Is America's Newest Commercial Airline Already Dead?

By Markets Fool.com

In late June of last year, a new budget airline took off in the U.S. When PEOPLExpress operated its first flight, it became the first new commercial airline in the U.S. since Virgin America debuted in 2007. In the intervening seven years, numerous airlines had either folded or merged with rivals, reducing competition in the airline industry.

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Unfortunately, PEOPLExpress flights didn't last much past the end of summer. A series of mishaps forced the company to suspend all service, and so far, plans to get off the ground again have not come to fruition. Does this mark the end for this airline start-up?

A promising start
PEOPLExpress began with daily flights from its base at Newport News/Williamsburg International Airport to Boston and Pittsburgh and twice daily service to Newark, New Jersey.

By the end of last summer, PEOPLExpress was flying from Newport News to seven other destinations. Photo source: PEOPLExpress

By the end of last summer, it had added flights to West Palm Beach, Atlanta, New Orleans, and St. Petersburg, Florida. It also had plans to begin flying in October from Orlando to its base in Newport News as well as to Charleston, West Virginia.

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PEOPLExpress had some hiccups during its first couple of months of service, as a lack of spare planes and spare crews meant that any mishap could cause spiraling delays and cancellations. Still, its load factor for the first full month of service beat expectations at 56%. (That's well below the industry average, but fairly good considering that PEOPLExpress only started selling tickets a few weeks before its first flight.)

Everything unravels
In late September, PEOPLExpress abruptly announced that it was suspending all flights immediately. Due to an accident in which a vendor truck damaged a plane, the carrier was down to one aircraft, making it impossible to maintain its schedule. Vision Airlines -- the charter carrier that actually operated the PEOPLExpress flights -- did not make any spare planes available.

When the announcement was made, PEOPLExpress stated that it planned to relaunch service on or around Oct. 16. However, the company ultimately determined that restarting service with only the two Vision Airlines planes would create an unacceptable risk of further service interruptions.

Accordingly, on Oct. 9, PEOPLExpress announced its intention to use planes from multiple charter operators going forward. Unfortunately, operating this type of business requires a different type of certificate from the Department of Transportation. This has delayed PEOPLExpress' relaunch attempt indefinitely.

Adding insult to injury
The situation has continued to go downhill in the last few months. A few days after PEOPLExpress first suspended service, the local government threatened to claw back grants that subsidized the carrier's initial flights.

In November, PEOPLExpress was booted from the airport terminal due to its failure to remit about $100,000 in passenger facility charges that it collected on the airport's behalf. It was told that it would need to pay those fees in order to begin using the terminal again.

As of mid-November, the company was planning to relaunch service in March, with ticket sales restarting in January. However, January has come and gone without an official announcement to that effect. In the meantime, the airport commission in Newport News has evicted PEOPLExpress from the offices it had been using rent-free.

Is this it?
There are two big sticking points preventing PEOPLExpress from making a comeback. First, the company is at the mercy of regulators. It initially decided to charter other airlines' planes due to the difficulty of getting a new FAA operating certificate. It still needs the federal government to approve its new plan of using planes from multiple charter carriers going forward.

Second, PEOPLExpress has been chronically underfunded. Its inability to keep flights going is probably scaring away potential investors, while its lack of money could complicate its efforts to get the regulatory approvals that it needs.

Ironically, the environment for an airline start-up today is pretty close to ideal. U.S. airlines earned record profits in 2014, and jet fuel prices have dropped by about 40% in the past few months, making it economical to fly cheap (but less fuel-efficient) used aircraft.

It would be a shame if PEOPLExpress can't get back in the air this year. Plenty of travelers would be delighted to try a new low-fare airline, as established carriers have been fighting hard to keep the savings from lower fuel prices rather than passing it on to customers. However, PEOPLExpress has dug itself a pretty deep hole that it may never be able to escape.

The article Is America's Newest Commercial Airline Already Dead? originally appeared on Fool.com.

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