With his company predicting a 140 percent growth spurt over the next three years, Kerry Skeen, 46, is doing his part to keep up with his corporate neighbors along the high-tech Dulles corridor.
In fact, the company already is growing so fast that one of Skeen's top executives brought in a personal organizer to help headquarters employees keep track of the increasing paperwork load and organize their offices, thus reducing stress.
But unlike many of his neighbors, Skeen is not a high-tech entrepreneur. His company is Dulles-based Atlantic Coast Airlines, one of the biggest airlines no one has ever heard of. Flying under the banner of United Express, Atlantic Coast has by far the most daily flights out of Dulles International Airport, a flight system that stretches from Maine to Florida and west to Fargo, N.D.
Now it's up to Skeen to maintain the growth in an industry showing signs of slowing down. Last week, the airline announced it was promoting Skeen to chairman and chief executive from his current post as president and CEO, replacing Chairman Ed Akers, who is retiring at the end of the year.
Atlantic Coast was founded in December 1989 in a two-room warehouse office with 50 employees, most of whom were borrowed from another airline. Since then Atlantic Coast has become the largest independent regional carrier in the nation. The airline has 554 daily departures from Dulles and Chicago's O'Hare International Airport, serving 24 states and 54 cities with a fleet of 81 aircraft. The airline now employs 2,300, about 75 percent of whom work in the Washington area.
Regional airlines have become a staple of the airline industry since deregulation 21 years ago. They have become the air link between small communities that can no longer support mainline air service and the hubs served by the major carriers.
Until recent years, however, most of the regional air service was aboard turboprop aircraft, small propeller-driven planes that flew lower and slower than jets, often unable to avoid turbulence.
Today, with the advent of 30-, 50- and 70-seat jets able to take off and land at smaller airports, regional carriers can suddenly provide jet service to small outlying communities and still make money. With the advent of the regional jets, the major airlines have turned increasingly to carriers such as Atlantic Coast to increase the number of passengers being fed into their hubs.
As a result, in the last year alone Atlantic Coast has created a hub in Chicago that will soon account for 27 percent of its operations. Skeen said that allows Atlantic Coast to increase its passenger load by serving such cities as Savannah, Ga., from both Chicago and Dulles, making it much more feasible economically to provide air service.
Early in September, Atlantic Coast announced it was setting up a separate subsidiary to operate up to 45 regional jets for Delta Air Lines under the Delta Connection banner. The new service under the 10-year agreement will not operate out of Dulles and is not scheduled to begin service until next April. Skeen said the routes Atlantic Coast will serve have been picked, but he was not prepared to say where they were.
The new Delta agreement underscores what Skeen sees as the real future of his airline in terms of jet aircraft. The majority of the new jets being ordered for the Delta deal will be small, 32-seat Fairchild Dornier jets. Skeen sees the smaller aircraft, rather than larger regional jets, as a key to developing new routes.
"We see 50 seats and below" as the key, Skeen said.
With the pilots' union at the various major airlines able to limit the use of larger regional jets through what are known as "scope clauses" in their labor contracts, Skeen said his airline is able to develop longer-range plans using the smaller jets. The pilots are using the scope clauses to limit the use of the larger regional jets by carriers such as Atlantic Coast out of fear the mainline carriers will begin to give up routes now flown by mainline pilots. Pilots on regional carriers on average make less than half the wages of pilots who fly for the major airlines.
The Delta agreement differs from the agreement with United in one important way, as far as Wall Street is concerned. It protects Atlantic Coast from economic factors that could affect revenue, such as changes in fuel prices, by paying Atlantic Coast a guaranteed fee for each flight. The United agreement splits the revenue from the flight, offering Atlantic Coast a chance at a bigger profit without guaranteeing any of the income, making it a bigger risk.
But, "there is a great upside" as well, said Brian Harris, an airline analyst with Solomon Smith Barney Inc. in New York. "If things go well ... they have much better growth prospects," he said.
Last year, Atlantic Coast had income of $30.4 million on revenue of $289.9 million. This year, profit has suffered slightly from the increased length of the average flight and from start-up costs associated with the new subsidiary Atlantic Coast will use to service its Delta agreement. Earnings year to date for 1999 have remained almost flat, at $22.2 million versus $22.7 a year ago. Revenue has increased 21 percent, to $256.4 million.
At least some of the growth at Atlantic Coast Airlines can be directly attributed to the growth in the area's high-technology community. Wherever the techies need to go, Atlantic Coast tries to take them there.
Skeen cites Jacksonville, Fla., as one of the first communities to which Atlantic Coast started jet service in 1997, primarily to shuttle America Online Inc. employees back and forth from the AOL training center there.
And later, when AOL bought CompuServe Inc. of Ohio, AOL executives were "driving right past Dulles Airport because they didn't want to take turboprops" to get to Columbus, Skeen said. Atlantic Coast quickly added jets and expanded its service to Columbus.
Granted, Atlantic Coast does not study America Online's acquisition strategy to plan its routes. But, Skeen said, "we did shuffle priorities because we saw the market changing fast."
The expansion of flights from Dulles into Raleigh, N.C., and its Research Triangle were for similar reasons. "That is a high-tech-to-high-tech marriage," Skeen said.
Now that Atlantic Coast serves most major technology centers, there is a new push to bring jet service to less glamorous communities.
As part of airline deregulation, many major airlines have abandoned small communities because there is not enough profit in serving them; the federal government does not require them to provide the service. The result has been an outcry across the country from small communities that have lost air service and now are clamoring to get it back.
"All of a sudden, congressmen and senators are knocking on our doors," Skeen said. On Friday, for example, Skeen met with Sen. Olympia Snowe (R-Maine) to talk about air transportation in her state, a conversation that Skeen has had with many other legislators.
As an example of how the smaller jets could be the answer to smaller communities, Skeen said, the state of Maine wants service from Bangor to Dulles. "The market doesn't work with a 50-seat jet. If we had the economics of a 30-seat jet, Bangor gets on the radar screen," Skeen said. "The economics work on the small jet, not on the 50-seat" jet.
For now, Skeen does not see any other major strategic arrangements with other airlines.
"I think our plate is full," he said.