Bringing New Air to New York
David Neeleman is set to pilot his second discount airline
David G. Neeleman was just 19 when he discovered he had a knack for a certain kind of salesmanship. As a young Mormon sent to poor Brazilian villages during a two-year missionary stint, Neeleman excelled at converting the locals to his faith. "It was really the first time I felt like I had some talent," recalls Neeleman, now 39.
These days, Neeleman is putting that talent to work on a mission of an entirely different order. The former president of Morris Air Corp. is preaching the virtues of his latest discount airline, which he hopes will soon be flying out of John F. Kennedy International Airport. Promising a 1990s version of People Express in its glory days, Neeleman has won over powerful investors, including George Soros and Chase Capital Partners. He has raised a record $128 million to launch the carrier, temporarily named New Air.
It's the biggest gamble of Neeleman's career. By early next year, he aims to fly from JFK to such places as Atlanta, Buffalo, and Minneapolis, adding 7 to 10 cities a year. With fares 50% or more below the majors, Neeleman figures plenty of demand will exist in the New York market. Indeed, in the past 12 years, pricey short-haul fares crimped growth at New York airports while traffic was rising dramatically nationwide.
Can Neeleman succeed in the hyper-competitive New York market where People Express and others have failed? Investors, who like New Air's projected low-cost structure and Neeleman's track record at Morris, are convinced. "Management's numbers really do add up," says Neal Moszkowski, a partner at Soros Private Equity Partners.
Still, Neeleman could have a bumpy ride ahead. Although he is on the verge of signing a deal for 82 new Airbus planes, Neeleman has yet to win crucial exemptions from federal flight restrictions at JFK. And he will have to persuade travelers to venture out to JFK rather than the more convenient LaGuardia. That may be why, for now, rivals don't appear much worried. "I can't imagine he'll elicit much of a response," from competitors, says one airline executive.
Although little known on the East Coast, Neeleman was instrumental in building up Morris Air, a Utah-based carrier that Southwest Airlines Co. purchased for $129 million in late 1993. Southwest rarely acquires other carriers, but Neeleman had meticulously modeled virtually every aspect of Morris on Southwest, right down to the plastic boarding passes and flight attendants' casual outfits."MY FAULT." By the time Southwest snatched up Morris, it was one of the few airlines that could match Southwest's legendary low-cost structure. And Morris was careful to steer clear of Southwest, just as Neeleman plans to do in the New York market, where Southwest recently launched service from Islip--some 40 miles from Manhattan.
Neeleman cleared $20 million from the Morris sale, making him a wealthy 34-year-old. But the deal, which included a five-year noncompete agreement, also left Neeleman on the aviation sidelines. Although he initially joined Southwest's executive planning committee, Neeleman's relations with the airline soured after just five months. Used to being the boss, he chafed at having to work inside Southwest's bureaucracy. In retrospect, Neeleman says, "it was as much my fault as anyone's." He recalls tactlessly blurting out whatever he was thinking in meetings and barging into others' offices. Southwest executives declined to comment.
Since parting ways with Southwest, Neeleman has come to believe that part of his problem at Southwest was caused by attention deficit disorder. Although Neeleman has never been officially diagnosed with ADD, a younger brother has the condition and Neeleman is convinced he, too, has all the symptoms. At Morris, it wasn't unusual for him to abruptly leave a meeting in progress, consumed by a sudden need to check out some detail of flight operations. At home, he once abandoned his barbecue to buy a new watch, leaving the meal to burn.
Investors aren't worried about Neeleman's self-diagnosed condition. Says Michael P. Lazarus of Weston Presidio Capital: "If he has it, he covers it well." Besides, he notes, "People want to follow David. He has passion and energy and attitude." Indeed, Neeleman has lured his marketing staff from Virgin Atlantic Airways. New Air President David J. Barger, who comes from Continental Airlines, turned down a competing offer from Delta Air Lines. John D. Owen left the treasurer's job at Southwest to become Neeleman's finance chief. Says Owen: "He has the Midas touch."
Just ask June M. Morris, the founder of Morris Air. She persuaded Neeleman to join her travel agency in 1984 after Neeleman's own small but aggressive agency ran into problems. Soon, Neeleman moved Morris into the charter business, flying from Salt Lake City to places like Los Angeles and Cancun. An exuberant salesman, Neeleman would stand on desks and do pirouettes or perform cartwheels down the hall on particularly good days. Friends say he'd even try to sell honeymoon packages to newlyweds at weddings he attended.
In 1992, Neeleman helped turn Morris into a regularly scheduled airline after it was fined $100,000 for violating charter rules. He quickly set up electronic ticketing. And to boost productivity and reduce turnover, Neeleman let reservation agents work from their homes. The successful startup, with a fleet of 22 Boeing 737 jets, was set to go public just before Southwest made an offer.GUSTO. After his brief stint at Southwest, Neeleman kept his hand in the airline business by advising WestJet Airlines Ltd., a profitable Canadian discount startup. He also became CEO and majority owner of Open Skies Inc., the reservation company created from Morris' ticketless system. Open Skies, later sold to Hewlett-Packard, has handled such accounts as British Airways' Go, and Virgin Express.
But those ventures were just holding patterns for Neeleman. Now he's back in the U.S. airline business with gusto. Under federal rules favoring startups, he's seeking 75 takeoff and landing slots at JFK. His timing is good. With the public railing against the big airlines' poor service and high fares, New Air has already won the backing of such political heavyweights as Senator Charles E. Schumer (D-N.Y.).
Neeleman is unlikely to get all he's asking for, but a decision on the slots could come by September. In the meantime, he's uprooting his pregnant wife, Vicki, and their eight children from Salt Lake City for a new home in New Canaan, Conn. He knows the odds are against him. "People who invest in aviation are the biggest suckers in the world," says Neeleman. But his airline will be different, he insists. And with $128 million from George Soros and company, Neeleman clearly has converted plenty of believers to his cause.By Wendy Zellner in Salt Lake CityReturn to top