NYTimes.com Article: Not Yet Airborne, and Ted Is in a Fare War

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Not Yet Airborne, and Ted Is in a Fare War

January 24, 2004
 By MICHELINE MAYNARD





When United Airlines unveiled plans for Ted, its latest
attempt to compete in the low-fare airline game, United
deemed the carrier so perky that it could wink.

Yesterday, Ted proved that it could blink, too.

Three
weeks before Ted is scheduled to make its first flight from
its home airport in Denver, United said it would lower
Ted's most expensive fares, pushed into the move by recent
fare-cutting by its chief rival, Frontier Airlines.

United said fares on Ted, which begins operations Feb. 12,
would cost no more than $299 each way, plus a $10 fuel
surcharge. That matches a $299 cap that Frontier placed on
walk-up fares - those sold at the last minute, with no
restrictions - to cities Ted is also scheduled to serve.

That $299 fare is also the most that the leading low-fare
carrier, Southwest Airlines, charges for its tickets,
although Southwest does not fly to Denver.

The move underscores the brutal competition within the
airline industry, especially in the low-fare segment, which
now comprises 25 percent of flights within the United
States, measured by the number of passengers carried.

United, part of UAL, introduced Ted late last year as its
entry into the increasingly crowded low-fare segment, which
includes Song, started last year by Delta Air Lines, and
JetBlue Airways, the Queens-based carrier that has become
the biggest airline at Kennedy Airport.

Ted will arrive several years after United's last attempt
at an airline-within-an-airline, the Shuttle by United,
failed to sustain passenger interest. Given that, some
analysts have looked skeptically at Ted, saying that its
odd name suggests "the end of United."

In its inaugural phase, Ted will fly from Denver to 14
cities, including Los Angeles, Las Vegas and Phoenix, as
well as destinations in Florida. Eventually, United
officials say they plan to expand Ted flights to O'Hare
International Airport in Chicago and Dulles International
Airport near Washington, two of its other hubs.

Although passengers can connect on Ted to other United
flights, and will collect United frequent-flier miles, Ted
is getting its own peppy identity, in a quest to compete
with the frothy approach of other low-fare airlines.

Ted's planes have been painted bright blue and marigold
while its inflight entertainment system, Ted TV, will
feature comedy programs. There will also be an official Ted
beer, the brand yet to be selected.

In introducing the airline in late November, Sean Donohue,
a United vice president, said Ted would offer a friendly,
casual flying experience, adding that if it could wink, it
would.

But Ted's initial fares, from Denver to cities on the West
Coast as well as Florida, caused some scowls. Despite its
low-fare claim, walk-up fares on Ted were initially as high
as $414 each way.

To be sure, restricted fares were lower, and surveys by
Denver newspapers found Ted to be competitive on advance
purchases with other carriers serving the city.

Nonetheless, by capping fares at $299, plus the $10 fuel
surcharge, United removed the biggest complaint about Ted.
Moreover, the move was an admission that United cannot
command a premium for Ted flights simply because a big-name
carrier is behind the airline, said Michael Allen,
president of Back Aviation, an industry consulting firm.

Given its experience with the Shuttle by United, the
airline should not have tried to charge so much, Mr. Allen
said.

"They're not going to be able to launch a new service as a
low-cost competitor offering fares that would make them a
high-cost competitor," Mr. Allen said. "I'm glad somebody
came to their senses."

A spokesman for Frontier said the airline had expected
United to match its move, the second time in a year that
Frontier has capped its fares. In 2003, Frontier reduced
its highest walk-up fares from $499 to $399. "The economic
situation has generated that kind of response," said
Frontier's spokesman, Joseph I. Hodas.

Mr. Hodas, speaking by phone from the annual National
Western Stock Show and Rodeo in Denver, where Frontier is
an exhibitor, said Ted had not affected his airline's
advance bookings.

Kevin P. Mitchell, chairman of the Business Travel
Coalition, which represents corporate travel departments
and business travelers, predicted even lower fares ahead as
the traditional airlines try to prevent low-fare
competitors from taking passengers, no matter the cost to
profitability.

"They're going to do everything they can to stop the market
share shift, even if it kills them," Mr. Mitchell
predicted. "It's a great year to be a consumer."

http://www.nytimes.com/2004/01/24/business/24ted.html?ex=1075974062&ei=1&en=dca803c5a497ed07


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