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KIWI TERMINATING AIR SERVICE FROM NIAGARA FALLS

Kiwi pulled the plug on its Niagara Falls service Thursday after months of finger-pointing about whether to blame poor service or the failure of county officials to deliver a promised $550,000 loan.

The decision by Newark, N.J.-based Kiwi International Air Lines to end its flights as of Monday comes as no surprise after the decision late last month by the industrial development agencies of Erie and Niagara counties to withdraw their loan offer.

A last-ditch effort by the NFTA that included arranging a meeting between Kiwi President Jerry Murphy and County Executive Gorski and a session at which the airline pleaded its case to Niagara County community leaders was not enough to continue the service that began May 15.

Gorski turned down a request for a direct grant to Kiwi, and the Niagara business community balked at the airline's demand for a guarantee that each of its twice-daily flights between the Falls and Newark would be profitable.

"After making a good-faith effort to make this market work prior to receiving the loan, including spending a considerable sum in marketing and airport-related costs, we can no longer subsidize the operation," said Kiwi spokesman Rob Kulat.

Public officials pointed out that Kiwi failed on its gamble to begin service in anticipation of receiving the loan to acquire a smaller plane. Rather than demonstrating how valuable the airline was -- it did drive down Newark fares sharply -- it stumbled badly.

On the first day of service, the arriving flight was two hours late. By the end of the second month, Kiwi had canceled almost a third of its flights. On some occasions, passengers made it back to Buffalo only to have to find their way to Niagara Falls to retrieve their cars.

During the last couple of weeks, Kiwi had decided not to fly at all on Tuesdays and Thursdays.

Not unexpectedly, the airline had few business passengers and was flying dwindling numbers of leisure travelers, airline industry sources said. Its 162-passenger Boeing 727 jet was operating at less than one-third of capacity.

"I felt the community didn't do a good job supporting Kiwi, but Kiwi didn't do a good PR job, either," said Gerald E. Meal, chairman of the Niagara County Legislature. "We can blame each other, but it's the region that loses."

Meal suggested that the high cancellation rate was a result of poor market research. He said Kiwi should have done more work to find out what times and days people in this area would most like to fly to Newark.

"There was a lack of community input," he said.

Kiwi did demonstrate the benefits of airline competition for Western New York. Before the ink had dried on a tentative loan approved by the Niagara County Legislature in February, Continental Airlines, its chief rival to Newark, dropped its round-trip fare from $486 to $166.

"You saw the impact they had on air fares," said Luiz F. Kahl, chairman of the Niagara Frontier Transportation Authority. "When things started not working properly on the loan, I decided the NFTA should take leadership and do whatever possible to keep them here."

The NFTA, however, was limited in the role it could take. The authority cannot provide direct incentives that would favor one airline over another, so its primary strategy was to try to rally community support.

But Kiwi needed cash more than promises.

Kahl said Kiwi asked Gorski for a grant, not a loan, to continue flying, something the county executive was not prepared to do.

During the Aug. 14 meeting with Niagara community leaders at Niagara Falls International Airport, Kiwi demanded seat guarantees and a minimum of $5,175 to cover the costs of each flight, an airline industry source said.

Even at the end, Kiwi's announcement to curtail its flights was not on schedule.

"We were planning to meet again Monday with the understanding the situation was serious and they were losing money, but Kiwi was going to continue flying," Kahl said. "Jerry (Murphy) called today to say they were continuing to lose money and couldn't go on any longer."

The NFTA continues to hope it can attract a low-fare carrier that will pick up the slack to the New York metropolitan area, the area's biggest destination.

Shuttle America hopes to begin operating turboprops between Buffalo and Islip, L.I., and Trenton, N.J., this fall. On the plus side, Shuttle America will operate five or six flights a day, compared with Kiwi's two. On the other hand, neither airport is convenient to Manhattan.

The big prize is Southwest Airlines, the nation's largest low-fare carrier. The airline has said it has been considering Buffalo but would not begin any service for at least two years.

"Southwest is very confident of what they can do," Kahl said. "The fact that Kiwi was here won't add or subtract from their eventual decision."

Reporter Thomas J. Prohaska of The News Niagara County Bureau contributed to this article.

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