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Morris Air Is Starting To See Things On Its Radar


The Corporation

MORRIS AIR IS STARTING TO SEE THINGS ON ITS RADAR

June M. Morris has a plan. The chief executive of tiny Morris Air Service in Salt Lake City is offering passengers rock-bottom fares with minimal in-flight service to 27 Western cities. The flights are mainly short-haul, and the only way to get a ticket is to have your travel agent call the airline, or call Morris Air yourself. Sound familiar? It's a chapter out of the book written by Southwest Airlines Co., which has used a similar formula to become the only consistently profitable carrier in the U.S. "We're modeling ourselves after Southwest," says Morris. "Like them, we have one type of aircraft and short-haul routes."

But Morris is finding that becoming another Southwest isn't as easy as it looks. Morris Air spent eight years as a charter carrier and was not a direct competitor of major airlines in its territory. But no sooner did Morris take the plunge and convert to scheduled service in November than rivals started closing in. Delta Air Lines Inc. dropped leisure fares by up to 50%, pared business fares more than 60%, and offered double frequent-flier miles to sweeten that. Even Greyhound Lines Inc. lowered prices on a key destination out of Salt Lake City.

'OH, RATS.' Such tactics could slow Morris' ambitious plans to bump revenues to $200 million this year, from $140 million. The privately held company has been profitable every year except one, she says, and that was early in its history. "We don't worry about Greyhound," says Morris. And Delta? "Sure, we're concerned," she says, although she notes that Delta's $84 one-way fares are often a good 25% higher than Morris Air's. "If the majors match us, they lose money every day while we make money."

Price isn't the only thing Morris Air has going for it. Morris, 61, the only woman CEO of a jet-service airline, has a long history dealing with customers in the travel business. Her first job was marking up travel routes on maps for the American Automobile Assn. In her 40s, Morris opened a small travel agency in a corner of her husband's photo-finishing office. By courting big corporate customers, she built it into the biggest in Utah and the 25th-largest in the U.S. When she decided to diversify into vacation packages, Morris chartered planes to save money. The charters did so well that Morris sold her travel agency to concentrate on the airline full-time.

Even on no-frills Morris Air, that customer focus has remained. Just before Thanksgiving, a blizzard hit Salt Lake City, delaying flights for hours. Fifteen Los Angeles-bound Morris Air passengers were going to miss connections

on other airlines to Hawaii, and travel agents were refusing to swap their

nonrefundable tickets for later flights. Morris and her son, Richard W. Frendt, the airline's chairman, rushed to the airport and sweet-talked United Airlines Inc. and American Airlines Inc. agents into rerouting the passengers. By nightfall, 11 were in Hawaii, and the rest arrived the next day, after spending a night in a San Francisco hotel at Morris Air's expense. Says Morris: "You do what you have to do."

That's the kind of thing Morris will have to keep doing to prevent customers from defecting to Delta, where they can get frequent-flier miles, not to mention meals. Morris argues that with her carrier's focus on leisure travelers, and Delta's on business customers, the two should not have to fight for passengers. But that hasn't stopped her from scrapping with Delta. When Delta doubled mileage credit, "we said, 'Oh, rats,'" Morris recalls--and responded with $29 companion fares. When Delta gave travel agents free tickets, Morris dispensed gift certificates at local department stores.

But Delta intends to keep up the heat. Salt Lake is Delta's third-largest hub, and to make it pay, it needs not only passengers flying through the hub or into the city from distant points: It must attract the travelers who live there--business or otherwise. "We want every single passenger who gets on a plane in Salt Lake City," says spokesman Neil Monroe. "The fares we put into the market to compete with Morris are not economically justified. They are strictly a competitive response."

The tiny airline can expect more where that came from. Alaska Airlines Inc., which competes with Morris on several routes, has also done its share to keep Morris on its toes. It has lowered fares on two routes. And last summer, Alaska complained to the Transportation Dept. that Morris Air, though certified as a charter, was behaving as a scheduled airline. Alaska was right: Transportation fined Morris $200,000 and made it recertify as a scheduled airline. That raised some costs; scheduled carriers must meet more stringent guidelines in remaining accountable to regulatory agencies and customers. Morris plays down the flap--half the fine was suspended--but says wryly of Alaska: "They do aggressive things like that."

ON HOLD. Competitors aren't Morris Air's only problem: The airline's own reservation system could hold it back. Most airlines list their fares on computer-reservations systems, which lets travel agents place bookings in seconds. But Morris, like its model, Southwest, wants to save $2.25 per ticket by forgoing listing on such systems. So agents must go through the tedious process of phoning the airline for tickets. "That means two 15-minute waits on the phone to write a $138 ticket that you make $13.80 on," complains Michelle M. Rafati, manager of Melroy Travel in Salt Lake City.

In the long run, Morris is betting that cost advantages of 30% to 40% below Delta's will keep the airline aloft. Flying one type of aircraft, 737s, means saving on parts and maintenance. Morris Air contracts with other airlines for many services, saving overhead. In Oakland, Calif., for instance, American Airlines checks in Morris customers. Also, competitors must pay workers the same across the country. But Morris Air employs nonunion workers, many of them Mormons who are willing to earn less to work in Utah. June Morris' own rural roots--she herded sheep as a girl--and her membership in the Church of Jesus Christ of Latter-day Saints may also help build loyalty with the state's vast Mormon population, though she dismisses that as a factor.

Those advantages have inspired confidence in at least one investor. In December, Weston Presidio Capital of San Francisco, an $80 million private-equity fund, bought a 20% stake for an undisclosed amount. The skies may be littered with the wreckage of low-fare airlines, but Presidio Managing Partner Michael P. Lazarus calls Morris "a very disciplined company." Morris intends to keep it that way. "I hold the reins on some of these young guys around here who want to go a million miles an hour," she says. Disciplined or not, it looks like she's in for a heck of a ride.Sandra D. Atchison in Salt Lake City, with Andrea Rothman in New York


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