The Accidental Aviator.

Aserca, a Venezuelan airline, sets its sights on international routes just as competition heats up at home.

SIMEON GARCIA'S DREAMS WERE hardly ambitious in 1991. With two Cessna airplanes inherited from an earlier venture, Garcia, then 29, a college dropout and unemployed, got the idea of flying business executives back and forth from Caracas and Valencia, the country's second-largest city. To that end, he bought Aeroservicios Carabobo, an air taxi charter known simply as Aserca, for $1,000, only to discover that the fine print on his contract required him to either fly several domestic routes or lose the charter.

Garcia leased Aserca's first two jets using his savings and backing from his well-to-do family, who were former land-holders in the eastern state of Bolivar. That same year, the Venezuelan airline Aeropostal collapsed, opening the door for a new competitor. Enter Garcia's privately held Aserca. All of a sudden, the former air taxi operator was about to become a full-fledged airliner. "I never planned on going into aviation. It was accidental," says Garcia.

Garcia may have stumbled into the airline business, but Aserca's strategy of targeting the business traveler is no accident. The airline offers wide seats, complimentary cocktails, and on-time departures at economy class rates. With businessmen representing more than 90% of the airline's customers, revenues have grown from US$14.8 million in 1994 to $87 million last year. But Garcia still isn't satisfied. He is expanding internationally.

In the last 12 months, Aserca has purchased a small airline in Aruba, signed a marketing alliance with Continental Airlines and is adding Brazil and Argentina to its existing international routes.

Profit margins, however, have taken a hit, dipping from 13% in 1997 to only 3% in 1998. Competition within Venezuela is growing. Remember Aeropostal? Far from being down and out, it emerged from bankruptcy in 1996 under private management and is giving Aserca a run for its money.

It seems there might he turbulence ahead for Aserca. But, says Robert Booth, president of Aviation Management Services, a Miami-based consultant, "They are more than a flash in the pan."

All-business air. What airline novice Garcia simply calls "common sense" has certainly yielded some pretty wily moves in the past. The young executive, for example, acquired failed Eastern Airlines' planes and refurbished them with an all-business-class seat arrangement instead of the standard first- and economy-class divisions. He then put the planes to work shuttling businessmen between major cities.

On the cost side, he isn't missing a beat either. Most services and the flight crews are out-sourced to a company subsidiary, as is customary in Venezuela's aviation industry, to keep costs down--the company claims a cost per passenger-mile of $0.03, far below the $0.10 of its regional competitors. The firm has an average of only 79 employees per aircraft, well below industry average. "This company has always been financially conservative," says Julian Villalba, Aserca's CEO since 1997.

The international expansion, however, is probably his boldest move yet. Tiny Air Aruba may not seem like much to people outside the region, but Garcia sees value in the Caribbean airline. Last year, Aserca bought 70% of its shares from the island government for an undisclosed amount and has promised to invest another $11 million. What the Caribbean carrier offers is dollar income to offset Aserca's exposure to Venezuela's overvalued bolivar, he says, as well as a hub for service to some of the world's best beaches.

To feed traffic to the island and Venezuela, Aserca penned a marketing agreement with Continental Airlines to the north and has leased two long-range Boeing 737-800s to start service to Buenos Aires and Sao Paulo in May. Finally, says Garcia, he hopes to bring traffic from the rest of the Andean region, saying, "with us you can fly from an Andean to a Caribbean destination without switching airlines or rechecking baggage."

But Garcia is far from flying solo these days. Earlier this year, the Venezuelan government redistributed the international routes that belonged to defunct flag-carrier Viasa. Venzuelan airline Avensa got the routes to Italy, Spain and Portugal, but chief nemesis Aeropostal was the big winner, acquiring routes to Chile and Cuba as well as France, Germany, The Netherlands and Switzerland.

Aeropostal has also formed international marketing alliances, one with Delta Air Lines and another more recently with American Airlines. "It's nice to have those pretty, wide seats but [Aserca] is only charging economy-class rates and has 32 seats less than we do on a DC-9 aircraft," boasts Saul Montejo, vice president of planning at Aeropostal, which claims a 65% share of the domestic market--a claim Aserca disputes.

Nonetheless, Garcia says Aserca may have to abandon its all-business-class seat arrangement in favor of the traditional cabin split of first and economy class. He insists the change would not be due to Aeropostal's competition but rather to offer compatible service with Air Aruba and alliance partner Continental. He also predicts that Aserca's profit margins will bounce back this year to 10% on sales of $114 million. Given the tough environment, if he can achieve those results, there will be nothing "accidental" about it.