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Presidential Airways: A ‘Great Dream’ Gone Bad With BC-Deregulation Decade

October 23, 1988 GMT

HERNDON, Va. (AP) _ It was 10 days before Christmas when Harold ″Hap″ Pareti discovered the airline world’s version of the 800-pound gorilla was about to land on him.

Pareti, chairman of Presidential Airways, a fledging carrier that had carved a small niche at Dulles International Airport outside Washington with hopes of growing larger, was about to get an education into what competition is really like in a free-market airline industry.

United Airlines announced that day in mid-December 1985 that within months it was putting a major hub at Dulles and expanding its flights from 15 to 58 a day, and eventually to 87 a day.

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Pareti recalls his dreams being doomed.

Presidential, 3 years old this month, today flies under the marketing name of United Express and banks its future on feeding passengers to United’s jetliners. It remains independently owned, but there is no doubt that United calls the shots.

Pareti’s rough-and-tumble experiences provide a unique insight into the state of competition in today’s deregulated airline industry. While the government no longer bars an airline from flying any route it chooses, economic realities often do.

So powerful are the half-dozen major ″mega-airlines″ that many aviation experts believe it would be folly to start a new airline today. According to a Congressional Budget Office report, of the 22 airlines that began interstate service in the past 10 years, only five survive. No new airline has been launched since l985.

″It would be extremely difficult to start something from scratch today,″ said Pareti, who was among those who founded People Express and later became its president before quitting and starting Presidential. ″There was a window (of opportunity) and the window closed a few years ago.″

And Pareti bemoans the development.

″I think it’s bad. There’s got to be that threat of entry and that threat of price competition. And I don’t think that’s the case in the airline industry anymore.″

United Express is not what Pareti had dreamed of for Presidential Airways when he and a small group of investors started the airline in October l985. They had hopes of building a regional airline much as those who in earlier years had started Piedmont and Allegheny (later USAir) ″by flying where the big boys didn’t.″

″That was the plan,″ recalls Pareti in an interview in his Presidential Airways office overlooking the main runway at Dulles.

The Boeing 737 was Pareti’s choice of a plane and he had leased 13 of them. In late l985 and early ’86, the jets flew to such cities as Indianapolis, Cincinnati, Cleveland, Boston, Hartford, even Montreal, and south to Florida - always through Dulles.

The airline was not yet making money as 1986 began, but it was on its way, he says.

But early that year, United began its expansion at Dulles, New York Air shifted 10 aircraft from New York to Dulles, and Pareti’s dream began to fall apart.

Wherever Presidential flew, so did United, New York Air and USAir, which also stepped up services to some of the cities targeted by Pareti. Even worse, if Presidential shifted to a new city and proved to be successful, it was sure to attract the same larger, stronger competitors.

Dulles, which once had been ignored because it was too far in the Virginia suburbs from downtown Washington, became the fastest growing airport in the country. But with the new competition, Presidential’s jets flew with too many empty seats.

″It was a great dream, but the reality was we were losing too many bucks a month to realize that dream,″ Pareti recalls.

So, he began dancing, weaving and skipping to survive. He lowered the profile of Presidential, replaced its Boeing 737s with new, quieter and smaller British Aerospace BAe-146 jets, and bought a small commuter for its fleet of propeller planes.

He abandoned ideas of beginning a charter jet service, primarily to haul military personnel, although Presidential still has one Boeing 737 being chartered to the presidential campaign of Michael Dukakis. A $6 million mid- field terminal at Dulles, which Presidential built, was put up for sale.

In early 1987, Continental Airlines became its partner, but within a year Continental, which had bought Newark-based People Express, shifted most of its flights to Newark, leaving Presidential to founder.

The first weeks of l988 were the low point, Pareti says. Presidential still was flying as Continental Express, but no longer served as a connector. Two- thirds of its seats flew empty and Presidential’s stock, which had sold for $5 a share in 1985, tumbled as low as 37 cents a share.

The airline was losing $2.2 million a month and ″if everyone had said ‘Pay cash on the barrelhead.’ it could have put us under,″ he recalls. But in January he reached agreement with United and began flying as United Express in February.

″Presidential Airways survives 3/8″ began Pareti’s letter to stockholders last April. After $88 million in losses, the airline reported its first quarterly profit, $1.3 million, in the second quarter of this year.

But the airline is far from what Pareti had envisoned. Its relationship with United is cordial. But, admits Geoffrey Crowley, Presidential’s senior vice president for marketing, ″Big Brother calls the shots.″

This summer one of Presidential’s most profitable routes was Washington to Portland, Maine. It was so profitable that United took it over with its own jet service, forcing Presidential to shift to Worchester, Mass., a city not nearly as desirable.

But Pareti, who put $500,000 of his own money into starting Presidential, does not look back: ″You see it starting to work now. You’re starting to make some money. And you know you’re one of the handful of survivors.″

End Adv Sunday Oct. 23