vegas to the Grand Canyon in prop planes. The airline later expanded, acquiring Boeing 737 and 767 jets, which it used to provide charter service to presidential candidates and government agencies.
But what really sets Vision Airlines apart from its low-cost rivals might be its “James Bond” backstory: the carrier has spent the past few years shuttling personnel from various government agencies to Iraq and Afghanistan. In 2009, some of the company’s pilots sued the airline over unpaid “hazard pay” associated with the dangers of flying to Kabul and Baghdad.
Planespotters have long regaled aviation forums with pictures of the airline’s unliveried white-and-sand-painted jets on the tarmac in Bucharest. Vision Airlines’ (which now boasts red and white livery with the carrier’s name featured prominently on the tail) transported perhaps its sexiest cargo last July when it ferried 10 alleged Russian spies to Vienna in the largest prisoner swap since 1986.
While it’s too soon to say how any start-up airline will fare in the era of volatile fuel prices, Vision Airlines’ fascinating roots suggest a motto sure to separate it from the rest of the low-cost pack: “Spies fly free; Bags Pay $50”.
As of this writing, Susan J. Aluise did not own a position in any of the stocks named here.
