Troubled Airlines Face Reality: Those Cheap Fares Have a Price By DAVID LEONHARDT with MICHELINE MAYNARD fter seething in airport lines and fidgeting on delayed flights, Americans are unlikely to think of the last decade as a golden age of air travel. Soon, however, a little nostalgia may begin to set in. For all their frustrations with stingier services, millions of travelers still count on full-fare convenience at no-frills prices. But with businesses unwilling to pay the high fares that have subsidized leisure fliers, and the Internet giving travelers new tools to find bargains, that formula is giving way. Now, suffering their worst financial losses ever, the nation's biggest carriers =97 through bankruptcy filings, broad restructurings or more subtle responses to the stark moves of their sickest competitors =97 = plan to start bringing service more closely in line with their fares. They will make travel less convenient for business fliers by cutting flights and lengthening connection times at some hubs. They also hope to exact more of a sacrifice from people flying on the most heavily discounted tickets, with ever more spartan cabin service. If that sounds like Southwest <http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=3Dhttp://cus= t om.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DLUV> Airlines, it is because the industry's giants are trying to keep pace with Southwest, whose profitability amid their losses has earned it a stock market value bigger than all its rivals' combined. "The marketplace has changed; we haven't changed," said Gordon M. Bethune, the chief executive of Continental <http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=3Dhttp://cus= t om.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DCAL> Airlines. "We may be starting to." US Airways, battered by the growth of low-fare service on its once-lucrative East Coast routes, filed for bankruptcy protection last Sunday, saying it would eliminate many flights. American Airlines said on Tuesday that it would lay off 7,000 workers and alter its schedules to minimize the time planes sit idle, at the cost of longer waits for passengers. United Airlines on Wednesday threatened to seek bankruptcy protection later this year, if its unions do not agree to deep wage cuts. Crisis has come to the nation's airlines before, of course. They lost billions of dollars in the recessions of the early 1980's and 90's. But the frustrations and fear created by Sept. 11 have affected travel far more than a downturn alone, and the six biggest carriers =97 American, United, Delta <http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=3Dhttp://cus= t om.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DDAL> = Air Lines, Northwest <http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=3Dhttp://cus= t om.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DNWB> Airlines, Continental and US Airways =97 collectively lost a record $6.9 billion from October through June. Since the government deregulated air travel in 1978, the big carriers have repeatedly defied predictions of their demise, in the process outlasting upstarts =97 from People Express to Pro Air =97 that were expected to slay them. Likewise, the significance of the current overhauls could be diluted by, among other things, the industry's powerful unions, an unexpectedly strong economic recovery or a slowing of growth at Southwest, the discount carrier now in 30 states. One or more of the big carriers, angling to gain market share, might resist the push to curtail service and amenities. Still, most executives and analysts say the airline business cannot continue in its current form for long. The steady advance of Southwest and its ilk, including JetBlue in New York, has destroyed the giant carriers' profits on many routes they once dominated. The Internet, meanwhile, lets business and leisure travelers alike tinker with itineraries and reduce fares by hundreds of dollars. Neither of those forces is likely to recede when the economy recovers. This leaves the traditional airlines with the biggest fleets and broadest networks calculating ways to deliver service that is less expensive than today's, yet just superior enough to that of the low-fare airlines to justify higher prices. "People would like to be able to have assigned seats and convenient schedules with Southwest prices," said Alfred E. Kahn, the economist who oversaw deregulation as the final chairman of the Civil Aeronautics Board. That was possible, he said, during the boom of the 1990's, when the economy grew so quickly that business travelers would pay almost any fare. In today's economy, he added, "that just can't be done." Test Market Discounters Deflect California Challenge In the busy passageways of San Francisco International Airport about five years ago, United =97 then the world's largest airline =97 seemed = to have devised an effective response to Southwest's juggernaut. Shuttle by United, a service exclusively for the West Coast, attracted thousands of dot-com pioneers, corporate executives and other travelers who wanted both cheap fares and the convenience of a global carrier. Between 1994, when Shuttle began, and 1997, United's share of the air travel market within California shot up to 29 percent from 22 percent, according to Back Aviation Solutions, a research firm in New Haven. Southwest's share slipped to 54 percent from 56 percent. Yet like almost every other attempt by a major airline to mimic the discounters, United's succeeded only briefly.=20 The airline had chosen San Francisco as Shuttle's Northern California base, despite the fog that frequently slowed operations at the airport, because it is a hub for United flights to Asia and around the United States. Based in sunnier San Jose, Southwest suffered fewer costly delays, allowing it to make the most of the quick turnarounds at the gate on which the airline and its workers pride themselves. As with its costs, the fares at Southwest remained lower over all. So when the slumping economy slowed traffic growth in 2000, Southwest reasserted its dominance. Its share of the California market reached a record 63 percent last year, and United's share fell to 19 percent as the bigger airline, losing more money than any other after Sept. 11, sharply reduced service. Since another California airline, Pacific Southwest Airlines, began offering low fares in 1949 =97 it cost $5.65 to fly from San Diego to Oakland back then =97 the state's skies have followed a similar = storyline. Discounters suffer defeats, and even disappear. (P.S.A. was absorbed by what then was called US Air in 1988.) But over the long haul, they succeed in destroying the fat profit margins of full-service airlines. In the last 15 years, the inflation-adjusted price of an average ticket within California has fallen 31 percent, to $79.48, according to Back. Indeed, for many travelers, the best part of the discount airlines is not having to fly them in order to enjoy their benefits.=20 "I think Southwest is terrific," said Lisa Ackerly, 42, a marketing executive from Half Moon Bay, Calif., 29 miles from the San Francisco airport, who travels twice a month to the Los Angeles headquarters of her employer, Edmunds.com, an information service for car buyers. "I wish I had invested in them."