The House Always Wins

We’ve talked about JetAmerica in this space before; it was the new ultra-discount airline that was setting up operations to connect several smaller Midwest airports (including the Capital City Airport in Lansing) to New York via Newark and Florida. I say was because over the weekend we got word off the newswires that the fledgling carrier had decided to engage with the FAA in a dispute over whether they were actually a charter service or a scheduled airline. Now, you might reasonably ask what difference it makes; after all, both types of business make their money flying people to secondary commuter airports aboard cramped, uncomfortable and occasionally unsafe jet airliners. It doesn’t sound like it should matter what JetAmerica was calling itself, as long as it complied with air safety and sound business requirements. Apparently, the people behind the company thought so, too. But you would be wrong in that assumption, and so were they…

As reported online by The Associated Press, JetAmerica was originally founded as a charter service (they’re renting the airplane from someone else, and outsourcing both the crew and the maintenance operations), which meant that they didn’t have to pay for the expensive landing rights that a scheduled airline needs to operate at most airports. However, the FAA disagreed with the company, stating that if you provide regular scheduled service between public airports for a set fare, you’re an airline whether you call yourself one or not, and you do have to pay for landing rights (called “slots”) every time you want to take off or land. JetAmerica apparently tried to argue with the FAA (they’re still trying to plead their case, in fact) but in the end was unable to get permission to start flying slot-free, and unable to afford to pay for landing slots at Newark – predictably, since the FAA is the agency that gets to decide these matters…

The real question, from where I sit, is what possessed these people to begin operating without resolving this question in advance? It is possible, of course, that they asked the FAA for a ruling in this matter months or even years ago, became bored waiting for an answer, and decided to go ahead with their operations and clear up any problems that occurred “when and if.” It’s also possible that they were able to raise a small amount of capital and gain access to their rental airplane, and were simply hoping to launch operations and make enough money transporting discount passengers that they could afford to pay for their mistakes (or just buy the landing rights) with the proceeds. We’ll never know for sure, unless the company decides to make its records public, but it seems probable that somebody saw an opportunity and a loophole in the rules, and decided to run for it while they could…

The problem with this as a business model is that when it works, it has the potential to create new businesses and even new industries, but when it fails all you get is bad feelings, wasted money, and a lot of egg on your face. The AP story says the company is having to return their first $500,000 in ticket sales, but our local paper puts the number as closer to $5,000,000, and that’s not even considering the damage to the local economy or the effects that another big, splashy bankruptcy could have on the airline industry or our national economy at this juncture. The unfortunate fact is that most (if not all) wildcat operations of this type are based on the belief that it is possible to beat the odds. But as every real gambler knows, sooner or later, the House always wins…