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May 25, 2000, Thursday, Late Edition - Final
SECTION: Section C; Page 1; Column
2; Business/Financial Desk
LENGTH: 1529
words
HEADLINE: AIRLINE DEAL: THE NOVICE;
Trying to
Transfer Niche Marketing From the Cable TV Industry to the Skies
BYLINE: By STEVEN A. HOLMES and MATTHEW L.
WALD
DATELINE: WASHINGTON, May 24
BODY:
Over the last 20 years, Robert L. Johnson has
used Black Entertainment Television to build a financial empire, employing
skill, ruthlessness and a knack for niche marketing. With his plan to run a
spin-off from the merger between United Airlines and US
Airways, the challenge for Mr. Johnson is whether those same abilities
will work in a different kind of business, the mature and cutthroat airline
industry.
There is no hard-and-fast requirement that it takes an airline
background to run an air carrier, even a start-up, people in the industry said
today. And much of what a chief executive needs in that business is marketing.
"We're not in the silk-scarf-and-goggles era," said George Hamlin, an aviation
consultant here. "This is no longer a business where technicians are paramount."
But Mr. Hamlin and others said that Mr. Johnson's new entry, DC Air,
will need to create a distinct identity through innovative marketing and cut
costs if it hopes to be a success.
The deal had its origin six weeks ago
at a breakfast Mr. Johnson had at Washington's Four Seasons Hotel with Stephen
M. Wolf, chairman of the US Airways Group. According to Mr. Johnson, Mr. Wolf
informed him that he was contemplating a deal with the UAL Corporation, the
parent of United Airlines, and would have to shed some "assets" at Ronald Reagan
National Airport.
"He asked me if I was interested," said Mr. Johnson,
who has been a member of the US Airways board for four years. "He thought it
would be a great opportunity for me."
But while Mr. Johnson has shown
himself to be a shrewd marketer with an ability to keep both production and
labor costs down, his experience has been marketing to a largely black audience.
Mr. Johnson -- who took an idea he heard about creating a cable channel
that would appeal to an elderly audience and adapted it for black viewers --
used to tell friends: "You don't have to reinvent the wheel. You've just got to
paint it black."
In a telephone news conference, Mr. Johnson, who was
stuck on the runway at La Guardia Airport in New York, on his private jet, said
that he believed he could make the new airline a success. "I feel very
comfortable about doing this, because at the end of the day, it doesn't matter
what your race or ethnicity is," he said. "People want the same thing. They want
good service. They want good value."
Fresh thinking is a plus, say old
hands in the airline business. "Showing yourself to be a demonstrated, capable
leader with out-of-the-box thinking is an imperative in the airline industry,"
said Kenneth Quinn, an aviation lawyer and former Federal Aviation
Administration official. "If you have close contact with consumers, that's going
to be the key to your success. The fact that Mr. Johnson has driven a customer-,
consumer-oriented business to large success can be quite helpful."
On
the other hand, Mr. Quinn said, airlines are a notoriously tough business where
profits are often hard to come by. And US Airways' operations are the most
costly in the industry.
Mr. Johnson has something else to take on in the
airline business, too -- its unions. Airlines are one of the most heavily
unionized industries in the country, and Mr. Johnson has had severe run-ins with
his unionized work force at BET.
In 1993, Mr. Johnson and BET management
laid off or cut the hours of 14 supporters of the International Brotherhood of
Electrical Workers, which had recently won the right to represent technicians at
the cable operation. A judge later ordered them reinstated.
Union
officials also said BET's management was rigid during negotiations for a new
contract for the technicians, who earn significantly less than their
counterparts at other television stations. "There wasn't any bargaining," said
Lillian Firmani, business manager for Local 1200 of the I.B.E.W.
Beyond
those potential problems, there are other challenges to making the proposed
spinoff, which would fly in and out of the airport closest to downtown
Washington, a successful operation.
DC Air would be mostly in the
short-haul market, the most brutally competitive part of the airline business,
and be a spinoff from a barely profitable airline, in a business where it is the
bigger networks that are prospering. That, of course, is the main reason that
United and US Airways are getting together in the first place, and proposing to
hand off everything but the US Airways shuttle at Reagan National Airport.
The proposed DC Air would begin as a "virtual airline," leasing 10
Boeing 737's, complete with pilots and flight attendants, and buying from United
the time of mechanics, gate agents and everything else needed for a flight,
almost down to the foil-wrapped peanuts. Most airlines lease some planes, the
way consumers lease cars. But "wet leasing," which is what DC Air would do, is
akin to hiring a chauffeured car.
It plans to buy 8 turboprops and 19
regional jets from the merged airline, and use US Airways and United employees,
at least to get started.
"The same routes, the same airplanes, the same
people, just with a different owner -- it doesn't seem like a formula for
success," said S. Mark Ray, an analyst at John Hancock. "There's got to be more
to it."
Mr. Johnson today gave a hint of what the something more would
be. He spoke of tie-ins with rental car and hotel companies, and offering low
fares. "I think I'm going to bring to this airline some of the same marketing
strategy that Richard Branson brings to Virgin."
But it will not be
easy. The new airline will fly from National Airport, one of the few major
airports that absolutely cannot function as a hub, at a time when most in the
industry think that hubs are the easiest route to success. A hub operation
requires the ability to land and launch large numbers of planes almost
simultaneously; National Airport, with a single runway for big jets, can handle
only a modest stream.
But access to the airport itself is a major plus.
"Having access to a major market is the only way a new carrier can effectively
compete," said T. Allan McArtor, who led the F.A.A. from 1987 to 1989 and is now
heading a start-up, Legend Airlines, in Dallas, after a long legal battle to get
access to its similarly close-in airport, Love Field. He agreed with other
experts that an airline background was no longer essential for the chief
executive. "You need airline experience, but you don't have to have it
individually, if you're a good leader and manager and motivator."
Mr.
Johnson certainly has a reputation for making things work and for making friends
in the right places. He began BET with an investment of $15,000, but was able to
raise $10 million for his fledgling company by selling stakes to communications
giants like Time Inc. and Taft Broadcasting. Over the years he has expanded into
restaurants, night clubs, magazines and an interactive Web site called BET.com.
The privately-held parent company, BET Holdings Inc., is now worth an estimated
$2 billion.
"Bob is a relentless and passionate entrepreneur who is very
smart," said Peter Barton, the former head of mergers and acquisitions for TCI,
the giant cable company that began carrying BET on its cable systems in the
early 1980's.
He also has been politically well connected. He has been a
major fund-raiser for President Clinton and the Democratic Party and was a close
friend of Commerce Secretary Ronald H. Brown. This week he attended a White
House dinner for the president of South Africa, Thabo Mbeki.
Over the
years Mr. Johnson has drawn his share of criticism from those who say BET
provides a rather low-brow mix of entertainment, mainly music videos. He has
been often satirized in the black syndicated comic strip "Boondocks" for not
providing more uplifting and relevant programming for his black audience.
Mr. Johnson said today that the parties would have 90 days to complete
the negotiations for the transfer of slots at Reagan Airport, leases and other
considerations from US Airways to DC Air. He declined to say how much the final
price would be, but declared that he was not looking for outside investors.
There is some doubt, though, whether the merger and the spinoff will
pass muster with the federal government. Certainly it has opponents, among them
other airlines, like Mr. McArtor's, that would like to divide up the slots at
National among themselves. Some consumer advocates agree.
David S.
Stempler, president of the Air Travelers Association, which lobbies for
consumers and offers discounts and safety analyses of airlines, said that
ensuring competition might be better achieved by strengthening existing carriers
at National Airport rather than setting up a new airline. The slots are public
assets, he said, like television broadcast licenses, and should be distributed
through a government-led process at which consumer advocates and other companies
could be heard.
United, he said, was being "politically correct" by
setting up a black-owned company, which, he said, might fail as Air Atlanta,
another airline managed by a black chief executive, did in 1987. Airlines, he
said, might represent "an equal opportunity failure mode."
http://www.nytimes.com
GRAPHIC: Photo: United
Airlines pilots Mike Sodergren, left, and Tim Rowe, at O'Hare Airport in
Chicago. (Associated Press)(pg. C6)
Chart: "Robert L. Johnson"
1946 -- Born in Hickory, Miss., the ninth of 10 siblings
1968
-- Graduates from the University of Illinois
1972 -- Graduates from the
Woodrow Wilson School of Public and International Affairs at Princeton with a
master's degree
1972-76 -- Works for the Corporation for Public
Broadcasting, the Washington Urban League and as a press secretary for Walter E.
Fauntroy, Congressional delegate from the District of Columbia
1976 -- Takes
job as vice president of government relations for the National Cable Association
1979 -- Borrows $15,000 to start the cable channel Black Entertainment
Television and subsequently gets investments from Tele-Communications Inc., HBO
and Taft Broadcasting totaling more than $10 million
TODAY -- Mr. Johnson
sits on the boards of US Airways, Hilton Hotels, the United Negro College Fund,
the Academy of Cable Programming, the American Film Institute and the
Advertising Council
LOAD-DATE: May 25, 2000 
