Airline Business Plan Flies on Thrift; Company Weaned Off Subsidies

May 15, 2007
New Mexico Airlines prepares to start service July 1

New Mexico Airlines president Greg Kahlstorf says his 33-year-old company aims to do what other airlines flying into small communities can't - turn a profit without government subsidies.

The new airline, which plans to begin service July 1 between Albuquerque, Carlsbad and Hobbs, is a subsidiary of Hawaii-based Pacific Wings Airlines. Pacific Wings is a 33-year-old company that originally got its start in Nevada before moving to the Aloha State.

After a decade of experimenting with new routes and a fleet of efficient Cessna turboprops, Pacific Wings last month began serving 10 cities on five Hawaiian islands without any federal Essential Air Service subsidies whatsoever.

The EAS program, which has a yearly budget exceeding $110 million, faces annual congressional attempts to slash its funding. The Bush administration has proposed halving it and asking local communities to contribute a percentage if they want air service.

Kahlstorf says the company realized in the 1990s that it would have to begin weaning itself off the EAS subsidies.

"The communities we serve in Hawaii, these are communities that have a hard time coming up with money to fix the streets," he said of a debate over funding matches of 10 percent to 15 percent. "We knew we had to find a business model that exists independent of the subsidies."

The company replaced its fleet of older twin-engine aircraft for the single-engine, nine-passenger Cessna Caravan, a well-tested, 20-year-old design used in freight and passenger services around the world.

With less expensive aircraft, the company was able to drastically reduce prices, which helped to mitigate low patronage that has plagued EAS-subsidized flights nationwide since the program was created in the late 1970s in response to impending airline deregulation.

Kahlstorf says the company chose New Mexico for expansion because of its similarities to Hawaii. "Here, these small communities are islands in the desert separated by these vast expanses of land," he said. "But people have the same need to participate in legislative processes, to travel to seats of commerce and culture. We have to create the incentive to get people out of their cars and into a plane. We've found that $50 is the right price point."

New Mexico Airlines outbid Mesa Air for the EAS contract to serve Hobbs and Carlsbad last month. But the company plans to expand the service based on customer feedback and utilization, Kahlstorf said.

New Mexico Airlines plans to have a fleet of three Caravans here, and slowly expand service to El Paso, Midland, Odessa and Lubbock, Texas, Portales, Clovis, Santa Fe, Silver City and Deming. It will employ about 25 to 40 at its Albuquerque headquarters and at regional airports.

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