Hooters Air Owes Lehigh Valley Airport $1 Million

Lehigh Valley International Airport, which has lost two small carriers in the past 18 months, now has reason for concern about another airline.

Hooters Air owes more than $1 million for fuel sales to LVIA; by comparison, the airport brought in $21.7 million in revenue last year. The Myrtle Beach, S.C. airline has been struggling with fuel costs since the fall, airport officials said. It began flying at LVIA last year.

It's the second time in a little more than a year that LVIA has faced a debt of $1 million, both times involving a small, low-fare carrier. At the end of 2004, Southeast Airlines abruptly ceased flying, cancelling popular nonstop flights to Florida and leaving LVIA with $1 million in debt, which the airport never recovered.

The airport's struggle with low-cost carriers has unfolded while the airline industry has faced soaring fuel costs. Southeast, for example, cited fuel costs as a chief factor in its demise.

LVIA has welcomed the smaller, low-cost carriers, which often shoulder much of the local leisure flight market, with fanfare, and marketing. A year ago, TransMeridian Airlines of Atlanta began flying to Orlando from here, taking on some of the flights left by Southeast. It ceased flying in September.

LVIA had high hopes for Hooters when it began flying here in May. In the space of two months last year, Hooters announced it would begin flights from LVIA to Fort Lauderdale and St. Petersburg, both in Florida; Gary, Ind., near Chicago, and Myrtle Beach, S.C.

The airline has so far not delivered as LVIA had hoped. When fuel prices spiked in September following Hurricane Katrina, Hooters began cancelling some local flights that were not full, said George Doughty, the airport's top official. It is not now flying to Orlando or Myrtle Beach from here. Hooters was buying fuel from LVIA but when it stopped making payments for fuel in January, airport officials told the airline to look for a new supplier.

Hooters flew 3,345 passengers in January. By contrast, the airline flew more than 11,000 passengers to and from LVIA in July. Part of the drop in January was seasonal; Hooters has suspended certain winter season flights in the past at other airports.

Doughty said Hooters' Air flights typically depart on time and are popular. But he fears the habit of cancelling flights is alienating customers.

"That's my most serious concern," said Doughty, executive director of Lehigh-Northampton Airport Authority, which operates LVIA, in a telephone interview. "That is really being your own worst enemy."

Hooters Air President Mark Peterson said the airline has at times combined flights to Florida, and all airlines make scheduling changes. The important thing, he said, is the airline is still serving the Allentown market, and a plan to repay the debt is in place. He said the high fuel prices of the last six months have posed significant challenges not only for his company, but for every airline in the industry.

"Anyone can fill up the airplanes," Peterson said in a telephone interview Wednesday. "Making money doing it, that's the real challenge."

Doughty said there is at least a possibility that LVIA could lose Hooters as an airline. But he said that's also a possibility with other airlines that serve LVIA. Delta and Northwest Airlines, for example, are in Chapter 11 bankruptcy proceedings. Peterson would not say unequivocally that Hooters Air will be operating in six months or a year, but he said many airlines would be hard-pressed to make such a statement.

Hooters Air, which is an offshoot of the popular restaurant chain, has cut back on service at other airports. In December, Hooters suspended some flights from airports in Gary, Ind. and Columbus, Ohio, saying they would resume this month.

Founded in 2003, Hooters Air is a relatively new airline but has gained national name recognition because its parent company runs the restaurant chain known for its buxom, skimpily attired waitresses. In addition to flight attendants, each flight includes Hooters girls who play games with the passengers.

The airline operates largely to drive traffic to the company's restaurants. Hooters opened a casino in Las Vegas last month that also is considered a vehicle for the chain's 400 restaurants. Experts say because Hooters is privately held, it is difficult to describe how the airline is faring financially. The company is owned by millionaire Bob Brooks.

Peterson acknowledged that the airline is secondary to the restaurant chain, but he said that does not automatically mean the company is not dedicated to the airline industry.

"Is Hooters Air critical to selling chicken wings? Maybe not," Peterson said. "But Hooters is involved in a lot of things. We just started Hooters Magazine. We have a Hooters Mastercard. The casino just opened up. None of these things are critical to the restaurant but as a whole, all of this has worked very well for Hooters.

While the company has a flamboyant reputation, aviation experts say Hooters Air employs professionals with many years of flying experience. It bought Pace Airlines, which operates its flights.

As a small carrier, it faces greater challenges than a larger airline, particularly with fuel costs so high. That's because more established carriers gain discounts on fuel because of the volume they purchase, and can achieve efficiencies because of the large number of flights they operate.

"From the industry point of view, they are viewed as a specialty carrier," said aviation consultant Bill Oliver of the Boyd Group. "That is a portion of the industry that has seen a lot of airlines come and go. But it is also a part of the industry where we have seen some successes, specifically with destination airlines such as Allegiant, which is much larger than Hooters."

Oliver said Hooters' focus on golf vacations in places such as Myrtle Beach should pay off.

LVIA has come to rely on low-cost airlines such as Hooters for nonstop flights to Florida. Since 2001, none of the larger carriers that serve LVIA have flown nonstop to Orlando or other cities in Florida. Local passengers, many of whom are older, prefer flights that do not require changing planes.

The low-cost carriers that have served LVIA in recent years have typically started with bargain-basement introductory fares. That immediately squeezes profits, airport officials say. Moreover, these airlines serve a leisure market where every dollar counts, Doughty said. That means they risk losing customers by raising fares. By contrast, business travelers tend to have much more latitude on fares.

While Doughty did not want to excuse Hooters' failure to pay its bills, he said the issue is a wider one that is affecting the whole industry. He said fuel costs have soared so high that few airlines are making a profit.

Southwest Airlines, the nation's largest low-fare airline, has continued to turn a profit during the fuel crisis because it was able to buy fuel in advance at a lower fixed cost than its competitors.

"Honestly, if Southwest had not hedged their fuel, they would have lost money by now," said Oliver, the aviation consultant. "That's how tough things have gotten."

Oliver said given the planes Hooters flies, it would not take long to rack up $1 million in fuel costs. Hooters flies 130-seat and 110-seat 737 airplanes at LVIA.

"Airports do work with airlines on fuel, and thank goodness they do. A red flag does go up, though," Oliver said, when an airline leaves a bill of $1 million unpaid.

While Hooters does not have immediate plans to cease flying here, the possibility looms, given the conditions in the industry. The potential loss of Hooters, coupled with possible cutbacks from the other carriers, could have wide-ranging repercussions for LVIA.

"If we lose Hooters, and we get further cuts from major carriers and we don't get the backfill from Allegiant that we hope for, we will have to make some dramatic operating cost adjustments and do some things we don't want to do, and it will have to do with staffing levels [and] it will be real ugly," Doughty said.

LVIA officials have asked Hooters to pay off the debt in the next month. If it does not, the airport will consider legal action to recoup the money. No other airline at LVIA owes significant amount of money in back bills.

jeanne.bonner@mcall.com

610-820-6539



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