Subodh Karnik, CEO of ExpressJet Airlines
On Friday, December 3rd, I had the privilege to interview Subodh Karnik. Mr. Karnik is Chief Executive Officer of ExpressJet Airlines and Chairman of the holding company ManaAir. He has over 40 years of experience in the aviation and travel industry working for Northwest Airlines, Continental Airlines, Delta Air Lines, Jet Airways, CommutAir, and ExpressJet Airlines. This interview has been edited for length and clarity.
Joshua Kupietzky: How did you start your career in the aviation industry?
Subodh Karnik: I jumped into it by mistake. Have you heard of this accounting, consulting, auditing firm called Ernst and Young? So Ernst and Young is an amalgamation of several companies. The old name used to be Ernst and Whinney. I was part of the consulting group back in ’85 and ’86. And we were the post-merger integration support team for the integration of two airlines that don't exist anymore: Northwest Airlines and Republic Airlines—not the Republic that exists today, but the old Republic Airlines. They had merged, and we were helping them with getting their processes systems working. So it was a classic operational consulting job, not necessarily an aviation consulting job. And then, midway through, Northwest Airlines went through a leveraged buyout and was acquired by this group of people who had rescued Disney. I don't know if you know, but Disney back in the late 70s and early 80s was ready to go bankrupt. And these few people had gone from being very senior people at Marriott hotels, to rescuing Disney, where they turned it around and made a bunch of money. Then they said let's go do the same at Northwest. They came to Northwest and said let's do some strategic planning—let's redo the entire airline. And I was working there on a consulting assignment and someone told me that these guys were looking to set up a group that is going to do strategic planning. Their goal was to Disney-ize the airline: good customer service, all of those things. So I talked to somebody who was forming the group, and I joined the airline. It was primarily to do strategic planning. This was 1986, and you know you kind of get stuck doing the thing you start with. I've had a long ride with as many as nine airlines, depending on how you count. And so I kind of fell into it by accident, by doing strategic planning for Northwest after the leveraged buyout.
JK: Did you stay at Northwest after the leveraged buyout or did you switch to a different airline?
SK: I spent five years there, then I was engaged to my colleague who was the head of Pacific and international pricing. And she got tapped to go and be the Chief Commercial Officer of an affiliate airline of Continental in Guam called Continental Micronesia. And so she got tapped and she said hey, Subodh, what do we do? And I said I'll tag along! So I tagged along. I was the CFO of Continental Micronesia, and she was the Chief Commercial Officer. And we lived in Guam for two to three years. That was sort of my next airline.
JK: This year ExpressJet launched a new carrier called Aha!. It is difficult to start an airline anytime, but especially during a global pandemic. How were you able to find success starting Aha! during the pandemic?
SK: We'll talk about the success part next year, but for right now, let's just talk about the start. It's only time that makes something successful. Basically what had happened was ExpressJet, once upon a time, was the fourth largest airline in the world by the number of airplanes; we had 470 airplanes. We flew for Delta, Continental, and United—basically, we flew private label United Express and Delta Connection. Since that time back in 2013, slowly but surely we shrank as Delta said we don't want you to do so much flying;we don't want to do business with you. Just before the pandemic, we were only flying for United, and we had around 150 airplanes. So when the pandemic occurred, United said, look, we don't need you anymore. At that point in time we had a choice: keeling over and liquidating. Or saying, look, we have a few thousand employees that are on furlough, we have all of this capability. We have all these skills—what do we do for the benefit of our employees? How do we use our skill sets? And so we said why not make a goal of something? And as we started to think about what that something could be, quite candidly, we said let's try to make a go of it. We had returned all our airplanes, so we just had one airplane. And we said, let's figure out what to do. Quite candidly, Josh, the best time to start something is when things are at the bottom. The worst time is when things are at the top, because then there's no place but down. So we basically hit bottom by October or November of last year. And we started to hatch plans to basically fly as an independent carrier. And that's what we started to do.
Then the next question was what would make sense? There were two models: One model is, as the airlines have shrunk, they've basically given up these hubs like Memphis, Pittsburg, Cleveland, Cincinnati, and so on. So there's a ton of opportunity out of let's call it Cincinnati. I'm not planning to fly out of there, but I'll give you that as an example. Once upon a time when I used to run marketing for Delta, Cincinnati had almost 500 flights a day to like 60 destinations. Do you know how many flights it has today? Like 40 or 50. So what happened to those people? Those two million people in Cincinnati haven’t disappeared and all moved to Chicago. No, right? They are just inconvenienced now, right? Like instead of going nonstop to Des Moines, they have to spend all day traveling to Des Moines. So we said there's an opportunity out there to fly—let's work on that. In the meanwhile, what started to happen was because of COVID, people had stopped taking these long vacations, because who wants to go to Johannesburg, Cape Town, or Machu Picchu? Who wants to go to the Taj Mahal? I mean, everybody wants to do that. But that sounds a little risky in the pandemic, right? On the other hand, if somebody says to you, let's go to Wisconsin Dells next week, you say sure—maybe I don't enjoy it as much, but it's a much safer thing to do, right? It's a nice little one day trip or something like that. So people are looking for comfortable, easy-to-do, reliable little trips where they know what they're going to get into. So that's where we came up with the idea for Aha!, out of Reno, taking all those people on the West Coast in all those little cities. Half those cities you probably have to look up what the heck the cities were, right? Eureka, Redmond, and smaller cities, right? All those smaller cities have very little service. What do you do out of Redmond, right? First thing you have to do is go to San Fran or Seattle. And then you connect. So we said, these people in Redmond, Eugene, Eureka, and Fresno want vacations. Why not build a little airline hub that services these people? And we came up with the idea for Reno for Aha!. And that's where we started Aha!. So the whole pitch there is Aunt Betty in Fresno, you don't need to drive six hours or, even worse, you don't need to go to San Fran and connect. Just take a 45 minute flight and within two hours you're at the casino. Instead of wasting one day traveling in, one day traveling back, you can maximize your vacation time—that's what we're doing with Aha!.
JK: Why did you choose Reno as Aha!’s base for the West Coast, and are there plans to expand Aha’s network to the Midwest and East Coast?
SK: What do you look for when you're trying to sell something? An unmet need: that's the definition of successful product development. If you have 48 cars in your garage, selling you another Chevrolet Impala is no fun right? That would be a hard thing to do, unless you’re being sold a special car that you've never heard of or seen. So, you always want to have an unmet need. We realized that Reno was an extraordinarily underserved city—underserved because it's growing, underserved because before there was a Vegas there was a Reno—all those casinos originated there. There's a huge industry going on in Reno. The big Tesla battery plant is in Reno. Every battery supplied, I think, to Tesla now comes out of Reno. In addition, there's huge migration from California to Reno. So, massive increases in size, population, and attractiveness of Reno showed it was an underserved city. So it just sort of jumped out at us that we have a wonderful place with three or four seasons of activity. Lake Tahoe is one of the largest ski destinations in the country. Lake Tahoe is also the largest alpine lake in the US. There are beautiful summer activities, casinos, hotels, resorts, so it was the perfect leisure destination place for the start of our business. That's how we chose Reno.
JK: And are there plans to expand to more destinations throughout the United States?
SK: Absolutely. We are now flying to eleven destinations;we have announced eleven. And the plan is to go from eleven to eighteen to twenty. The next six to eight are just a little more difficult because of logistics, ground handling companies,and a little more longer lead time.But we'll get to double the size out of Reno. Then the next question is, do we go and do the original plan that I talked about, which is to take a kind of an abandoned focus city, as an example, Kansas City, and do we establish an operation there? But that would be much more of a regular business and leisure airline operation. Or do we take the Aha! concept and expand it, like with Atlantic City, right? So there's a whole lot of these places that we can expand to that we would have absolutely actively considered. Another question is: what model is better? Should we head down the path of developing a focus city out of one of these underserved large cities, or should we take Aha! and expand it to the other destinations? We are sort of reaching the crossroads where we've got to make that decision soon. And in all probability, we might do both.
JK: Would you say that Aha! serves more toward a VFR and leisure? And if so, are there any plans to target other travelers such as business travelers in the future?
SK: You always target a primary demographic, but that's not all that you get. So in Reno, Aha! is primarily targeting spoke city, leisure seeking. Somebody from Los Angeles, Basin, Ontario, who wants to go skiing this weekend in South Lake Tahoe at a kind of heavenly resort. That's who we're targeting. Or somebody from Eugene wants to go and play the slot machines and do some roulette in Reno. Or somebody from Yureka wants to go out shopping at the big outlet mall—that's what we're targeting. So, you know, yes we are for leisure, or whatever you want to call it, right. On the flip side, there's a ton of migration that has occurred to Reno. So there's a lot of people who want to go to Palm Springs, to LA, to go back home to Redmond to work at the hotels, to go back home. So we're getting a ton of “return home” and we're getting a ton of business traffic. We're getting a ton of traffic, but the primary focus for us is leisure.
JK: How do you choose the Embraer E145 for Aha! instead of the other multitude of aircraft ExpressJet has operated in the past?
SK: We've always operated smaller planes. So the last two or three airplanes we operated were the 50-seat Embraer 145, the 50-eat CRJ 200 and the 70-seat or 80-seat Embraer 175. It so happened that the last year we've been operating the E145, and so we have the parts, we have the experience, we have the pilots trained already. When you ask a pilot who's been on furlough to come back, what happens is that if they've been gone for X amount of time, the amount of training that you need to give them to get back up to speed, certify them and have them fly depends on the number of days they've been away from flying that airplane. Since we are flying that airplane recently, the ability to bring back pilots quickly, train them and deploy them is easier. So that's what we did. We said hey, let's fly the Embraer 145. It's a great airplane. It does not have a middle seat—it's one and two. So you know, you have a very comfortable experience. And we knew we could bring the airplane back fast. There are a few airplanes available for us to bring back and fly, and we don't want to fly 200-seat airplanes because that's an enormous burden,when you fly into a small city. It's like, okay, we are coming in on Tuesday, and we need 200 people to fill this airplane. That's a lot of people versus our three times a week 50-seat airplanes.
JK: Many US carriers are having major staff shortages. Have you also faced that problem as well? If so, how do you plan on attracting new employees?
SK: Yes and no. I mean, we have the ability to draw from our furloughed employees. Remember we were at one time 7,000 employees. When we stopped flying for United last year, we had almost 3,000 employees. So all of those employees are not just sitting around smoking cigars, waiting for us to call them or something like that. But, they're available. They know us and we can talk to them. They want to come back, some of them. It's not that we're having an easy time or anything like that. But we are having an easier time going to these 3,000 people and saying hey, do you want to come back? It's just logistically a little easier. But that doesn't mean that it isn’t going to get progressively more difficult as we continue to grow. The shortage is real. Everybody's facing it. It's just that we are a little lucky—we are lucky that we have a pool to tap into.
JK: And I know the legacy US carriers have announced that they are requiring their flight crews to be vaccinated. Is ExpressJet doing the same thing? And is there a plan to eventually require all passengers to be vaccinated to fly with ExpressJet in the future?
SK: To the passenger question: We are small, ExpressJet is like a little pimple. We are going to basically take the lead in the cue from what the rest of the industry does. I don't expect us to you know, be the bleeding edge airline that figures this out for the industry. So, I'll take the lead from [Ed] Bastian and you know, [Doug] Parker and so on. As far as the employees go, yes, our policies are basically according to the CDC guidelines. We are not at the structure of a United that is requiring people to be vaccinated. We are much more in the American/Delta camp that basically provides support, if you will, for our employees to be vaccinated and manages the precautions and testing regime based on CDC guidelines.
JK: Has the recent spread of the Omicron variant changed your calculus for 2021? And have you seen a smaller travel demand because of the new worry about this new variant?
SK: We are the anti-fancy vacation, anti-fancy travel airline. It's all those people who wanted to go to the big game in Cape Town in South Africa who can't do that today, but still want a vacation. What is the simplest, easiest, most convenient thing to do? Heck, just drive five miles to your airport, hop on one of my flights, one hour later, you're in a hot tub at the Eldorado hotel. aiting to go downstairs to play some slots and eat at the best Italian restaurant in the country. I think that a reduction in this energy and enthusiasm for going 6,000 miles away for vacation doesn't reduce people's need to take a vacation. It actually redirects it. So that's where I'm hoping that we are the beneficiaries of all these things. But my business plan, trust me, is not designed on the pandemic raging for the next 10 years or anything like that.
JK: And my last question is: We started by talking about your background in the aviation industry and how you sort of fell into it by accident. What advice do you have for young people who are trying to start a career in the aviation industry?
SK: The thing that I always tell people about the aviation business is it is such an interconnected business—there is no silo. Seats, inventory, passengers, airplanes, pilots, mechanics, Systems Operations Control: all of this is like one amorphous big blob. You can never say, “I'm just a sales guy,” or “I'm just a flight operations guy,” or “I'm just a maintenance guy,” because everything is interconnected. The beautiful thing about that is that you become a generalist, so for people who want to make a career in the airline business, my suggestion to them is always have your eyes open and your mind open for all the other departments and divisions and operations in the company, because at the end of the day, you are always going to be an airline generalist. In some ways, some young people want to just be a flight operations person or a maintenance person or a marketing person. But you just have to be an overall airline person. Always think about that. And always work towards that, to understand the business versus just your function and your skill. The people who do less well than the others are the people who say I'm just a maintenance guy. And the moment you keep putting yourself in that box, you know, that's where you're going to stay for the rest of your life. Versus if you say, I'm an airline guy who happens to have fun in maintenance at this point in time. That's when you enjoy yourself, you grow the most, and you become a leader as quickly as possible in the business.
