Up, up and away.

After a turbulent career in the airline industry, Mike Hartley has taken flight with one of Hawaii's fastest-growing big businesses: Cheap Tickets.

Mike and Sandra Hartley had no problems with seats at the 1996 Summer Olympics in Atlanta. The Hartleys, along with Governor Ben Cayetano, were the only Hawaii dignitaries hosted by AT&T at the Games' opening ceremonies and a private party afterward. That they were in such rarefied company says more about their business acumen than their love of sport. The Hartleys' Honolulu-based Cheap Tickets Inc. sells discount airline tickets nationwide and is one of the fastest-growing businesses in the state. It was founded a decade ago in a small kiosk on Kapiolani Boulevard. In 1994 it had net sales of $53 million; 1995 sales climbed to $92 million. And in July the Hartleys were predicting 1996 sales of around $200 million. The company employs 402 people in three states and - of interest to AT&T - fields 25,000 to 50,000 customer calls a day nationwide.

Cheap Tickets seems to be a straightforward, if exceptional, success story. What makes it something more is Mike Hartley, the company's president and founder. For him, the flush of success has been long in coming. After a turbulent past, including three attempts at launching local airlines, Hartley stumbled into the discount ticket industry by accident. He now has a 10-year history competing against travel agencies and tour wholesalers that have come and gone. His business has brought him profits and enough clout to earn the respect of companies like AT&T, but it has not brought him fame - something Hartley himself doesn't seem to want. He isn't a visible tourism industry leader, nor is his company active in organizations like the Chamber of Commerce of Hawaii or the Hawaii Visitors & Convention Bureau. In fact, to a number of travel agency operators and local airline executives, Mike Hartley is an unknown.

THE TAKEOFF. While Hartley, 46, is gung-ho about Cheap Tickets' present situation, he's more circumspect about his past. He has started three different airlines: Island Pacific Air in 1975, Hawaii Express in 1982 and Air Hawaii in 1985. The first was a cut-rate interisland carrier that started by flying one plane out of Kahului, Maui. According to Michael Thomas, a DC-10 captain for Hawaiian Airlines who was once a pilot for Island Pacific Air, Hartley sold the airline in 1977. "It was a low-key, family operation," Thomas says. "Sandy (Hartley's wife) answered the phones and did the books." Thomas says Hartley gave a lot of young pilots a chance to get flying experience. "I've got a lot of aloha for the guy. He's a very sincere person."

Hartley's next two airlines promised discounted rates between Hawaii and the mainland. Both were under-capitalized, Hartley was forced out as president within months, and both carriers ended up in bankruptcy less than two years after their first flights.

Hawaii Express debuted in August 1982 with $99 flights between Hawaii and the West Coast. A lawsuit by the board of directors forced Hartley, the company's president, out in May 1983. He later maintained that a counter-suit was settled in his favor with a $5 million stock repurchase and a $100,000 consulting contract.

Hawaii Express' problems started once post-summer travel demand dropped. According to the trade journal Travel Weekly, the airline's $173 one-way flights were only $6 cheaper than its main competitors - United, Western and American airlines. Without long-term financing, Hawaii Express shut down in December, a week after announcing that it was adding a San Francisco flight. By January 1984 it filed for bankruptcy with debts of $20.4 million and assets of $5.5 million.

Hartley tried again the next year with Air Hawaii (a name given to four separately owned local airlines over the years). He organized a nine-member hui that included such prominent businessmen as financial consultant Alfred Souza, attorney Nicholas Lindahl, restaurateur Nick Nicholas and his partner, Jeff Harman, to invest a total of $1.5 million. Though the group knew that kind of money wasn't enough to keep an airline flying, they hoped to add another $6 million through advance sales of coupon books. There was only one problem: Hartley. His entanglement in Hawaii Express' bankruptcy litigation and his conviction for conspiring to import cocaine from Peru to Maul in 1975 led the U.S. Department of Transportation to hold back approvals for Air Hawaii.

In November 1985, once Hartley agreed to give up his ownership stake and stay on only as a consultant, Air Hawaii was allowed to fly. With shaky finances and no airline experience among the owners, it wobbled along until February 1986, when its leased planes were repossessed by creditors.

After he resigned, Hartley says he opened a local office for Regency Media, a mainland-based advertising firm that was representing Air Hawaii. While there, he introduced Air Hawaii's owners to California businessman Raymond Gray. In exchange for full ownership of Air Hawaii, Gray promised the hui a much-needed capital investment of $14 million plus a $1 million note, payable from future profits. A month after he took control, Gray landed Air Hawaii in Chapter 11 bankruptcy with $15 million in debts, including $11 million owed to ticket and coupon holders.

Later, in an unrelated case, Gray was convicted of fraud involving a Seattle savings and loan association that he once headed. That motivated a U.S. bankruptcy court judge to order that Air Hawaii be turned over to a court-appointed trustee. In 1987, the trustee named Hartley and the other original investors in a multimillion-dollar lawsuit, alleging that they had lied to transportation authorities about Hartley relinquishing his ownership stake in the company.

Since then, Hartley has maintained a low profile. State records show that he was not listed as an officer of Cheap Tickets until 1994, when his name first appeared as a vice president. His wife, Sandra, has been listed as the company's CEO for years. When asked how the couple divides their duties, Hartley says, "She handles the financial end of it. She works with KPMG Peat Marwick, the auditors and investment bankers. I handle the operational and marketing side."

FROM THE ASHES. Hartley declines to comment on his past ventures, saying, "It's not to my benefit to discuss it." He will, however, discuss the move that took him from Regency Media to Cheap Tickets. According to Hartley, one of Regency's main clients was yet another struggling airline, Mid Pacific Airlines. Mid Pacific, a five-year-old interisland carrier, owed Regency for ad services rendered. Since Regency's two main clients, Mid Pacific and Air Hawaii, were failing, the agency decided to close its Honolulu branch. But before it did, Hartley say's he collected payment from Mid Pacific in interisland tickets. Unemployed, he and his wife started selling the 3,000 tickets at $29.95 each with classified ads. In two weeks, they were sold out.

Nolan Kramer, Mid Pacific's senior vice president of marketing at the time, remembers a slightly different version of the story. He say's Hartley never did advertising for Mid Pacific. "When we were having difficulty, he bought a huge batch of tickets," Kramer says. "I was mad at the company for selling them to him because I thought he would end up getting stuck with some of them when the airline stopped flying." Kramer remembers his relationship with Hartley as a good one. "He was always fair to me. We never needed a contract with Mike, a handshake was good enough."

After the first batch of tickets sold out, Hartley says he went back to Mid Pacific and put another 1,000 tickets at $22 each on his credit card. He sold all 1,000, again at $29.95, and paid off the bill before he got hit with an interest charge. By the end of the first year, the company generated sales of $250,000. It used that figure to prove the strength of its budget-conscious clientele to various airlines. The gamble had begun to work.

QUID PRO QUO. Cheap Tickets operates like a factory outlet for unsold airline seats. Advance booking systems and inventory trend analysis give airlines an indication of how many seats are usually left empty' on a given flight. A number of those are sold on contract, in bulk and at fares better than most travel agents can get, to discounters like Cheap Tickets - known as "airline consolidators" in industry jargon. The arrangement allows airlines to fill seats and undercut their competition without discounting passengers who would have paid full fare. Hartley says Cheap Tickets gets 10 to 15 seats on a typical flight.

Edward Hasbrouck, a travel agent with San Francisco-based Travel Time and a columnist for Travel Matters newsletter, says getting solid statistics on consolidators is difficult because of their relationship with the airlines. "I wouldn't hesitate to say it's a multi-billion dollar industry; but I don't think anyone really knows (how large it is)," Hasbrouck says. "It's a gray market. Airlines don't want to encourage consolidators to have a high profile because they'd rather have people buy at the published rates."

That's why Cheap Tickets is prohibited from mentioning any airline by name in its advertising, according to Hartley. Hasbrouck says consolidators have to walk a fine line because many of their contracts with airlines are based on hitting a target sales volume. If they undersell their target, they can lose the contract. On the other hand. if they oversell their target by too much, they can be viewed as a threat to the airlines' full-price market. Hartley says Cheap Tickets has regularly surpassed sales volume requirements, and reverts to the lowest published fares during peak travel seasons so as not to cut into airlines' full-fare business. And while Hartley wholesales tickets to travel agents, he doesn't offer them commissions. The rationale is that encouraging agents to buy from a consolidator also cuts into airlines' full-fare business.

Rachel Shimamoto, president of the American Society of Travel Agents' Hawaii chapter, says Cheap Tickets' longevity and ASTA membership show "it's not a fly-by-night operation." ASTA requires members to post a bond with the Airline Reporting Corp. (a company owned by airlines that licenses travel agencies to issue tickets from their offices), and to adhere to a strict code of ethics, she says.

But Shimamoto's own travel agency, Travel Ways, has had its business cut by Cheap Tickets. She says because Cheap Tickets offers airfares lower than most fares listed in agents' reservations systems, local travel agencies are increasingly being pushed into providing niche services like booking hotel rooms and ground transportation - both of which return lower commissions than airfare. "We lose a lot of business to them," Shimamoto says. "We get calls everyday from people who ask what our lowest fare is. When we ask them what their lowest quote is and it's too low, we don't even give them our quote. We know where it comes from." Shimamoto, however, praises Hartley's foresight in capitalizing on the airlines' own cutthroat competition. "Maybe it was just good luck but the timing was right for that type of business and he just kept that momentum going," she says.

CRUISING ALTITUDE. According to Hartley, 85 percent of Cheap Tickets' growth has come from the mainland since it expanded there seven years ago. Today, the company has 10 locations: four in Hawaii, four in California and two in New York, and three call-in centers in Honolulu, Los Angeles and Lake-port, California. It's also planning to set up another call-in center on the East Coast. Order processing and express mailing of tickets is coordinated from a Wilmington, Ohio, office. The site was chosen after Airborne Express, whose hub is Wilmington Airport, took over delivery operations for Cheap Tickets.

Last year, Cheap Tickets began offering cruise packages from its Los Angeles office using the same "empty seat" strategy it uses with regard to airlines, and plans to offer direct ticket sales over the Internet soon. "The only reason we can do this is because we're the only non-airline entity to have our fares registered with the Airline Tariffs Publishing Corporation in Washington, D.C." says Hartley. ATPCO currently downloads Cheap Tickets' 250,000 exclusive fares only to its own agents.

Through the web site, Hartley hopes to lighten the load on Cheap Tickets' overtaxed phone systems: "With 50,000 calls coming in everyday and under 500 employees, it doesn't take a mathematician to see we need help." Plus, he says, customers who don't want to deal with a travel agent can essentially write their own tickets. Beyond those projects, Hartley says only that he expects more explosive growth due to new travel-related products he won't divulge. While he also won't reveal profit margins. he says Cheap Tickets has been profitable every year except during the Persian Gulf War.

Despite Cheap Tickets' success and even with the low profile he keeps today, people still remember a flashier Hartley. Frank Bogowitz, the first pilot Hartley hired to fly for Island Pacific Air, says, "Mike was a big shot. He liked to order people around. He acted like, 'I'm president so I'm better than you.' People only worked for him because they liked to fly."

One local Federal Aviation Administration official recalls seeing Hartley during the late 1970s when he was serving out his five-year sentence for the cocaine-related conviction. A federal judge had ruled that Hartley could serve his time during non-working hours. "As I recall," the official says, "he (Hartley) would drive his Mercedes from the jail to the airport. They let him out from something like 8:00 to 4:00 to tend to his business. After Air Hawaii, I thought he dropped off the face of the planet."

That's what many people who knew of Hartley in the late '70s and early '80s thought. But he's once again flying high, this time keeping himself out of the spotlight and feeling repentant about the past. Asked whether he has any advice for young entrepreneurs, Hartley replies with a curt, "No." Then, after a pause, he adds, "I'm not one to take advice from. I'm a bad example."

Ironically, that's not entirely true. Hartley, in fact, could teach an entrepreneurial trick or two. After all, his timing and persistence have created a Hawaii-based business that is sweeping across the mainland. He's a sizeable employer, a businessman powerful enough to consort with Hawaii's governor at the Olympics and an influential figure in the travel and airline ticket industries. For all that, his past may be the only thing Mike Hartley can't change.

Article Details

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Author:	Torres-Kitamura, Maria
Publication:	Hawaii Business
Article Type:	Company overview
Date:	Sep 1, 1996
Words:	2410
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Topics:	Travel agents Management