NYTimes.com Article: On the Road: Calling for Perspective on Low-Cost Airlines

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On the Road: Calling for Perspective on Low-Cost Airlines

April 6, 2004
 By JOE SHARKEY





SAN FRANCISCO

Here are some facts:

JetBlue Airways accounts for less than 2 percent of the
available airline seats in the domestic skies. JetBlue has
57 aircraft. In February, it flew 836,000 passengers to 22
domestic cities and one foreign city - San Juan, P.R.

American Airlines, by comparison, accounts for about 19
percent of the available domestic seats. American has 730
aircraft. In February, it flew 6.8 million passengers to
150 cities around the world.

And here is a refrain I heard again and again during an
airline and business-travel industry conference last week
sponsored by Universal Air Travel Plan Inc., the global
corporate travel payment network: Every time we pick up a
paper, industry people here said, we seem to read another
story gushing about the wonders of JetBlue, Southwest, Ted,
Song or some other low-fare airline, while the major
network carriers are dismissed as grunting dinosaurs
lurching their way to the tar pits.

"There seems to be a 'JetBlue Is a Great Airline' story
once a week," David Field, the Americas editor for Airline
Business Magazine, told a group that included corporate
travel managers, executives from network and low-cost
airlines and other business-travel industry
representatives. Most chuckled in agreement.

Not that anyone begrudged the low-fare carriers their
success, which is generally expected to lead to them having
a 40 percent share of the domestic market by 2005. To the
contrary, company travel managers are delighted at lower
business fares that the low-fare carriers have forced
throughout the airline industry.

Still, a lot of people here questioned the lack of a
certain perspective, especially as the network carriers
increasingly are competing head-to-head on price in markets
they share with the low-cost carriers who get all that
adoring ink. As Mr. Field put it, the low-fare carriers are
unquestionably "an economic phenomenon - but they're also a
media phenomenon."

But without a lot of notice, he added, the network
carriers, which are also called legacy carriers, have
"learned to fight back." On many routes, "the legacy
carriers are now low-fare carriers," he said.

Now anyone who really, truly understands the economics of
airlines is probably too smart, or unstable, to be working
for either an airline or a newspaper. As Warren E. Buffett
has often pointed out, if one tabulates all of the airline
industry's finances since the day the Wright Brothers
bounced into the air at Kitty Hawk in 1903, one will
discover that, cumulatively, there has not been a single
penny of profit. (Mr. Buffett has also suggested that, in
hindsight, shooting down the Wright Brothers on that beach
would have been a reasonable financial, if not moral,
move.)

So we will thankfully avoid airline microeconomics here to
present a more general picture, a glimpse into some of what
the experts were saying and hearing at this conference:

No doubt about it, the revolution is here. Sometime this
year, it is firmly believed, the network airlines, whose
trembling fingers still cling to the tattered roots of
whatever is left of the traditional, maddeningly complex
fare structures, will capitulate.

"This is a real transformation - this is it, and it's been
a long time coming," David Hilfman, vice president for
sales at Continental Airlines, said of the industrywide
rush toward adopting less complicated fare structures.

Bill Howard said that at the network carrier where he
worked before joining AirTran Airways as national sales
director in 2000, "we had markets where we had 70 and 80
different fares filed for a given city pair."

Low-fare carriers have grabbed business-travel market share
not just on price, which network carriers increasingly
match or even beat on competing routes, but on simplicity.
"You've got to create a price structure and keep it simple
and low," Mr. Howard said. "In any given market, we have
five fares and five fares only," he said of AirTran's fare
structure.

Many low-fare carriers, worried that network carriers have
cut prices while still offering good service and things
like premium cabins, have abandoned the conceit that "no
frills" is a terrific marketing concept to business
travelers. So they are improving in-flight services and
even adding business- and first-class seating, while
scrambling to expand routes and keep their costs from
escalating.

But in these areas of service and reach, network carriers
intend to continue dominating the turf while hammering away
at their high operating costs. And some corporate travel
managers say they are quite willing to pay a little more
for scheduling convenience and in-flight comfort for
traveling employees.

Susan Dupart, who manages the annual travel budget for
Aspect Communications, said that "rock bottom, cattle-car"
travel might be cheapest, but it was not always necessarily
best. "We want our employees to travel comfortably," she
said, "and we're willing to pay a fair price" for it.

Ralph Colunga, who manages corporate travel at Cisco
Systems, agreed. "At the risk of being run out of here,
I'll say I am willing to pay for a certain level of
service," he added. That doesn't necessarily mean more
spending, he said. It means managing spending more
efficiently through innovations like mandated in-house
online booking, enabling travelers to experience
"world-class self-service," Mr. Colunga said.

It's generally acknowledged that one or more of the network
carriers could disappear, and that this might happen sooner
than many airline analysts expect. But there was firm
agreement here that network carriers will not only survive
but will find a way to prosper, no matter how hard the
low-fare airlines come at them, and for this obvious
reason:

"It's not just a question of how to get from New York to
Florida," Continental's Mr. Hilfman said. "You have got to
have people who can fly you from Paris, Tex., to Paris,
France."

On the Road appears each Tuesday. E-mail:
jsharkey@xxxxxxxxxxx

http://www.nytimes.com/2004/04/06/business/06road.html?ex=1082259866&ei=1&en=3bffc55dcf68c603


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