NYTimes.com Article: Low-Cost Airlines Push Forward as Their Larger Rivals Cut Back

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Low-Cost Airlines Push Forward as Their Larger Rivals Cut Back

August 16, 2002
By EDWARD WONG






As full-service airlines cut flights in coming months, they
will create the kind of opportunity that in the past has
allowed low-cost carriers to steal passengers.

Economic downturns allow no-frills airlines to flex their
cost advantages, and analysts say some of those carriers
could scoop up abandoned slots at airports, not to mention
add flights to poorly served routes.

AirTran Airways, already a strong rival to US Airways and
Delta Air Lines on the East Coast, is poised for such a
move, analysts say. It is growing quickly, with plans to
increase capacity by 20 percent from last year. In the
first and second quarters, it raised its capacity -
measured in a unit called available seat miles - by 12.8
percent and 23.2 percent.

"We're looking for those cities that are underserved and
overcharged," said Tad Hutcheson, director of marketing at
AirTran. "As the other airlines are looking to scale back
and cut back in capacity, we're doing just the opposite."

Since the Sept. 11 attacks, AirTran has already added
service to 7 cities and 24 routes. It has taken delivery of
9 Boeing 717's this year, with 11 more to come by December.
The airline managed a profit of $5.1 million last quarter,
though that was down 61 percent from a year earlier.

Four of the country's largest full-service airlines said
this week that they would reduce capacity in the next
several months. American and United, which is a unit of the
UAL Corporation, both said they would reduce their November
schedules by 9 percent, compared with July's schedules, and
Northwest announced a 13 percent cut. It is unclear how
much those moves are a reflection of the usual transition
to autumn, which is historically slower, and how much are a
result of the economic slowdown and the decline in travel
after Sept. 11.

US Airways said it would cut flights and reroute some to
different hubs as it operated under bankruptcy protection.
It said it intended to maintain service to almost all its
cities, but announced yesterday that it was dropping
regional flights to Saginaw, Mich., starting Sept. 7.

"Historically, the low-cost airlines have certainly taken
an economic downturn to increase market share," said Susan
Donofrio, an analyst at Deutsche Bank. "This was the
strategy that Southwest did in the early 1990's."

AirTran also used that tactic last fall, when the major
carriers were still icing their bruises from the Sept. 11
attacks. It went into Baltimore- Washington International
Airport in December and grabbed five gates that US Airways
had used for its recently failed low-cost operation, called
MetroJet. It now runs 25 flights a day from the airport.

"They cut down quite a bit," Mr. Hutcheson said of US
Airways. "We found clearly that that was an opportunity for
us, and we took advantage of it."

The nation's two most profitable airlines, Southwest
Airlines and JetBlue Airways, said the planned cuts by the
full-service carriers would have no immediate effect on
their operations. It is too soon to tell which routes will
be affected, and that limits the moves that rivals can
plan. Ed Stewart, a spokesman for Southwest, said,
"Long-term planning in the airline business is just two
days."

In 1991, Southwest snatched up gates at Midway Airport in
Chicago that were abandoned by Midway Airlines when it
filed for bankruptcy protection. Southwest had been running
44 flights a day from Chicago, and eventually surpassed its
initial goal of 100 daily departures.

JetBlue's expansion plans for the rest of the year are
limited by the fact that it is taking delivery of only
seven more Airbus jets, said Gareth Edmondson-Jones, a
spokesman. Most of those will be based in Long Beach,
Calif., with a few in Florida. JetBlue increased its
second-quarter capacity by 101 percent over the period last
year, and it is growing about 15 aircraft a year.

"We're plane-constrained, and we recognize it," Mr.
Edmondson-Jones said. "Each plane that we take, there are
way more options for it than what we can do. We mull over
all the options and ask which one can we make the most
money at."

Routes run by the full-service carriers might not meet the
criteria set by the low-cost airlines. All of them said
they looked for markets where there was a clear demand for
low fares. AirTran and JetBlue operate out of a mix of
central and secondary airports, but Southwest traditionally
goes after slots only in secondary airports like Midway.

In one case, JetBlue started flying a route partly because
rivals had cut back. The airline had intended to start
running a route from Washington to the West Coast last
October, but held back because of the Sept. 11 attacks.
Then in November, when it saw that full-service carriers
were cutting back on service to Florida, it decided instead
to add flights between Washington and Florida, Mr.
Edmondson-Jones said.

"The low-cost carriers are clearly in a cost position to
take advantage of the situation," said Steven A. Morrison,
a professor of economics at Northeastern University who
studies the airline industry. "Although such carriers are
hurting, they're hurting less than their network brethren."


Despite their need to cut costs, the full-service airlines
will not necessarily sit by and watch the low-cost carriers
steal their passengers. When JetBlue moved into Long Beach,
American Airlines began haggling with the city to expand
its slots beyond four. It received an additional four
slots, which it can hold until January, and it began
advertising cheap flights between New York and Long Beach.

"We know that the low-cost competitors are out there, and
in these times perhaps they do have an advantage in certain
marketplaces," said Marty Heires, a spokesman for American.
"But we are not about to relinquish market share. We have
shown in the past that we can respond."

American's largest rival, United, is fighting bigger
battles. Many Wall Street firms downgraded its stock and
credit ratings yesterday after it said on Wednesday that it
might file for bankruptcy protection, though the stock
ended the day up 25 cents, at $2.70. Executives began
putting together a restructuring plan to present to its
unions, and the carrier sent an e-mail message to members
of its frequent-flier program saying that it will honor
their miles on "a safe and reliable airline."

http://www.nytimes.com/2002/08/16/business/16AIR.html?ex=1030504535&ei=1&en=284ca9d88b4e4a6f



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