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USA3000 sticks out a tough travel environment  Dec 21, 2008

USA3000, Philadelphia's hometown airline, began flying after the Sept. 11 terrorist attacks. At the time, people feared terrorism and more bombings and wanted to stay close to home.

The fledgling Newtown Square-based carrier, an affiliate of Apple Vacations Inc., grew over the next eight years and today flies from 10 cities in the Northeast and Midwest, shuttling 1.5 million leisure travelers a year to warm-weather destinations in Mexico, the Caribbean and Florida.

In the current economy, USA3000 and other airlines are grappling with a situation eerily reminiscent of 2001. People are on the sidelines about travel and winter vacations.

"It's a very difficult, tough environment right now," said Steven Harfst, USA3000's new president and chief executive officer. "There is a significant decrease over this time last year, 10 percent to 15 percent less revenue and fewer passengers on average."

Looking ahead to January and February, reservations are not trending as they did last year. "People still want to have family time, so if the prices are right they will travel," Harfst said.

But more are putting off travel decisions until the last minute, "which makes it incredibly stressful for us," he said. "We're trying to manage our business in a forward-looking environment and not having those advance sales."

Apple Leisure Group, which includes USA3000, Apple Vacations and the AMResorts hotel-management company, says it has a competitive advantage over those who market only flights and hotels.

Apple is the only U.S. travel company to own an airline.

Operating its own planes gives Apple more control over on-time performance, scheduling, destinations, and passengers' on-board experience, the company said.

"When you package low air fare with low hotel rates, the package price is cheaper than anybody can get on their own," said Timothy Mullen, senior vice president of Apple Vacations and one of three Mullen sons in the business founded by their father, John, in 1969. "The size of our operation affords us the better prices."

After years of chartering airplanes to transport vacationers, Apple - which calls itself the largest U.S. seller of air and hotel package trips to Mexico and the Dominican Republic - decided to start an airline. It competes with other airlines and online travel agencies, including Expedia, Orbitz and Travelocity.

USA3000 flies a regular schedule. Although Apple's package vacations are sold by travel agents, most of the air service to Florida is bought directly by consumers on the company's Web site or over the phone from agents in the Delaware County headquarters.

USA3000 has 545 employees and 11 168-passenger Airbus A320 jets that fly 35 to 36 trips a day and up to 40 to 44 a day during peak travel periods.

"The company has really done well in the midst of some pretty tough times," said Harfst, who became CEO in November. He was chief operating officer at IndiGo Airlines, the largest low-fare carrier in India.

Before that, he was COO of North American Airlines, a charter airline in New York. Harfst began his career as a Navy pilot and flight instructor. He flew the F-14 Tomcat fighter jet in the first Gulf War.

"We're not a big airline. We don't offer a lot of stuff," Harfst said. "A hassle-free travel experience is what we are all about."

Apple's all-inclusive vacations, with flights, hotel accommodations, food and drinks included for a single price, take travelers to sunny destinations including Cancun, Los Cabos, Punta Cana, Puerto Vallarta, and Riviera Maya.

The privately owned Apple companies say they expect revenue of $2 billion this year. They do not break out the airline revenue and will not discuss profits.

Apple is the only U.S. tour operator with an airline and its own hotel group. AMResorts manages 11 hotels and plans to open 15 in the next 18 months in Mexico and the Caribbean.

AMResorts owns part or all of three hotels in Cancun, Tim Mullen said. He works with his brothers Jeff and Matt Mullen and his brother-in-law Alex Zozaya, who is married to his sister, Janine. His father, John, is CEO of Apple Vacations.

While all airlines are seeing turbulent times now, "it's a hiccup along a broader road," Tim Mullen said. "My father is looking at land right now in Honduras to build hotels and to grow the airline. The next destination we fly to could be Honduras."

Last summer, when crude oil was $130 a barrel, USA3000 cut its flights to Ft. Lauderdale and St. Petersburg, Fla. Only one Chicago to St. Petersburg route has been restored.

"We are not going to be the next JetBlue or Southwest Airlines," Harfst said. "We are going to stay a niche airline, flying in under-served markets, leisure destinations."

Travelers who have flown USA3000 tend to fly the airline again. Readers of Condé Nast Traveler magazine voted USA3000 among the top 10 domestic carriers for passenger service three years in a row from 2006 to 2008.

As the major airlines continue to cut capacity - seats and flights - USA3000 is standing pat. "Small, nimble, smart companies can take advantage of opportunities in a downturn," Harfst said.

"In the next six to 12 months, we are going to see niche markets open to us as the larger airlines reduce capacity and consolidate their operations. Opportunities will unfold in this downturn."

USA3000 sticks out a tough travel environment
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