A proposed membership-based airline that had hoped for a 2013 launch has signed up lots of members but has yet to pull in the big investors it needs to put its own plane in the sky.
Legacy Travel Club nevertheless has tapped a law firm that is putting together documents for a private placement for perhaps yet this year, said Legacy founder Christopher Allen.
“The last two or three months has been huge for us as far as investor momentum,” said Allen, conceding that “the progress is measured in baby steps.”
Allen’s idea is for a resurrected version of the early and successful days of Indianapolis-based charter airline American Trans Air, known as ATA Airlines when it folded in 2008 as a scheduled airline.
ATA was founded in the 1970s as a membership-based travel club, known as Ambassadair. Founder George Mikelsons literally flew the club’s Boeing 720 airliner—even loading and unloading luggage.
Allen has succeeded in evoking fond memories among locals of the early ATA when he proposed the idea a few years ago—along with doubts it could work in today’s brass-knuckles airline industry.
Even Mikelsons, who is retired and living in Florida, questioned Allen’s sanity when the two met for lunch.
Yet Allen, a former ATA mailroom employee and pilot’s son, has been as persistent as a pit bull. He’s constantly buttonholing business leaders and wealthy investors. And earlier this year, Allen ran compelling commercials on local television that depict air travelers in search of a better way to get around than commercial airliners packed to the gills and flying through hubs.
Legacy has signed up 95 “lifetime” members, who agree to put up at least $5,000. He’s also offering annual memberships, for as little as $1,000. All told, Legacy has over $100,000 in financial commitments. But that’s far short of a minimum $2.5 million Allen figures he needs in seed money to unlock additional commitments from investment funds.
The goal of the private placement is to secure at least 18 investors to put in at minimum $300,000 apiece, which he projects will be enough to start flying. Allen is jetting off to New York next, to meet with a potential investor familiar with Mikelsons’ early days.
But raising money for an airline, even for a travel club that wouldn’t directly compete against major carriers, is no easy feat.
Last year at this time, Allen reached an agreement with Independence, Mo.-based Amvest Financial Group, which was to raise more than $5 million for Legacy. The investment banking firm has largely struck out, at least so far.
Despite the fact that scheduled fares are rising, that planes are packed like sardines, and that passenger dissatisfaction is palpable, “you certainly don’t see the level of startup activity you saw [in airlines] in the 1980s or ’90s,” said Robert Mann, principal of New York airline consultancy R.W. Mann & Co.
Generally, with airlines, “it’s a very high-risk proposition of questionable reward,” Mann said.
Allen countered that the niche, charter-based carrier can make money and fly under the radar of scheduled carriers.
He pointed to Las Vegas-based Allegiant Travel Co. Its Allegiant Air flies passengers in secondary cities to vacation destinations. Allegiant uses MD 83 aircraft. They’re as old as dirt and require lots of maintenance, but they’re relatively cheap to buy and are suited to the markets and range Legacy intends to serve.
Allegiant must be doing something right, as its stock price lately has been trading at a stratospheric $108 a share.
Allen’s Legacy would fly to places Mikelsons used to serve such as parts of Florida, the Caribbean and key cities out West.
Airlines like Allegiant work because they are able to offer low fares. But Mann noted that many of the major carriers are now lean and mean, having shed high labor and other costs through bankruptcy reorganization. Mergers among major carriers also have given them new advantages of scale. What would a new airline bring to the table—higher levels of service? That itself would come with a higher price point, he noted.
Although Mikelsons’ early ATA often made money, it had some advantages that Legacy would not, at least not right away. Mann noted that ATA flew troops for the U.S. military on a charter basis to destinations around the world.
Many a year, when leisure travel slowed, Mikelsons credited military charter revenue for keeping ATA profitable. But, today, the military is retrenching from far-flung outposts in the Mideast. Many of those military charter contracts are held by consortiums of major airlines.
Allen might well argue that there’s always non-military, commercial charter business to be had. Scheduled carriers continue to pull back on secondary markets—leaving room for smaller players.
“We just want a little slice of that pie,” Allen said.•