=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2004/02/13/f= inancial0937EST0043.DTL ---------------------------------------------------------------------- Friday, February 13, 2004 (AP) Travel: trouble in low-fare land PAULA SZUCHMAN and SUSAN CAREY, The Wall Street Journal (02-13) 06:37 PST (AP) -- Jeff Hausman was looking forward to his first trip on Song, Delta's discount airline that advertises unusual touches like in-flight Pilates exercises and attendants outfitted in Kate Spade uniforms. But on board his flight to Los Angeles, he found the promised seat-back TVs were missing, and the bottled water ran out halfway there. "It felt like the Partridge Family bus," says the Tampa, Fla., marketing executive. With the nation's big airlines increasingly trying to mimic the low-cost carriers, travelers and airline experts are starting to ask whether the new generation of me-too airlines is misjudging what customers really want. Song advertises fresh-mixed Cosmopolitans, but puts travelers on hand-me-down planes from Delta. United launched its low-cost carrier Thursday with club-style "trance" music and the playful name of Ted, but also limited schedules (one flight per day from Denver to Fort Lauderdale, Fla.). And with Delta conducting a companywide strategy review, Song is already putting its expansion plans on hold. "No one cares about designer flight-attendant uniforms," says aviation consultant Michael Boyd of the Boyd Group. It comes at a critical point for the industry, with two major carriers rolling out their low-cost branches, even as new concerns arise over the low-fare strategy. JetBlue, for instance, has recently seen its operating margins squeezed. And of course historically, apart from the success of Southwest Airlines, most attempts to challenge traditional carriers have failed, from People Express in the '80s to Pro Air. Indeed, now that the economy and travel are improving, many big carriers are mobilizing against the upstarts as they have so many times in the past, playing to strengths like elite flier perks and more frequent flights. American Airlines, for example, just added two new daily nonstops between New York's JFK and Phoenix, where it competes with discounter America West. And now come signs that many of these carriers may be losing their big advantage -- the low fares themselves. BACK Aviation Solutions surveyed 15 major routes over three periods during the upcoming spring-break season, and found that majors undercut the discounters some 55 percent of the time, based on an analysis of lowest-available fares. Travelers planning to fly between New York and Fort Lauderdale in mid-April, for example, could have paid $196 this week on United -- while AirTran was asking $401. "The majors really don't have a choice," says BACK's director, David Beckerman. "They don't want to lose out on a paying passenger." To be sure, the traditional carriers are up against some big obstacles in their efforts to compete, with higher costs due to pilot contracts. And for their part, low-cost carriers say they continue to offer the cheapest flights in many cases. While many of the perks they're emphasizing seem offbeat, these airlines say they build loyalty that will help them fend off big rivals, often following the advice of brand consultants to stand out from the crowd. For Ted, United hired Pentagram, the New York-based image-maker behind Godiva's gold chocolate boxes and the Citibank logo (Pentagram consulted baby-name books to help come up with the moniker). "We're trying to create a personality," says Ted Vice President Sean Donohue. The company's research, he adds, shows that customers want "a little bit of fun on board." Still, some fliers say the newcomers are trying to copy some of the more successful low-cost airlines' attitude on the cheap. While flashy color schemes abound, for instance, so far only Frontier has followed JetBlue by adding live seat-back TVs on every aircraft; installation alone can cost $500,000 or more per plane, in-flight entertainment experts estimate. (Song plans to have them on all of its planes by the end of March, it says.) Ted, meanwhile, shows taped programming on overhead screens. For Gary Leff, it's no contest. Low-fare carriers rarely match the majors on offerings that matter most to him, the 29-year-old finance director says, and he won't be tempted when Ted expands flights to his hometown airport, Washington's Dulles. He'll fly Continental to earn flier miles and get business-class upgrades not only for work trips, but for vacations, too. "I'm not interested in having fun," he says. "I'm interested in getting where I'm going with the least amount of discomfort." To be sure, over the past few years, low-cost carriers have been among t= he travel industry's relative successes. JetBlue and AirTran have both been profitable. Southwest has emerged as one of the big winners, with its extreme no-frills approach -- open seating plans and a focus on direct ticket sales and short, nonstop flights. Southwest alone now controls half of the $12 billion low-cost airline market. Low-cost carriers got a particular boost following Sept. 11. Major airlines were cutting routes and staff, with American fighting to avoid bankruptcy court and United filing for Chapter 11 protection. As Southwest and JetBlue remained profitable and European discounters provided another attractive model, still more low-fare carriers started doing business. Discount carriers' growth is expected to continue, with J. P. Morgan predicting they'll control 40 percent of domestic departures by 2006, up from 32 percent currently. And for many fliers, the perks are pretty attractive. Bruce Schobel says he prefers Song for its TVs, and for the interactive music-trivia games he can play with other passengers. "It was so cool," the 52-year-old actuary in Princeton, N.J., says about a recent flight to Florida. "I got to see the Fed interest-rate announcement live." (As for Mr. Hausman's trip, Song says it has increased each flight's water allotment since he flew.) But strains are beginning to show even on the more successful low-cost carriers, including JetBlue, the country's No. 2 airline in customer satisfaction, according to market researcher Resource Systems Group. Though it increased its capacity by nearly half in the past year, it fell on one key measure of airline success; its planes flew 78 percent full in January, down from 82 percent a full year ago. (The majors, by comparison, have seen load factors increase slightly, though they remain lower than JetBlue's, with United, American and Continental all flying less than 70 percent full.) In the end, for a look at how the low-fare push may play out, consider Thursday's launch of Ted. On an inaugural flight from Denver to Fort Lauderdale, flight attendants wore United uniforms, with bright orange "Ted" buttons. Seats were United blue, with a United in-flight magazine in the pocket. The biggest change, perhaps, was the all-coach cabin -- and the announcement by the co-pilot just after takeoff. "We are exci-TED that we have depar-TED," he said. "And we are motiva-TED to serve you." Attention, Please With the success of low-cost carriers like JetBlue, now it seems everybody's got a gimmick. Here's a look at discounters and other airlines, and what they're doing to stand apart from the crowd. AIRLINES: Alaska TOUCH: Handheld digital media players COMMENT: Players have 20 movies, videogames and music ($10 in coach, free in first class). Carrier also runs jokey Web site, skyhighairlines.com. AIRLINES: ATA TOUCH: Business class COMMENT: All 60 jets will have the new business class by November, with domestic fares capped at $399 one-way. AIRLINES: Frontier TOUCH: Seat-back TVs COMMENT: Everyone can get satellite TV -- for a $5 fee. (Airline says 40 percent of fliers go for it.) Flight attendants are encouraged to sing, too. AIRLINES: Independence Air TOUCH: Big TVs COMMENT: United's regional carrier, Atlantic Coast, plans to relaunch th= is year as Independence, promising seat-back TVs, short check-in lines. AIRLINES: Mesa TOUCH: Jokey announcements COMMENT: Phoenix-based regional's CEO takes laughs seriously: "For every four letters I get from a cranky guy, I get 100 from people who love it." AIRLINES: Zip TOUCH: Neon planes with smiley faces COMMENT: Low-cost unit of Air Canada just started service to Las Vegas; its Canadian competitor WestJet also plans to expand to the U.S. ---------------------------------------------------------------------- Copyright 2004 AP