A Small Jet Dogfight Over Texas

Mesa and Legend target regional business travelers

There are no baggage carousels or security systems at Fort Worth's Meacham International Airport--there has been no commercial passenger service for almost a decade. And the Flight Line Cafe recently closed. But starting on May 5, Mesa Airlines Inc. hopes to turn this aging airfield--about 15 miles from the American Airlines Inc. megahub at the Dallas-Fort Worth International Airport--into a thriving destination served by a new breed of small jets. "It's the single most exciting experiment in the regional airline industry," says analyst Samuel C. Buttrick of PaineWebber Inc.

Mesa is bringing the regional-jet revolution to American's doorstep--and at a critical moment. Regional jets make it possible for carriers to replace turboprops with more frequent jet service and to add direct flights on some thinly traveled routes--Dallas to Boise, for instance--that now require passengers to use connecting or one-stop flights through major airline hubs.

JUMP START. Regional jets are also at the heart of the contract dispute between American Airlines and its pilots. One issue that led to the brief Feb. 15 strike is American's plans to fly the same kind of 50-seat jets that Mesa will bring to Meacham. The union wants its pilots at the controls--not lower-paid AMR Eagle commuter pilots. American planned to resume talks with the pilots' union on Mar. 14 and is awaiting input from a Presidential Emergency Board.

While American and its pilots battle, some smaller airlines are getting a jump on the nation's No.2 carrier. Mesa, part of Mesa Air Group, based in Farmington, N.M., is treading where two other startup carriers failed in the 1980s. But Peter Otradovec, president of Mesa's Fort Worth operation, argues that those predecessors were undercapitalized and using unpopular turboprops. Mesa intends to have 10 new Canadair regional jets from Bombardier Inc. in service at Meacham within a year, with 60 daily flights within Texas. "The regional jet is really what makes the market for us," says Otradovec, who adds that Mesa can break even at about 61% of capacity. But Mesa's wings have been clipped for now. Its lease with Fort Worth prohibits interstate flights. Mesa intends to fight that restriction.

In addition to Mesa, there is upstart Legend Airlines, which aims to start service this fall at Dallas' Love Field, home of Southwest Airlines Co. Legend is considering using regional jets to fly to such cities as Burbank, Chicago, and Kansas City.

Backed in part by the Pritzker family of Chicago and Dalfort Aviation CEO Bruce Leadbetter, Legend aims to draw business travelers who would rather not make the trek to American's hub. At the same time, Legend would be protected from direct competition with Southwest, thanks to the so-called Wright Amendment. That federal law prohibits most passenger service from Love beyond Texas and the four contiguous states.

But the law includes an exception for planes with 56 seats or less, which Legend believes would include the regional jets it plans to use. The airline is also arguing with the Transportation Dept. for the right to use McDonnell Douglas Corp. DC-9s or Boeing Co. 737s reconfigured for 56 seats. "A little competition would be good for American," says T. Allan McArtor, Legend's CEO and an ex-Federal Aviation Administration official.

Neither American nor Southwest is panicking. Southwest still boasts lower costs, and American could mount legal challenges to the interlopers. Says one regional airline exec: "If I rank-ordered every possible opportunity [for regional jets], Meacham wouldn't even be at the bottom of the list."

And nobody expects American to wait to respond. "[CEO Robert L.] Crandall isn't just going to sit there and let Mesa capture his loyal frequent fliers," says analyst William L. Wrightson of Alex. Brown & Sons. American could add jet capacity to routes rivals enter or beef up frequent-flier perks. Whatever happens, this will be only the first of many skirmishes in the regional-jet war.

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