From: Bill Hough -------------------- Low-Cost Airlines Faring Better -------------------- By Tom Incantalupo STAFF WRITER February 28, 2002 For some airlines, the recession and post Sept. 11 falloff in air travel has been devastating. But for others, it's been little more than a temporary setback, with the contrasts sometimes dramatic. Consider these events in a seven-day period earlier this month: Feb. 12, Bloomberg News Service reports that passenger traffic on the 17 largest airlines in January, four months after the terrorist attacks, while improving, was still 12 percent below a year earlier. For US Airways, the major carrier at LaGuardia airport, the drop was almost 20 percent. And for American, the nation's largest airline, the decline was 15 percent. That afternoon, New York-based JetBlue Airways, which carried 3 million passengers last year, said it planned to raise $125 million by selling shares to the public to finance an expansion that included new planes and a doubling of service in this year alone. Six days later, Southwest Airlines, the only major carrier to remain profitable and not lay people off after Sept. 11, said it would add 4,000 workers this year to its 32,000-member work force as part of an expansion plan. JetBlue reported a $38.5 million profit for last year. Southwest's profit fell by 11 percent from 2000 but it still was more that half a billion dollars. Collectively, the major airlines lost $7 billion. Those hurt the least have tended to be low-fare, low-cost airlines whose ace in the hole is that they can cut fares in tough times to keep customers coming and still earn a profit. Besides Southwest and JetBlue, low-cost carriers include Frontier Airlines, Air Tran Airways, Vanguard Airlines and Spirit Airlines. "They're in a better position to weather a downturn because their overall cost structure allows them to be very aggressive in pricing," said Bill Oliver, a vice president of the aviation consulting firm the Boyd Group, based in Evergreen, Colo. Whether they are unionized like Southwest or non-union like JetBlue, their wage scales are comparable to those of traditional carriers. But their labor costs usually are lower because their work forces tend to be younger and, therefore, lower on wage scales. Oliver says more liberal work rules also helps costs. Said Gary Kelly, Southwest's chief financial officer, "Our folks just basically get out there and get the job done." Route systems are another cost-saving area. The most successful of the low-cost carriers, including Southwest and JetBlue, have point-to-point rather than "hub and spoke" systems. The latter, employed by most traditional carriers, "feeds" passengers from remote locations along spoke routes and into one or more central locations, or "hubs," where they are combined with other passengers on outbound flights. The system has benefits but also is costly, says Oliver, because of frequent delays as aircraft wait for others to arrive with connecting passengers. Extended ground time means lower aircraft utilization. Some low-cost carriers also save money by avoiding crowded airports like LaGuardia, where rents are high and air traffic delays can increase operating costs. "Time is everything," Kelly said. Southwest's planes get no closer to New York than Long Island MacArthur Airport in Ronkonkoma, for example, and no closer to Washington than Baltimore-Washington International. It does fly into Los Angeles International Airport, though. Kelly says his aircraft are in the air an average of 12 hours a day, as much as twice that of major competitors. Although JetBlue's base, Kennedy Airport, certainly qualifies as a major location, it is less congested than LaGuardia. And the carrier uses Dulles International in Virginia instead of Reagan National in Washington and flies to Long Beach, Calif. and Oakland, Calif., rather than Los Angeles International and San Francisco, respectively. Not everyone adheres exactly to the Southwest formula. Privately held Spirit, based in Fort Lauderdale, serves O'Hare, LaGuardia and Los Angeles International, although its system is point-to-point. Its traffic was off by 11 percent in January from a year earlier. Frontier uses Denver as a hub. It's been profitable for its past three fiscal quarters and its passenger traffic in January was less than 2 percent behind a year earlier. Air Tran uses crowded Atlanta Hartsfield International as its hub. Its January passenger traffic was only about 1 percent below that a year earlier. Vanguard uses its base in Kansas City as a hub. Spokesman Alan Carr said it adopted hub-and- spoke two years ago. "By having more flights out of our headquarters and hometown, we can build a better base there," he said. Vanguard's January passenger traffic was up by 56 percent from a year earlier, though it increased service only 10 percent. Low-fare carriers haven't been totally unscathed by recession and Sept. 11's after-effects. Southwest, based in Dallas, saw passenger traffic drop by almost 22 percent in September from a year earlier, causing it to temporarily shelve its growth plans. Air Tran made a profit for the year although it reported a loss of $12.9 million for the final quarter. Vanguard estimates a loss of $2 million to $3 million for last year's final quarter, though that's an improvement from a year earlier. But Southwest's plans are on again and they include further growth at MacArthur, from which it makes 25 daily departures. Copyright (c) 2002, Newsday, Inc. -------------------- This article originally appeared at: http://www.newsday.com/business/local/newyork/ny-bzair282605416feb28.story Visit Newsday online at http://www.newsday.com