This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Fox Searchlight Pictures is proud to present BROKEN LIZARD'S CLUB DREAD now playing in theaters everywhere. No crucifixions, no need to read subtitles, no need to avert your eyes. Just have a drink, mellow out and laugh for two hours with the creators of Super Troopers in CLUB DREAD. Watch the trailer and join the blogging fun on the official website at: http://ads.nyt.com/fi.ad/mo-2004fox02/clubdread2/?_RM_REDIR_=http://www.clubdread.com \----------------------------------------------------------/ Are Peanuts No Longer Enough? March 7, 2004 By MICHELINE MAYNARD NO-FRILLS efficiency, cheap seats and a few laughs thrown in. That has always been the hallmark of Southwest Airlines, whose flight attendants still entertain passengers by telling jokes on board. For its first three decades, that formula propelled it to consistent profitability, even as bigger airlines stumbled and smaller ones sputtered and spun out of business. But lately, the grins have begun to fade. The low-fare market that Southwest once dominated has become mighty crowded, above and below the altitude where the airline flies, as more and more competitors take aim at passengers for whom thrift, not comfort, has become a primary concern. A whole crop of low-fare airlines - from JetBlue to Ted, which was started last month by United - are offering cheap tickets as well as frills like trendy cocktails that are very un-Southwest. At the same time, traditional airlines are reducing fares and offering premiums to attract bargain hunters. "Entire divisions of airlines have been amassed to do battle with Southwest," said Gary C. Kelly, its chief financial officer. All that is forcing Southwest to rethink. It is considering moves that might have been blasphemous at the company just a few years ago: adding frills like in-flight entertainment systems and expanding its fleet beyond its trusty Boeing 737 jets. Southwest executives say no firm decisions have been made, and they give every impression that life will fundamentally be the same at the airline known for its old mustard-and-ketchup-colored planes. Even as it wrangles over contract issues with its flight attendants' union, Southwest says its secret weapon remains its affable employees - and not just because they have become the stars of the reality TV show, "Airline," on the A&E cable channel. "There hasn't been a carrier that has been able to match our people in spirit and energy and enthusiasm over the long haul," said Southwest's president, Colleen C. Barrett. Still, Ms. Barrett said, Southwest cannot become complacent if it wants to remain the low-fare leader. "We have had such a good successful run that I'm sure there are pockets of people out there who think we can't do any wrong," she said. The airline is both flattered and sobered by the low-fare invaders, added its chief executive, James F. Parker. "It's kind of like being the Super Bowl champion. It's hard to defend that title," Mr. Parker said. In fact, Southwest is wading into what might be considered the equivalent of a playoff game. On May 9, it begins service from Philadelphia, the first city it has added to its routes since October 2001. The move is also Southwest's first into a city dominated by another airline since it started flights from Baltimore in 1993. Then, as now, Southwest is encroaching on the turf of US Airways. Last time around, it muscled US Airways into a full-fledged retreat, leaving Southwest to dominate Baltimore service. THIS time, it may not be so easy. US Airways, scrambling for its financial life, has vowed to fight back in what could be its last stand. A year after it emerged from Chapter 11 bankruptcy proceedings, US Airways is trying to persuade unions to give it a third round of contract concessions, so it can stave off Southwest and other low-fare rivals, and remake itself as a leaner airline. US Airways accounts for 68 percent of flights from Philadelphia, one of its three hubs. As Southwest approaches, offering one-way fares as low as $29, US Airways is adding more flights to the cities that Southwest plans to serve from Philadelphia and is vowing to match its fares on routes where the two battle head to head. But Philadelphia has extra meaning for Southwest. It is near the hometown of its legendary chairman, Herbert D. Kelleher, who once dressed in a chicken suit to draw attention to Southwest, the upstart airline he founded in Dallas in 1972. Mr. Kelleher grew up across the river in Haddon Heights, N.J., and his first job was as a paperboy for the old Philadelphia Bulletin. But Southwest's move into Philadelphia is being directed by Mr. Parker, who succeeded Mr. Kelleher as chief executive in 2001. Mr. Parker has been known to joke that his personality is a 40-watt bulb next to Mr. Kelleher's klieg light. But he has inherited Mr. Kelleher's keen sense of what customers will pay for. In Mr. Kelleher's day, that was low fares - even if that meant no assigned seats and no meals on board. Mr. Parker and his Southwest management team must now determine what the airline must add to keep passengers - or if it needs to add anything at all. "I don't know where it will take us," Mr. Parker said. For hints, he need look only at JetBlue, which has shaken the industry by stirring up a mix that includes low fares and in-flight entertainment systems, installed in the backs of seats, that allow passengers to watch television programs and listen to music. Thanks to JetBlue, in-flight systems have become the norm on its low-fare rivals, including Ted, started last month, and Song, the Delta Air Lines low-fare service that will celebrate its first birthday next month. Each of those start-ups has gone further in the frills department than JetBlue, which still does not offer meals. On Song, passengers can buy a variety of snacks, including pricey chocolates from Dylan's Candy Bar, a Manhattan shop. On Ted, there is even an official beer, Foster's Lager, and passengers can buy souvenirs like a stuffed bear named - what else? - Ted. The newcomers have created an in-flight atmosphere far different from the frugal one at Southwest, where the only thing that passengers can bring home for their children is a bag of peanuts. Indeed, some industry analysts say Southwest could eschew the extras and remain its no-frills self, allowing its low-fare and traditional rivals to fight over the same middle ground. But if it guesses wrong, customers could defect and market share could fall. Unlike some new entries in the low-fare field, which could create their approaches from scratch, Southwest would be layering any amenities over a structure whose foundation is frugality. In fact, Mr. Kelly argues that the airline can afford to adopt the extras, given its long string of profitable quarters. "We have the capital and infrastructure to be able to do any and all of those things if we chose to," he said. Even as it decides its grand strategy, Southwest is already taking baby steps. Without fanfare, it recently began letting passengers check in for flights on its Web site and print their boarding passes, beginning at midnight on the day of their flights. That eliminated the need for travelers to arrive at the airport quite so early. But it will never go the full route and assign seats, said Ms. Barrett, Southwest's president. That would lengthen the boarding process at an airline that prides itself on turning around planes quickly at its gates. Even 10 additional minutes, multiplied by all its aircraft, would be prohibitive, she said. "Most people can accept that - and if they can't, they probably shouldn't be flying Southwest Airlines in the first place," she said. Southwest, however is studying a major change: whether to retrofit its aircraft with in-flight entertainment systems, which have been a hallmark for JetBlue and have been copied by competitors. Even though vendors have shown up at Southwest headquarters with systems that would be economical to install, Ms. Barrett said that there was less than a 50-50 chance that Southwest would adopt them. But she acknowledged that they would make sense on the airline's longest flights, like Providence, R.I., to San Diego, or Baltimore to Los Angeles, on which passengers have the most time on their hands. Robert W. Mann Jr., an airline industry consultant based in Port Washington, N.Y., said Southwest would have to keep track of the planes with the seat-back systems, otherwise it might find them deployed from Houston to Dallas or other short routes. That is exactly where Southwest doesn't want them to wind up, Ms. Barrett said. Darin Lee, a senior managing economist at LECG, a consulting firm in Cambridge, Mass., likens Southwest's conundrum to installing phone lines in a home after it has been built. "It's a lot more costly to tear down walls to do it, versus building a house with it already planned," he said. IN any case, Mr. Parker said, the audio-video systems "would have to be available in a form that was consistent with our goal of having low cost, and continuing to offer our customers great value." Even less likely, though also under consideration, is an expansion of Southwest's fleet beyond the family of Boeing 737's it now deploys. The airline set off murmurs last year when officials acknowledged that they were studying the Brazilian-built Embraer 190, a 100-seat regional jet, smaller than a 737 but twice as big as most regional jets. JetBlue has ordered 100 of them, with an option to buy 100 more. "We're looking at it, as we have always done," said Mr. Kelly, the chief financial officer. "But we've got a pretty high hurdle to overcome in adding another aircraft type" - namely, that it would require new maintenance, parts and training procedures. As JetBlue and its rivals plan to expand, so does Southwest. Mr. Parker said the airline would not add any other new cities this year - a blow to the 115 that have been angling for its business. He noted, however, that Southwest always adds more destinations after it starts service from a new city, which it plans to do quickly from Philadelphia. Whether those passengers will get more in the way of frills isn't clear. Yet, Mr. Parker does not seem daunted by the phalanx of other carriers aiming at Southwest's territory. Some, he suggests, may join names like People Express and New York Air in the aviation trash bin, unable to keep a lid on their costs while keeping fares low. "It's a much more competitive atmosphere than it has been for some time," he said. "But history suggests that airlines do go away." http://www.nytimes.com/2004/03/07/business/yourmoney/07south.html?ex=1079671771&ei=1&en=89e355134b1c135b --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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