Kevin O'Toole/LONDON Ramon Lopez/WASHINGTON DC

Valujet has completed the final step in its merger with AirTran Airways, after shareholders from both airlines voted to approve the deal.

The new AirTran Airlines emerges into a struggling US low-cost sector, however, which is fighting for new competition- legislation to help it survive.

The merger was agreed between ValuJet and AirTran's parent, AirWays Corporation, in June amid a wave of merger activity among the loss-making low-cost airlines as they attempt to strengthen their hand against heavy competition from the major carriers.

The combined airline, which will be based at AirTran's Orlando, Florida, home will begin by serving 46 cities with a combined fleet of 45 aircraft, bringing together Valujet's remaining 32 McDonnell Douglas DC-9s and AirTran's 11 Boeing 737-200s. The plan is to grow the fleet to above 50 aircraft.

The merger comes as the low-cost sector has come close to collapse during the 18 months since the ValuJet Florida crash sparked a decline.

Latest financial figures for the traditionally buoyant September quarter show AirWays with losses of $5.4 million - up from just over $4 million a year ago. Passenger traffic was virtually unchanged as the carrier slashed capacity, helping load factors to return to 68%.

ValuJet showed a net loss of $14.6 million for the quarter. There are no direct comparisons from the 1996 third quarter, when the carrier was just re-emerging from the grounding which followed the Florida accident, but the figures are still only a shadow of its pre-crash performance.

Load factors crept above 51% in the latest quarter, against a break-even of closer to 70%. At its height, ValuJet had factors of above 60% and a break-even below 50%.

They were back to just 44% in October as the airline entered the weak US winter season, although it argues that this is, in part, due to a slow-down in advertising as it prepares to relaunch as AirTran Airlines. President Joseph Corr believes that the merger and rebranding exercise will begin to rebuild sales early in 1998.

Elsewhere, Frontier Airlines posted another loss, of $2 million, in its September quarter, including a charge for pulling out of the proposed merger with Western Pacific, which went on to file for bankruptcy.

The low-cost carriers are still pinning their hopes on legislation to curb what they see as anti-competitive behaviour by the major carriers. Republican Senator John McCain has drafted legislation on issues such as slot-auctioning at congested airports, while the US Department of Transportation is promising action to curb predatory behaviour.

The major network carriers are fighting back against what they claim is re-regulation, however. AMR chairman Robert Crandall warns of the danger of stripping the established carriers "of their right to use competitive weapons they have developed", while developing "regulatory handicaps which favour low-cost, new-entrant carriers".

He adds that, in matching fares and capacity of the low-cost competitors, the majors are "only doing what any business must do".

United Airlines chairman Gerald Greenwald says that the criticism is coming from "a handful of carriers with an axe to grind" and warns that reversing deregulation "would do more harm than good".

He suggests that forcing the surrender of slots at major hubs will ultimately penalise services to smaller communities which they are designed to help, just as regional jets are about to "revolutionise" such operations.

Source: Flight International