Air Florida
Air Florida was an American low-cost carrier that operated under its own brand from 1972 to 1984. During the period from 1972 to 1978 Air Florida was an intrastate airline. Until a high-profile 1982 aircraft crash in Washington DC, Air Florida was considered an early success story of U.S. airline deregulation, having expanded rapidly from its original Florida network, including internationally to Europe and Latin America. After the crash, the airline struggled for over two and a half years before finally succumbing to bankruptcy in 1984.
After being grounded for three months in Chapter 11 bankruptcy, Air Florida flew again for 10 months in 1984 and 1985 under contract to Midway Airlines using the brand "Midway Express", with Midway selling the tickets and doing the marketing. In 1985 it was sold to Midway.
History
Intrastate origin
Air Florida was based at Miami International Airport. Air Florida was initially organized as an intrastate airline by a group including Miami native Eli Timoner as chairman, Bill Spohrer as president, Jim Woodman as VP, Robert Bussey as Secretary and Reed Cleary as chief pilot. The inspiration was Pacific Southwest Airlines, the long-established California intrastate airline. Spohrer came from Convair 990 operator APSA, which may account for Air Florida's initial focus on a 149-seat Convair 990 as an aircraft, to be leased from Modern Air Transport. Later the focus changed to an Eastern Air Lines DC-8 before settling on a Pan Am Boeing 707 purchased for $1.1mm. The inability to settle on an aircraft delayed Federal Aviation Administration approval and thus start of the carrier.FAA approval was needed for operational authority. As an intrastate airline, Air Florida had no need to obtain the approval of the Civil Aeronautics Board, the now-defunct federal agency that then tightly economically regulated almost all US air transportation. Prior to 1972, there was no economic regulation of intrastate carriers in Florida. Such regulation started October 1, 1972. Air Florida, by first flying September 27, was grandfathered, but thereafter, so long as it remained an intrastate airline, Air Florida would be regulated by the Florida Public Service Commission as to matters like route entry and fares.
Ted Griffin, a former marketing director of Eastern Air Lines, became operational head from mid 1972, eventually taking the president title. The airline operated its first flights on September 27, 1972, offering twice-daily service in Florida between Miami, Orlando and St. Petersburg on "triangle" routings of MIA-MCO-PIE-MIA and MIA-PIE-MCO-MIA with a one way introductory fare of $12.00. By May 15, 1973, the airline acquired three Lockheed Electra turboprop aircraft, replacing the Boeing 707.
Acker group investment
Air Florida was unprofitable for most of its intrastate existence. In 1972 it attempted a $3.2mm initial public offering, but the market was unfavorable and it had to withdraw. The airline was acquired by a Timoner-controlled publicly listed company, Investment Property Builders as a way to give it a stock price. IPB became Air Florida System, Inc, explaining why Air Florida's holding company had a 1955 date of formation. In 1975, the U.S. Securities and Exchange Commission accused Timoner and a Swiss bank of manipulating the IPB stock price in 1971. The airline was chronically underfunded and unable to upgrade to jets, which caused some travelers to avoid Air Florida, leaving Timoner scrambling for funds.In December 1976, an investor group led by Ed Acker, previously a Braniff executive but at that time at an insurance company, led a recapitalization of Air Florida. Acker's group put in $1.5mm, some creditors agreed to take stock in exchange for $2mm in debt, other creditors agreed to a standstill, allowing Air Florida to acquire DC-9 jets. Three DC-9s were financed by Carl Lindner's American Financial Corp, which bought them from Air Canada and leased them to Air Florida in exchange for low-priced stock and warrants that, in early 1980, provided Lindner with a substantial payoff. In mid-1977, Acker became CEO and chairman, Timoner became president and COO, and Ted Griffin left the company. By February 1978, a turnaround was evident. The fleet comprised five DC-9s, with three more on the way. A company tag-line emphasized the change: "All jet. All the time." September 1977 passenger traffic was up 400+%, in October up 600+%, for November 1977 thru January 1978, up over 350%. Year over year call center volume increased over 100%.
Post intrastate
In 1978, Congress passed the Airline Deregulation Act, which phased out Federal economic regulation of the airline industry starting in 1979. The CAB relaxed its stance in advance of the effective date and allowed Air Florida to fly to Washington, DC, and, in the Bahamas, Rock Sound and Nassau by year-end 1978.No longer confined to its home state, Air Florida under Ed Acker was aggressive:
- Air Florida grew quickly, to the Northeast US, Caribbean, Central America and Europe. European routes required long-haul aircraft, such as DC-8s or DC-10s. By January 1981, the fleet included four DC-9s, 21 737s and a DC-10. The financial turnaround continued, with 1979 and 1980 showing solid profits. 1980 revenues were over five times those of 1978.
- Air Florida initiated three attempted takeovers of other carriers, two of them materially larger than Air Florida. This was not unusual for the time. Frank Lorenzo's Texas Air was another small carrier that made bids for much larger airlines in the late 1970s and early 1980s.
| Target | Timeframe | Disposition |
| Piedmont Airlines | June 1979-March 1981 | Bought 4.9% of Piedmont, which refused to engage. Sold stake to help finance Air California bid |
| Air California | October 1980-May 1981 | Bought investor interests in to-be-reorganized Air California parent company, Westgate-California Corporation, then operating in bankruptcy, giving Air Florida a 26% stake. Won a bidding war for WCC, but the other bidder launched a bid for Air California itself, which Air Florida lost |
| Western Airlines | July 1981-November 1982 | Bought stock in Western in part with WCC proceeds. Air Florida sold the stake at a $10mm loss in 1982. |
Flight 90 and aftermath
On January 13, 1982, Air Florida suffered a fatal crash in Washington DC, with a Boeing 737 aircraft hitting a bridge and ending in the Potomac River. Video of rescue efforts were widely broadcast, as was an iconic image of the broken tail of the Air Florida aircraft being pulled from the river. Air Florida reservations dried up. Later in the year the National Transportation Safety Board investigation blamed the crash on the Air Florida pilots.Air Florida's fortunes turned for the worse even before the crash. A substantial financial loss in the fourth quarter of 1981 was driven by fierce fare wars, including by Pan Am now run by Ed Acker. Heavy losses continued into 1982, but even after the crash, Air Florida management continued to consider mergers, this time with Braniff, in distress as it headed towards a May 1982 bankruptcy and grounding. The economy was in trouble and airlines particularly so. In July, Timoner suffered a debilitating stroke, with Donald Lloyd-Jones becoming CEO. Lloyd-Jones was an American Airlines veteran who lost the heir-apparent competition at American to Bob Crandall and had joined Air Florida as president.
| 1979 | 1980 | 1981 | 1982 | YE3Q83 | |
| Op revenue | 60,047 | 161,262 | 302,962 | 281,770 | 214,433 |
| Op profit | 3,965 | 9,495 | |||
| Net profit | 3,383 | 5,631 | |||
| Op margin | 6.6% | 5.9% | -4.0% | -11.9% | -7.6% |
| Net margin | 5.6% | 3.5% | -1.4% | -27.9% | -23.8% |
Two years of struggle
Central to Lloyd-Jones's recovery strategy was shrinking Air Florida. From June 1982 to May 1984 the fleet dropped from 29 to 11.- Air Florida shrank but did not simplify. It continued to fly to Europe, despite financials that showed Europe to be the worst of the three Air Florida geographies: US, Europe and Latin America. Indeed, even after it collapsed, the first operation Air Florida sought to resuscitate was its London route, yet it was the domestic 737 operation that survived the bankruptcy.
- It continued to fly Northeast to Florida routes in the face of brutal competition from Eastern and Pan Am – Eastern because New York to Miami was its marquee route since before WWII, a source of profits for decades. Pan Am for its part had bought National Airlines in 1979, which for decades shared that New York to Miami route with Eastern. Therefore that market was also important to Pan Am. But as much as Eastern and Pan Am lost on such routes, it did not have the proportionate impact on them as it did on Air Florida. As Eastern CEO Frank Borman noted in 1982, "we bled seriously, but only from a vein, bled from an artery".