Republic Airlines Pt1: 1979-1984 Bigger Is Better?

There have been few more torrid times in aviation in the USA than the 1980s. Deregulation had brought competition and this would inevitably lead to winners and losers. It was a time of eat or be eaten, and as merger mania reigned gaining critical mass and market share became important weapons. This strategy was evident at the new Republic Airlines, which for a time served more destinations in the USA than any other airline but almost killed itself with the consequences of that.

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Republic had been formed in July 1979 when North Central Airlines ‘The Route of the Northliners’ took over Southern Airways - the conservative ‘Route of the Aristocrats’. This was in fact the first airliner merger under deregulation. North Central had always been one of the largest and most successful of the local service airlines and the combination of the two route networks was an excellent fit. There was barely any overlap between North Central’s routes in the Great lakes region and those of Southern based out of Memphis (see below route map from 1980). Even better both airlines operated primarily Douglas DC-9s.

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Below: Prior to the merger North Central toyed with several similar livery variants, which culminated in finished Republic livery at bottom.

All above DC-9s by Aeroclassics

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The new airline was rechristened Republic Airlines but it was clear that North Central was the surviving airline. Even though the livery was altered to include Southern’s dark blue it remained primarily turquoise and Herman the Mallard duck still featured prominently on the tailfin. The two component airlines operated separately until October 1, 1979 when the two airlines formally combined and the new RC code was applied to all flights. The new fleet comprised 116 aircraft (72 from NC and 44 from SO).

Left: The first combined timetable illustrates the merger partners

​Below: Repainting the fleet into the new colours took some time

Richard Silagi (GFDL or GFDL ), via Wikimedia Commons

Republic Airlines Convair CV-580 N2728R by Gemini Jets (1:400 Scale)

Initially the merger was a success and Republic made a $13 million profit in 1979. Southern’s oddball Swearingen Metros were retired by 1980, they had never successfully replaced the Martin 404s and suffered from serious engine issues, but North Central’s 24 Convair 580s soldiered on. The rest of the fleet was made up of DC-9s at least until February 1980 when the first of 7 new 727-200s arrived (they had been ordered pre-merger by NC).

Republic Airlines Boeing 727-2S7 N721RC (Gemini Jets 1:400 Scale)

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Far from letting the dust settle on the first merger the Republic management team (made up mainly of North Central personnel) were looking for a second. Republic’s strategy wasn’t satisfied with being just an East Coast airline, it wanted to cover the whole USA. To that end it eyed Hughes Airwest – another agglomeration of several local service airlines, but one based in the West and most famous for its flying banana style livery

Hughes Airwest had become something of an oddball since the death of its reclusive owner Howard Hughes and had been struggling in the highly competitive West Coast market. Intra-state operations in California had never been regulated and PSA and AirCal were both important operators keeping fares low. Airwest was run by the Summa corporation, which was a holding company for Hughes’ myriad of business assets following the sale of Hughes’ Tool Co in 1972.

Below: Another merger brought more hybrid schemes to Republic

Republic Airlines Douglas DC-9-30 N9333 by Aeroclassics

In 1979 Airwest lost nearly $22 million on revenues of over $300 million, partly due to a mammoth 61-day strike by cabin crew that ran from September until November. On the plus side the Hughes fleet consisted of 42 DC-9s and 8 727-200s, which fitted nicely with Republic’s DC-9 heavy fleet, and the network gave Republic access to a significant West Coast presence from Las Vegas and Phoenix.

On the minus side Hughes Airwest was deep in debt with hundreds of millions of dollars of it. In hindsight buying Hughes Airwest for $38.5 million (less than Howard Hughes paid for it in 1970) seems less like a good bit of business and more like a millstone around the neck of the new Republic. The deal was completed on October 1, 1980 and if it was fundamentally unsound to begin with the economic climate made it potentially fatal.

Below: This late 1980 route map shows the Western Hughes network added to the Eastern Republic one

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The merged fleet stood at 156 aircraft. Technically the merger wasn’t fully consummated until January 1983 as in the interim Hughes Airwest became Republic Airlines West, Inc. Forty-two cities were added from the Hughes network giving Republic access to 5 new States (Utah, Oregon, Washington, Idaho and Montana) plus Canada and Mexico for the first time. Republic could now say ‘Nobody serves our Republic like Republic’ (this old Republic advert uses the slogan and is excellent) and that was true with more than 1,400 daily departures and flights to more cities (179) than anyone else.

In the first 9 months of 1981 the new Republic made losses of $38.5 million (the same as the cost of the Hughes acquisition). This was partly due to the costs of the merger itself and the structural problems at Hughes Airwest, but also due to the timing. The economy was in recession, the hugely damaging Air Traffic Controllers (PATCO) strike had just hit, air travel was down and at the same time interest rates were high. 

The high debt load of Hughes (over $450 million) came close to killing Republic. In the first 9 months it had to pay $64.6 million in interest compared to only $24.6 the year before. Without the interest payments Republic would have actually been profitable to the tune of $24.5 million. 

Fuel costs had also risen sharply rendering large parts of the old North Central /Southern network untenable. The local service airlines had originally been built to fly short multi-stop services but by the early 1980s, even with federal subsidies to the tune of $1.4 million annually Republic, couldn’t make the routes work. The result was the airline withdrew from a lot of smaller markets and only some of these had services transferred to the new breed of regional airline partners like Mesaba Airlines.

If the debt wasn’t enough competition created by the spread of deregulation was hitting Republic hard also. Start-ups like Midway Airlines were causing fare wars on important routes like Chicago – Minneapolis and the major Trunk carriers (Northwest in this case) were willing to cut their fares to match even if it meant making a loss on every passenger flown. Republic couldn’t afford to do the same.

A DC-9-51 at ORD in 1980. Jon Proctor (GFDL 1.2 or GFDL 1.2 ), via Wikimedia Commons

​The inevitable result was that Republic was forced to go cap in hand to its own employees who in December agreed to take a 10% paycut and defer wage increases to avoid mass redundancies. Following the cutting of 200 management positions and the other 1,000 management staff taking the deal around 12,000 other employees also took it in return for guarantees that lay-offs would be avoided for six months. Republic had threatened to reduce its costs by cutting up to 40% of employees. Republic was aiming to make cuts of $50 million in 1982 by also encouraging unpaid leave, increasing workloads by 5-8%, cutting expenses and bargaining for relaxed work rules (allowing job rotation).

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​Republic’s losses continued to mount with a full year loss in 1981 of $46.3 million (compared to a loss of $46.1 for 1980). Republic was getting desperate. It cut its order for new McDonnell Douglas MD-80s from 14 to 8 and considered selling its 15 727-200s. In the first quarter of 1982 losses increased to $22.5 million (with interest costs of $26.7 million). 

One of Republic's brand new MD-80s. Jon Proctor (GFDL 1.2 or GFDL 1.2 ), via Wikimedia Commons

Nevertheless Daniel F. May, the president and chief executive officer, did not put any stock into the many predicting that Republic stood a high chance of failure:
 
'They're all crazy. We caught our own situation in time. At Braniff the situation got away from them.'

​May had joined North Central in the 1960s and rose to become its CFO before becoming president of Republic in 1980. He still was firm on keeping fares ‘reasonable’ rather than low. Late in the year the results had begun to improve with the loss narrowing in the third quarter to $5.8 million (down from $18.4 million in 1981). This was assisted by record traffic and revenue; however, it wasn’t to last and by the third quarter of 1983 it was back to $12.2 million. By July 1983 the airline was once again going cap in hand to its employees after losing around $100 million in the first half of the year. A 15% paycut was requested to last at least nine months beginning in September. It was the fourth time in two years the airline had requested wage cuts.

The routemap in October 1983

​Even worse two incidents of improper fuel management, that led to emergencies aboard an MD-80 and a DC-9, caused the FAA to issue a formal public complaint about what it said was sloppy training and discipline. This caused the airline’s image to worsen at a sensitive time and rather than Republic the airline was becoming known as ‘Repulsive’.

​It was clear that the model Republic was trying to operate no longer worked and that the existing management was unable to extricate itself from its own mess. By early 1984 the board had had enough and installed a new president and CEO named Stephen Wolf. His tenure, which we shall explore in part 2, would see successful drastic action but also the end of Republic’s short existence.

For Republic Airlines Pt2: 1984-1986 - Wolf to Northwest Click here

References
 
1980, March. Republic Airlines and Hughes Airwest hold merger talks. Flight International
1981, December. 12,000 Republic Airlines workers accept pay cuts to avoid layoffs; Eased work rules also sought to counter recession losses. UPI.com
1982. Republic Air Posts A Loss. New York Times
1982. Republic Airlines Chief Cites Reasonable fares. New York Times
1982. Loss Narrows At Republic Air. New York Times
1983. Republic Airlines Loss. New York Times
1983. Republic Air Asks Wage Cut. New York Times
2013. Why Was Hughes Airwest Take Over by Republic. Airliners.net