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By Holly Hegeman
Current IssueThursday,April6,2006|Volume 9Issue 14
 

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2006 Ron Allen Award: This Time it Has to Be Kerry

Last year some subscribers claimed that I went off the deep end when I awarded the Ron Allen PlaneBusiness Airline Management Award to GECAS. Many were quite vocal in their disappointment that I did not award the coveted accolade to then Independence Air CEO Kerry Skeen.

Kerry SkeenAll good things come to those who wait.

This year, in looking over the list of airline CEOs who did not add anything positive to the health and well-being of their respective airlines, it was pretty hard to dismiss Kerry, in favor of anyone else, or any other organization. The crowd picked this year's winner and I thoroughly concur.

It is therefore, my great pleasure to award this year's Ron Allen PlaneBusiness Airline Management Award to Kerry Skeen.

Before I go any further with this year's announcement, I want to make sure that all of our new subscribers understand the reasoning behind this award.

As happens every year, I had some folks submit glowing recommendations for various CEOs. Some people took a lot of time to write me long letters extolling the likes of Gary Kelly, Doug Parker, and Larry Kellner.

I'm afraid these folks are a bit confused. Although I have to admit, there were some pretty convincing letters sent in. They were just nominations for some other award. Not this one.

No, unlike the honor bestowed by the George Washington University, whose Executive Master of Business Administration Program honored Kerry Skeen in 2004 as the CEO of the year, citing Skeen's "visionary leadership," I doubt you'll find note of the Ron Allen award on Skeen's resume in the future.

This award is given to the airline CEO who we feel did the poorest job at managing his respective airline during 2005. (Although, as is usually the case, there is oftentimes a track record of questionable performance leading up to the actual award year.)

And yes, for you newbies out there who might not be familiar with the name, the award is named after the former CEO of Delta Air Lines -- Ron Allen. Ron was a man who I don't think anyone would tag as "visionary."

Not that the man was not well liked. Ron was as amiable as a favorite golfing buddy.

But in terms of leading Delta into the future at what was a very critical time for the airline, Ron was not a shining star.

Back to Kerry Skeen.

After the demise of Independence Air, we wrote here extensively about how we were of the opinion that the real damage to the former Atlantic Coast operation had been done years ago -- way before Independence Air took its first flight.

We still believe this.

The bulk of Atlantic Coast's equity was destroyed because of the airline's public catfights with its major airline partner -- United Airlines.

This was long before Indy Air ever saw the light of day.

What we now know that was not known at the time is that Atlantic Coast executives took the adversarial approach they did with United because they thought they had the cat, so to speak, in the bag. They had already done the preliminary planning for an independent airline.

As a result, they took a "we can take it or leave it" attitude toward United in terms of potential reduced flying rates.

Eventually, Atlantic Coast got its wish -- and Indy Air came out of the closet and into Dulles Airport.

We all know the rest of the story.

Indy Air is no more.

But it's not that simple.

Was Indy Air a complete disaster?

No.

In this week's news concerning Southwest's new move into Dulles, Southwest CEO Gary Kelly acknowledged that the amount of low-fare traffic Indy Air had managed to generate out of Dulles had gotten the airline's attention. I think it is also safe to say that Indy Air's operation had an effect on Southwest's BWI operation. (Although how much impact at BWI was also caused by the airline opening up in Philly is another issue.)

While there may be some overlap between BWI and Dulles in terms of potential passengers, I think it's more likely not to be the case. Or as one subscriber wrote to me this week, "I'd drive from Philly to BWI but I’m not going to fight cross-DC traffic to go from Alexandria to BWI. I'm just not doing it."

And obviously he is not alone. Which is what Indy Air proved.

So no, the concept behind Indy Air was not totally flawed.

What was flawed was the idea you could do this type of operation utilizing 50-seat jets.

And here is where Kerry earned his Ron Allen stripes.

Hubris, ego, whatever you want to call it. I wrote here after the airline ceased operations that this was at the heart of Indy Air's demise. Or as someone said to me Wednesday, "Kerry's ego was always bigger than the airline's route structure."

Kerry and his immediate management team went ahead full steam with this airline because the lure of doing it "ourselves" was simply too great. Even though the numbers didn't support the venture, they just couldn't say no.

Granted, what were they going to do with all their 50-seat jets?

Well, this was the problem.

But instead of recognizing the problem, they simply swept the cost concerns of the 50-seaters under the rug. Or, as one subscriber has offered, "Don't you think their real plan was to load up on Airbus aircraft as fast as they could, and then start ditching the 50-seaters?"

Probably.

But if that was the plan, Kerry and the bright minds around him should have been able to look at the numbers and figure out that doomsday was going to come much sooner than 10 or 15 Airbus aircraft.

If that was the plan, Kerry failed miserably in rounding up enough capital from the get-go to finance such a plan.

But what about fuel? What about the argument that Indy Air failed because of record fuel prices? Did the airline fail because of this?

No.

Obviously the huge increase in fuel prices did not help matters.

But again, looking at the whole operation from when Kerry began to taunt United in public to the day Indy Air shut down, I think he was throwing the dice. Continually.

Kerry was not going to agree to fly for United for reduced rates. No sir. He was going to start his own airline. His own brand. His own logo. (Haven't we heard this someplace else recently?)

And even though the airline was saddled with a warehouse of 50-seaters, that was not enough to make Kerry stop and pause.

Oh, no.

This was destiny.

The logo was well done. The planes were great inside. The in-flight service was pretty darn good.

However, I did have a problem with the "repackaging" of Kerry himself. I'm sure I am not the only one who noticed that Kerry went from a man who wore expensive suits and tailored shirts as the CEO of Atlantic Coast to a person who wore a blue denim shirt open at the throat or a short-sleeved polo shirt as CEO of Indy Air.

Uh-huh.

I could never warm up to the warmer, fuzzier Kerry. Every time I saw him in some "casual" attire the phrase "wolf in sheep's clothing" kept going through my mind.

The necessary "transformation" just didn't work. He looked about as comfortable as a snake without his skin. The fact he was doing this never failed to register. And it registered negatively.

Slick marketing can only do so much.

While slick marketing alone cannot a motivated employee force make, as best as I can tell, the employees of Indy Air worked very hard to make the airline a successful one. They bought into the dream. They gave it their best effort.

It's just a shame that their efforts were doomed from the start.

After the airline shut down, Kerry was quoted as saying he had "no regrets" about what happened at the airline.

If he had to do it all over again, do you think he'd look at those marginal spreadsheets and decide that they foretold just one roll of the dice too many?

Nah.

I believe the guy. He doesn't have any regrets. Because in his mind the airline failed for reasons that were not within his control. Fuel, competition, whatever.

We disagree.

I don't think the project was a lost cause from the start. Obviously, as Indy Air proved, and as Southwest has now confirmed, there is room for a low-fare carrier operating out of Dulles.

I think there were things that could have been done differently, at a number of different junctures, that could have made a difference.

But like the Shakespearian tales of old, this one is a story of blind ambition. Of an inability to see the obvious because one was so seduced by the glittering prospect of success.

The obsession for the holy grail -- to be the CEO of an independent successful airline -- had already taken root. It wouldn't have mattered if Indy Air had been forced to start with DC-3s. Somehow, someway, there would have been a spreadsheet formulated to show that yes, this can be a success.

I'm just so glad Kerry has no regrets.

It makes it that much easier for us to award him this, the 2006 PlaneBusiness Ron Allen Airline Management Award.


PlaneBusiness Banter Disclosure Notes: Holly Hegeman currently holds no positions in any stocks discussed in today's issue. PlaneBusiness.com is not currently engaged in a consulting capacity with any airline discussed in today's issue. However, we do routinely provide research and/or consulting services for airlines and/or financial firms related to the industry. Comments made in regard to individual stocks in this publication are not to be interpreted as stock recommendations.

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