=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/2004/03/17/f= inancial0838EST0033.DTL ---------------------------------------------------------------------- Wednesday, March 17, 2004 (AP) Is discount airline approaching runway near you? SCOTT MCCARTNEY, The Wall Street Journal (03-17) 05:38 PST (AP) -- It's one of the most intriguing guessing games in the airline industry: Where will the fast-growing discount carriers decide to attack next. When discount airlines start serving a new city, sparks fly, fares fall and travel jumps, both for business trips and vacation treks. Cities compete feverishly to land new airlines, and airlines spend months carefully analyzing markets. The process is filled with secrecy, but understanding how discounters pick new cities means it's possible to guess at where their next stops will be. Take heart, Washington, D.C., your high-fare days may be numbered. But Minneapolis, don't count on it. And don't be surprised if Southwest Airlines lands in Fort Meyers, Fla., in the next year or two. For fliers, it means cheaper fares to Florida, New York, California and other popular destinations -- like Las Vegas, for instance. It's such a popular destination that low-cost carriers often try to build traffic quickly in a new city by kicking off with a Vegas flight. This isn't just idle curiosity. With low-cost carriers adding huge numbe= rs of airplanes this year from Boeing and Airbus (at least 60 new jets, up from 40 last year) the next moves by discounters may ultimately dictate the futures of higher-cost carriers, some of which are still financially shaky. Low-cost carrier capacity will grow nearly 11 percent this year, according to Deutsche Bank, outpacing growth of 7 percent at higher-cost carriers. Already, discounters carry nearly one-quarter of domestic traffic. Just like travelers go to great lengths to find cheap airfares, the discount airlines look hard for the high-fare routes they can elbow in on. While cities dangle financial incentives, and Wall Street analysts try to guess where the next big battle may erupt, discounters actually make these crucial decisions with a lot of number crunching. They back that with careful study of everything from road capacity leading to airports, to how long it takes to walk to a gate. Then, they try to estimate their competitors' profits and losses -- and guess at their possible retaliation. Growing airlines also seek out areas with pent-up demand -- places where the local population isn't using the local airport as much as you might expect. They look hard, too, at airport facilities all the way down to the size of the parking lots. If there aren't parking spaces, planes will fly empty. Before committing to a new city, discounters crunch reams of data from t= he U.S. Department of Transportation. One holdover of the airline industry's regulated days is that carriers still turn in a lot of information on how many customers they have, where they have flown, what they paid on average, and how many flew on unrestricted tickets. "There's a lot of data available, and we do a lot of research with it," says Gary Kelly, Southwest's chief financial officer. They also crack the history books. JetBlue Airways noticed that back in the '80s, when People Express started flying from Buffalo, N.Y., to New York City, traffic on the route quadrupled. JetBlue surmised that if low fares returned on the route, demand would be high. Indeed, since it started serving the route four years ago, travel has tripled. Government-provided market data also showed JetBlue that about 160 people per day were taking one- or two-stop flights each way between Sacramento and New York. That suggested that if JetBlue offered nonstop service, it should be able to easily fill a 156-passenger jet. Earlier this month, JetBlue began flying nonstop between New York's Kennedy Airport and Sacramento. It'll add Sacramento-Washington on May 4. Washington, in fact, is home to some of the highest-fare routes in the country, according to DOT data. San Francisco-Washington has the highest average ticket domestically at $764. Los Angeles-Washington is No. 3 at $670. Discount carriers have noticed. Atlantic Coast Airlines has been enticed into turning itself from a regional airline into a low-coast carrier called Independence Air. JetBlue now flies to Oakland and Long Beach, Calif., from Washington. "I think you'll see more growth there, too," said David Ulmer, JetBlue's vice president for planning. Like JetBlue, America West is attacking long-haul markets because it sees big, higher-cost airlines as vulnerable there. America West now flies from Los Angeles and San Francisco to New York and Boston -- without stopping at its hubs in Phoenix and Las Vegas. Those routes have long been the bread-and-butter of AMR Corp.'s American Airlines and UAL Corp.'s United Airlines. America West doesn't want to challenge them at their hubs, where the big airlines have a huge advantage because all their connecting passengers help fill seats. But the Phoenix-based discounter does think it can compete on routes without connecting passengers. Between Boston and San Francisco, for example, America West offers a walkup fare of $346 round-trip. Last year in the second quarter, according to DOT data, United's average fare on that route was $796 round-trip. Boston-San Jose, Calif., would seem like a route ripe for either JetBlue or America West. American has been dominant on the route that boomed with the technology bubble in 2000 and saw average fares top $1,000 round-trip. Fares remain high, but America West has already captured 10 percent of the traffic with one-stop service. Perhaps mindful of the possibility, as low-fare service already links Boston to Oakland and San Francisco, American recently announced it would add a second daily trip in each direction between Boston and San Jose, beginning June 10. A bigger threat to expansion, perhaps, is the ability of discounters to get gates, ticket counters and other facilities at crowded airports. "Real estate on the ground is crucial. Boston is tough," says Kevin Healy, vice president of planning at AirTran Airways, and New York is all but impossible. With so many short flights in its schedule, Southwest pays exacting attention to ground facilities. If the walk from the ticket counter to the gate is almost as long as the flight itself, a city likely won't be successful. If an airport happens to be a two-hour drive across town from where most people live, one-hour flights won't be popular. "We'll experiment. Shorter-haul routes are harder to predict because you're just not as sure if you'll get people out of their homes and out of their cars," says Mr. Kelly. Southwest also studies historical travel patterns. Minneapolis might seem like a good Southwest destination, but historically, its biggest destination is Chicago, and that route already has about 40 flights a day on United, American and Northwest Airlines. Another factor for Southwest is the interstate highway system, which airline planners see as a good clue to which cities have historical ties, and where people like to go. Southwest also scopes out how far people will drive to a certain airport. Jackson, Miss., is a small city by Southwest's standards. But it does well because it draws customers from a large region, Mr. Kelly says. When picking new cities, airlines also have to find room for flights at the other end of the line. For instance, since Las Vegas is such a popular starter flight in a new city, Southwest has to make sure it's got room to grow in Vegas -- where it has its biggest airport operation. Southwest has said it won't add any more new cities this year as it focuses on building its new Philadelphia business and adding more flights elsewhere on its system. The airline will add a total of 30 additional Boeing 737s this year, raising its fleet to 418 737s. Likely new routes: Southwest hasn't announced Philadelphia-Cleveland service, but that is one of the most expensive routes in the country. What about other cities for next year? Typically, Southwest takes on a smaller city after launching a new big city. So look for something fairly easy for Southwest to manage, like another city in Florida. Fort Meyers comes to mind; a new terminal will open there next year, and it's the busiest travel city not currently served by Southwest, except for big-airline hubs. Other possibilities: Charleston or Columbia in South Carolina, Milwaukee, or perhaps Burlington, Vt., or even Colorado Springs, Colo. Then again, if incumbents retrench further, Southwest covets service to Charlotte, a US Airways stronghold. Discounters say they are ready to pounce should any airline falter financially and close down a hub or shut down completely. "There's still a large shakeout to come, we believe," says Scott Kirby, America West's marketing chief. ---------------------------------------------------------------------- Copyright 2004 AP