Propelled for Change: Florida Startup Bucks Trend with Strategy Based on Turboprop Fleet

Constructed from the bones of its bankrupt predecessor Gulfstream International Airlines, Ft. Lauderdale, Florida-based Silver Airways (3M) burst onto the scene last year with a strategy—and financial backing—that has propelled it quickly into serving more destinations in the Bahamas than any other airline.

“The one objective was to build a world-class regional airline,” CEO Darrell Richardson told ATW. “The whole philosophy behind the company is ‘don’t operate jets.’ Our goal is to be the best provider of turboprop service in the country.”

The carrier was founded May 6, 2011 when Victory Park Capital, a Chicago-based investment firm, purchased select assets from the former Gulfstream International Airlines, which filed for bankruptcy in November 2010. Gulfstream International Group, parent of the airline, had lost $2.8 million for the six months ended June 30, 2010, on sales of $46.3 million, according to a filing with the US Securities and Exchange Commission. The then-president and CEO David Hackett said, “While we have seen strong year-over-year improvements, the impact of our borrowing in the last several years to cope with consistently high fuel costs and the economic impact of declining traffic made it too difficult for the company to continue to meet its debt repayment needs.”

The operating assets and fleet of 21 Beechcraft 1900Ds were valued at approximately $26 million, and followed VPC’s initial $5 million debtor-in-possession financing provided in connection with Gulfstream’s voluntary petition to enter Chapter 11 bankruptcy proceedings.

With the task of building the carrier from defunct Gulfstream, Richardson joined the team as chief restructuring officer, keeping three of the original senior management team and 356 employees.

The airline hit the ground running with energy and a strategy focused on operating turboprops. Today, it employs 578 staff, including 180 pilots.

With the relaunch, Silver “seamlessly continued service,” and set a goal of replacing most of the existing 19-seat Beechcraft 1900s with the efficient and larger 34-seat Saab 340Bplus aircraft. It hired Aerobrand to rebrand the company, to reflect its culture—“a vibrant, dynamic and highly professional airline,” Aerobrand president and CEO David Hedley-Noble said.

“In this particular case, the overriding factor of the brand . . . was embracing the turboprop. I use the word embrace because a lot of companies are shying away and the turboprop got the bad end of the stick so to speak. Our goal was to embrace it and use it as the central theme of the entire brand . . . turboprop flying is actually tremendously advantageous, in many, many different areas.”

The new image was unveiled December 2011, featuring a logo derived from spinning propeller blades, and a palette of silver and grey, contrasted against fuchsia-colored engines. Silver displays facts and statistics about the fuel efficiency of turboprops versus jet aircraft with messages written on the engine cowlings—visible from inside the cabin.

“The notion of encouraging our passengers to embrace the turboprop as a preferred aircraft type was very important in the development of our new brand,” Richardson said in a release following the brand launch. “People are often surprised to learn how fuel efficient, quiet, comfortable and reliable modern turboprops like the Saab 340 really are. Turboprops are our lifeblood.”

Upgraded Fleet

VPC has agreements with Saab Aircraft Leasing to purchase 12 Saab 340Bplus aircraft, and will lease an additional six. Silver has so far taken delivery of the first four, with three more expected by early June. A total of 12 will be added by September. It plans to keep eight of the Gulfstream Beech 1900s operating on routes to Ohio and Montana.

The Saab 340Bplus aircraft gives an inflight cabin experience of being “in a much larger plane,” Richardson said. The Bplus model also features active noise reduction, providing a quieter onboard experience.

“With the Saabs we saw an incremental 87% increase in seats with only a moderate incremental increase in trip costs,” Silver VP marketing and sales Holliday said. “The turboprop is not something we hide behind . . . it’s something that we embrace, its part of what defines who we are.”

Over the last 20 years, other US carriers have transitioned to regional jets. Today, with rising fuel costs, many airlines are divesting these aircraft as jets in the 50-seat size become lossmaking. “Fifty-seat regional jets . . . the economics of them are just so difficult to work today. We see markets that need to be served that can’t be supported by [them],” Holliday said. Silver Airways is focused on filling this need, which has “opened up a tremendous market,” Richardson said. “We’re the little guys. All we want to do is fly turboprops and be the best we can be.”

How long Silver remains the “little guy” is what the industry is poised to watch, as the market continues to open up. Pinnacle, which filed for Chapter 11 in April, said it will end Colgan Saab 340 services for United Express by Aug. 1. American Airlines (AA), which filed for Chapter 11 in November 2011, announced it is pulling all Executive Airlines ATR aircraft out of service— nine in Miami and nine in San Juan.

“As the ATR fleet is returned back to the lessors, we expect that Executive’s operations in San Juan will be reduced,” an AA spokesperson said.

Silver Network

Silver Airways operates an average of 140 daily scheduled flights with services to eight destinations in Florida (Key West, Ft. Lauderdale, Gainesville, Orlando, West Palm Beach, Pensacola, Tallahassee, Tampa); seven to the Bahamas (Bimini, North Eleuthera, Freeport, Georgetown, Governors Harbour, Marsh Harbour, Treasure Cay); nine to Montana (Billings, Glasgow, Glendive, Havre, Helena, Lewistown, Miles City, Sidney, Wolf Point), one to Ohio (Cleveland), three to Pennsylvania (Bradford, Du-bois, Franklin), two to West Virginia (Lewisburg, Parkersburg) and one to New York (Jamestown).

From June 30 it launches service to Punta Cana from San Juan, Aquadia and Ponce. It will also launch new service to Jacksonville, Fla., this summer. By the end of the year the carrier aims to operate 1,500 flights a month between Florida and the Bahamas, and 180 total flights a day network-wide. With the 30% increase in flights will come a 73% increase in seats.

The carrier operates under a principal codeshare and alliance agreement with United Airlines and Copa Airlines with the unusual and deliberate strategy of keeping its own livery.

“This is a sacred cow,” Holliday said. “We’re passionate about our brand and have invested heavily in it. It’s more than just painted aircraft; it’s a culture visible in aircraft interiors, exteriors and all customer touch points. Painting our aircraft in a partner’s livery would require us to surrender our brand and culture, something we’re not willing to do. Instead, our aim is to maintain these while working to ensure our service adheres to the standards of our partners.”

Its mission going forward includes being more diverse in its alliances as it grows.

“We are thankful our existing partners not only recognize this, they encourage it,” Holliday said. The rapid growth the airline has been able to achieve is partly attributable to a firm foundation secured from being backed by VPC.

“We want to run the best regional airline in the world . . . we know that that is a very lofty task,” said VPC partner and co-founder Matt Ray. “There’s something in the air . . . there’s a cocktail of culture there right now that’s unparalleled . . . we have the right mix going on right now—the culture’s really good.”

“We’re not going to become the best regional airline in the world flying EAS [essential air services] routes and limiting ourselves to intrastate flying in Florida,” Ray added. “If we look out, in 24 months our goal is to have multiple partnerships with major airlines, creating multiple feedstocks into our shorter haul very niche mission markets in the Caribbean, expanding beyond the Bahamas. We would also think in 12 to 24 months we would be able to distribute our product ourselves, as well as through multiple carriers and the GDS, which is fairly uncommon for regional airlines.”

So far the business has grown substantially from where it was a publicly traded company. May enplanements are on track to be up by roughly 50% year-over-year, according to Ray.

“In 12-24 months, I would imagine we really solidify our brand and our place in the market as both an independent carrier in the Caribbean,” Ray said, “as well as a regional partner for a number of airlines, basically all through the eastern seaboard and into the Caribbean.”

With an eye on expansion, the carrier has bid on a number of additional EAS routes based out of Washington, D.C. and Atlanta.

“2011 was foundation, 2012 is positioning, and 2013 is growth,” Holliday summarized.

For COO David Querio, Silver Airways is a new concept on how to run an airline. “It’s all about the people, it’s the passion, it’s a number of leaders and team members who always said ‘If I had control I’d do it differently,’ and we have the control to do it differently,” he said.

“It’s a new beginning. We’re really, in my mind, going back to the routes of regional airlines back in the ’80s when even though they had partnerships with major carriers, they still had their own independence, their own brand.”

And, he added, “This is just the beginning.”