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Watch the trailer at: http://www.foxsearchlight.com/theclearing/index_nyt.html \----------------------------------------------------------/ U.S. Airlines Brace for a Huge New Battle April 13, 2004 By JOE SHARKEY Taking potshots at sacred cows is an act that predictably elicits protest, and a few yowls came this way over last week's column. The column said that while low-fare carriers had unquestionably forced a price revolution in air travel and are likely to account for 40 percent of the domestic market in 2005, it was a mistake to count the major airlines out. Reporting from an airline industry conference in San Francisco, I quoted experts who asserted that some network carriers, rather than lurching like obedient dinosaurs toward the tar pits, have begun fighting back hard despite all the hype over the low-fare airlines. They said that some were probably even going to figure out how to cut costs, compete effectively and maybe even thrive - especially considering the fact that you can't get to Paris, Tokyo or London on little JetBlue. Joe Brancatelli, publisher of the business-travel Web site Joesentme.com and a relentless critic of the network carriers, sounded horrified in an e-mail message that began: "Listen, I read your column today and I can say only one thing: Get out of that conference. Get out of there now. There must be Kool-Aid in the air." There was no Kool-Aid anywhere at the conference, which was sponsored by Universal Air Travel Plan Inc., the corporate travel payment network. For three days, business travel managers and executives from both major and low-cost airlines discussed current issues with remarkable candor. Put simply, they think there's a new huge battle taking shape between the low-fare carriers and the network carriers. Casualties are expected. But most network carriers will survive in a radically different low-fare environment, experts said. David Hilfman, the vice president for sales at Continental Airlines, acknowledged in a keynote speech that network airlines went overboard on business fares not long ago. "In the heyday of the 90's, you know what? We probably took advantage" of business travelers who had no choice but to pay high walkup fares, Mr. Hilfman said, adding, "The fact of the matter is we understand those days are never coming back" That admission comes as domestic airlines brace for even more fighting over fares and market share. Obviously, the low-fare carriers have been slapping the majors silly in pricing wars for several years. They are not letting up. Just yesterday, for example, America West Airlines announced a June-only promotional round-trip fare of $198 on its new twice-daily nonstop service that starts June 1 between Los Angeles and Washington Dulles. The fare is based on a round-trip purchase made 14 days in advance, through April 26. Like other low-fare carriers, America West has been aggressively adding nonstop transcontinental routes, which used to be the exclusive domain of the network airlines which once could get away with charging $1,500 or more round trip. Now even that $198 promotional fare isn't much of an aberration. For example, at 3 p.m. yesterday, on America West's online reservations site, it was possible to book a round-trip flight (with one stop) from Los Angeles to Washington and back, departing that night and returning on Thursday. The fare was $446.90. That is how fundamentally the low-fare carriers have changed the price map. But as I said, most network carriers, which offer extensive national and international route networks and frequent-flier programs that many business travelers value for free upgrades, are fighting hard even as they lose money. Mr. Hilfman and other experts say that Philadelphia will be a major battleground. On May 9, the low-fare Southwest Airlines will start service in Philadelphia, a US Airways bastion that has long been notorious for having some of the highest fares. US Airways executives openly admit that survival is at stake. "We don't have a competitive product anymore" against a direct low-fare assault, the airline's chief executive, David Siegel, told employees last month. "We have to change. There's a new standard out there." US Airways, he said, must devise a simplified low-fare structure while grappling with higher operating costs than any competitor. US Airways has the highest operating costs in the industry, at more than 12 cents a mile, compared with Southwest's costs of less than 8 cents. But Philadelphia is also being seen as a watershed by the network carriers, who themselves once used targeted low fares to drive upstarts from major markets. (Here's an indication of how drastically things have changed: Remember when that was called "dumping" and denounced as being an unfair anticompetitive practice by a big airline to snuff out a small one?) In Philadelphia, the big airline is now terrified of the smaller one, and the industry will watch the fight with rapt attention. The battle of Philadelphia, Mr. Hilfman said, "is going to dictate how quickly other carriers must change their cost structures," since they already have no choice but to continue matching or undercutting low-fare airlines on price. "All of us are low-fare carriers now in one way shape or another," Mr. Hilfman said. At the San Francisco conference, it was widely conceded that US Airways will respond to Southwest's incursion by adopting a new fare structure that will probably cap all domestic fares at a maximum of $299 each way. "When that happens, there's all sorts of things that would occur," Mr. Hilfman said. For one thing, he said, "you would assume that all your major competitors are going to have to match that." But Southwest might respond with even lower fares and "it just becomes one vicious cycle." That's good news for consumers, of course. But for low-cost and major airlines alike, especially with fuel prices soaring, life in the low-margin world is suddenly more dangerous. On the Road appears each Tuesday. E-mail: Jsharkey@xxxxxxxxxxxx http://www.nytimes.com/2004/04/13/business/13road.html?ex=1082861070&ei=1&en=9a4a7297ed245aca --------------------------------- 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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