The wind-down of USA3000, a small carrier serving Mexico and the Caribbean, marks the end of an era. Its story, from genesis to exit, is also the story of how these sun-and-fun destinations became important mass-tourism playgrounds for Americans. And its history clarifies the issues that package tour operators, hoteliers and destination marketers faced in building up these regions.
Although USA3000 is not a charter airline, it is inextricably tied to charters and issues related to airlift that challenged development in Mexico and the Caribbean from the 1960s through the 1990s.
And its story demonstrates how, as happened in so many aspects of the travel industry, 9/11 changed everything.
Last week, the chairman and CEO of USA3000, John Mullen, who also owns Apple Vacations and AMResorts, told me the story of the airline from beginning to end, including his rationale for simply closing it rather than placing the airline in bankruptcy. His narration provides a fascinating glimpse into how destinations develop, how tours are packaged and the crucial role that airlift plays throughout our industry.
Here is what he said:
John Mullen: When Apple Vacations started in 1969, we were running groups and charters to Jamaica, the Bahamas and Cancun. Also, to Acapulco and Puerto Vallarta. Some were on scheduled flights, but scheduled service was very, very limited. We were able to increase frequency [of our packages] and lower rates because of the combination of chartering air and guaranteeing blocks of rooms. We were successful with charters because it helped us offer competitive pricing.
But back in the 1990s, we recognized there was a lack of good charter airplanes because a lot of the time the charter operators got into the business with airplanes at the end of their cycle with scheduled airlines, and it wasn't always the most reliable mode of transportation.
We realized that if we were serious about growing, we had to be very careful about lift. It was our weakest link, so we decided to do something about it. Our only course was to start our own airline, with new equipment and airplanes that could reach the destinations we were interested in popularizing. It was the right decision at the time.
It took roughly three years, from 1998 until 2001, to get the license and approvals from the FAA. We had spent three years of our lives getting ready to fly. We had ordered seven airplanes. We hired pilots, flight attendants and mechanics.
And then came 9/11. Our first plane was delivered in October 2001, and the second in November, but we still didn't have a license to fly. I guess our timing wasn't perfect. But on Dec. 27, 2001, almost 10 years ago, USA3000 had its very first flight.
In 2002 and 2003, things began to change with the scheduled airlines. Because of 9/11, scheduled carriers lost a lot of commercial traffic and had to find a place to take planes, because they had them under lease. They looked atCancun, Puerto Vallarta, Jamaica, and they realized they could take people there.
That wasn't to our advantage, but at the same time we were operating and growing and got our fleet up to 14 planes and 600 employees. People thought of it as a charter, but it was a scheduled airline; 90% of the flights were scheduled out of Philadelphia, Chicago, other cities.
But we're also in the risk business. We take blocks of seats with JetBlue, Frontier, AirTran, Sun Country, Aeromexico, Alaska, others, and we guarantee the blocks and get bulk rates. If there are 168 seats on an airplane, we may take 150, and they can put 18 in their inventory. If we only sell 10, we still have to pay for the 150.
But we do this because when we go to our hotel partners and get blocks of rooms, we want them to know we will have sufficient lift to fill those rooms. This is what's important to us, and has been for the last 40-something years. We come out with a price, and we won't change the price, but with scheduled air, there's always the chance [the airlines] will change the price. There is still risk even if we fill the plane, because we'll say up front that there may be a $100 fuel surcharge, but if it turns out the fuel will cost us $200 more than we had planned, we have to make up the difference.
But we manage this very well. And as time went on, we realized we could get the lift we needed at the price we needed with scheduled airlines using risk seats.
We have a bigger pool of planes to draw from [than when USA3000 was started]. There are 110 flights going into Mexico. Thirty-one of them are into Cancun, and every week during the winter season we have 8,500 seats with risk on scheduled airlines flying there. And we have 41 flights every week going into the Caribbean. And also lots of flights into Costa Rica and Central America, where we're looking to build up. We can expand programs into new [U.S.] cities, with risk seats.
We have sufficient lift, and as winter picks up, we have options for more flights. The West is becoming very important. We're going to do some programs out of Southern California this summer. We're in Salt Lake City, Denver, Texas. We're looking at Phoenix. All risk seats on scheduled air. We don't necessarily need to have our own airline to reach our goals. We realized this about two years ago.
I don't want to close anything down, but it doesn't make sense to have an airline when we can work with our partners in the airline business. We started giving back airplanes late last year. Our employees knew that if we didn't find a buyer for the airline, we would close [USA3000] down in early 2012. This gave them time to plan. Some have found other positions. Some have retired. Some have come over to Apple. Mechanics are very much in demand. They're finding jobs. It doesn't seem to be a problem.
USA3000 is still fully functioning, but we're in the process of winding it down. We still have five airplanes, and Jan. 30 is our last scheduled flight. We still have a dedicated staff of pilots, flight attendants, dispatchers. We maintain our parts warehouse, and safety is still the most important thing. Everyone understands: Never compromise safety.
We decided early on not to go into bankruptcy. Bankruptcy would have been easy, and would have saved money, but we wanted to give people time to plan for the future. We looked for a buyer, but we didn't feel comfortable with some of the buyers, so as we got further and further into it, we started to give the airplanes back to the leasing company.
Or, if someone needs an A320, there's a shortage of A320s, so it won't be hard to find someone who needs one. If not, we'll put the last plane into final maintenance in September 2012.
Closing USA3000 won't affect our other businesses. Apple Vacations, USA3000, AMResorts and Amstar [a destination management business] are all separate companies, with their own stockholders, boards of directors and bylaws. But they are affiliated. I still own them.
Email Arnie Weissmann at [email protected] and follow him on Twitter.