NYTimes.com Article: 3rd Shuttle Being Added to Busy Skies Over East Coast

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3rd Shuttle Being Added to Busy Skies Over East Coast

September 18, 2002
By EDWARD WONG






On the surface, it makes as much sense as dumping gasoline
on a raging fire.

American Airlines, which has been trying to cut costs and
scale back its flight schedule, will dive headfirst into
the East Coast shuttle market next Tuesday, when it starts
hourly flights from La Guardia Airport to Boston. On Oct.
1, it will begin hourly flights between La Guardia and
Washington.

American is introducing the service at a time when
passenger volume on shuttle flights for both US Airways and
Delta Air Lines have dropped significantly. Many business
travelers are shying away from short-haul flights because
of what airline executives call the "hassle factor" of
airport security, and Amtrak has been drawing more
Boston-to-New York travelers.

But while American's strategy appears at first glance to
have as much lift as a punctured balloon, the airline says
that it can make money with a shuttle service by drawing
members of its frequent-flier program away from US Airways,
Delta or Amtrak's hobbled Acela service. American is
offering triple miles until Dec. 31 on shuttle flights.

Because American will be operating Embraer regional jets
with 37 or 44 seats, it will need to fill fewer seats to
break even than US Airways or Delta, which use larger jets
as shuttles. The larger planes may give the two airlines a
marketing advantage (more room to stretch out, anyone?) but
their operating costs for each mile flown will be higher.

"I think overcapacity is a common refrain in the entire
route structure, but in this particular market, we feel
there's a void for us to fill as a company," said Lisa
Bailey, a spokeswoman for American Eagle, which runs
American's regional jets. She said she expected many
American frequent-flier members to fly the shuttle to
accrue miles.

Ms. Bailey said the fares for American's shuttles would be
competitive. A walk-up one-way ticket from New York to
Washington or Boston costs $226.50 on the Delta and US
Airways shuttles. Prices could drop if one airline starts a
fare war with the increase in competition, or if the
addition of American's flights results in an oversupply of
seats.

The last year has not been kind to the shuttles. In the
first six months of this year, Delta flew 345,220
passengers on its shuttle, while US Airways flew 322,776,
according to the Bureau of Transportation Statistics. Those
numbers were down more than 19 percent and 23 percent,
respectively, from the period last year.

Delta uses 156-seat Boeing 737-800's on its routes, while
US Airways uses 150-seat Airbus 320's. Such planes are
generally more comfortable than regional jets. They have
also been outfitted with amenities, like power sockets for
laptops on US Airways flights.

"We believe we have a superior product," said David
Castelveter, a spokesman for US Airways. "The Airbus
airplane offers more head space, roomier space that is more
important to business customers."

But by using the low-cost regional jets, American will not
have to capture a large market share to turn a profit.
Darryl Jenkins, director of the Aviation Institute at
George Washington University, said American's flights would
account for about 10 percent of the seats in the market.
American needs to get only 10 percent to 15 percent of the
passengers to make money, he said. What is more, the
carrier will need to fill only slightly more than 60
percent of each flight's seats for the flight to break
even, Mr. Jenkins added.

"They have reasonably good thinking," he said. "It makes it
much, much easier to enter a market because you have less
at risk."

American's new shuttle could also be an attempt to defend
against a possible East Coast market incursion by United
Airlines, its largest rival, Mr. Jenkins said. United and
US Airways have agreed to a code-sharing partnership, which
is subject to government approval.

American is betting that its shuttle service will break
even because of its many frequent fliers. Some come from
the many East Coast companies that have corporate travel
discounts with American, providing an instant customer
base. Measured by revenue, American has the largest market
share in Boston and is tied with Continental Airlines in
the New York area, said Jamie Baker, an airline analyst at
J. P. Morgan.

"Given American's market shares in New York and Boston, it
certainly makes sense to connect the two cities," Mr. Baker
said. But he pointed out that American was "using a
regional-jet product, which some travelers might find to be
less desirable."

But the timing of American's entry could capitalize on
technical problems with Acela train service, which has been
cut back between Boston and Washington. This Friday, Amtrak
will have a total of 40 Acela departures from Boston, New
York and Washington, down 20 percent from the usual
schedule. Amtrak estimates that it lost 76,000 passengers
in the Northeast in late August because of Acela's
problems.

In mid-March, Continental, which has a hub in Newark,
started a partnership with Amtrak to compete with the
shuttles. Continental's frequent fliers earn miles when
they buy tickets on certain trains that run between Boston
and New York, or on trains that run from Newark to four
nearby cities, said Bill Schulz, a spokesman for Amtrak.

US Airways and Delta have tried hard this summer to lure
travelers away from Amtrak with big advertising campaigns
and offers of free miles or discounts if passengers spend
more than 20 minutes getting from the ticket counter to the
gate.

Although American's shuttle will match its rivals with many
amenities, like free coffee, snacks and newspapers, Ms.
Bailey said, it has not put in place the 20-minute
guarantee, and it will not have a special check-in area.

http://www.nytimes.com/2002/09/18/business/18AIR.html?ex=1033353897&ei=1&en=51a2f811f8b217a8



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