=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/2004/05/04/f= inancial0855EDT0037.DTL --------------------------------------------------------------------- Tuesday, May 4, 2004 (AP) Southwest launches service in Philadelphia MELANIE TROTTMAN, The Wall Street Journal (05-04) 05:55 PDT (AP) -- Such hullabaloo over the strategic importance of Philadelphia has hardly been matched since the Revolutionary War. On Sunday, when Southwest Airlines begins to serve the nation's fifth-largest city, the launch will mark the culmination of an atypically muscular marketing campaign and the onset of what is expected to be no-holds-barred competition with US Airways Group. Already, US Airways has declared that Southwest is trying to "kill" it, and last week US Airways slashed fares in the market, which happens to be its biggest hub. The rancor over Southwest's arrival in the City of Brotherly Love underscores a corporate contest of epic proportions, and the eventual winner is by no means a sure thing. Dallas-based Southwest, a low-cost airfare pioneer, has tended to avoid busy airports ruled by major carriers and will now be flying in and out of Philadelphia's primary airport. Excluding Philadelphia, Southwest provides service to 58 cities and 59 airports in 30 states. The airline has several outposts throughout the Northeast -- among them, Manchester, N.H.; Providence, R.I.; and Hartford, Conn. -- but none approaches Philadelphia's size. What's more, Southwest is making its move at a time when the industry is changing and the biggest airlines are lowering operating costs to compete in a new low-fare environment. Southwest seems unfazed. Indeed, since announcing in December that it would begin service to six cities with 14 daily nonstop fights, the airline has already unleashed plans to double that daily number to 28 by midsummer, stretching nonstop service to a list of seven other cities. The initial schedule has flights to Chicago, Las Vegas, Phoenix, Providence and the Florida cities of Orlando and Tampa. Four of these destinations are among U.S. Air's top 11 markets out of Philadelphia. The importance of Philadelphia to Southwest is evident in its marketing approach, a push unlike any city opening it has ever had before. The airline has usually launched service in a new city by tweaking a well-tried cookie-cutter ad campaign, staffing the airport with a formulaic number of workers and waiting confidently for its low fares to bring business. But in preparation for its launch from Philadelphia, Southwest has rolled out a more intense ad campaign, hired 50 percent more employees than would be customary and enlisted volunteers to stand on local street corners handing out free inflatable airplane hats, luggage tags and antenna toppers. The airline's longtime ad agency held focus groups with local Philadelph= ia travelers to gauge how it should market the new service, a brand-new tactic for Southwest. And the carrier's legendary co-founder and chairman, Herbert D. Kelleher, who typically helps pick new cities but doesn't help promote them, has been keynoting business luncheons and hosting press events in Philadelphia. In addition to being served by the nation's biggest airlines, Philadelphians can choose among several low-cost carriers including Frontier Airlines, AirTran and America West. That means Southwest is under particular pressure to distinguish itself, and simply advertising low fares isn't enough anymore. "As we go into this more difficult era of travel, I think what a company stands for is just as important as what it provides, because at some point, the low-cost carriers' fares may level out," says Joyce Rogge, Southwest's senior vice president of marketing. "The old way (of opening a city) just wasn't going to work for us." On billboards, TV screens and radio broadcasts, Southwest is playing up the flexibility of its unique frequent-flier program, which doesn't restrict seat inventory and rewards tickets based on the number of flights instead of miles. "You are now free to stop counting miles," one ad reads. Southwest is also emphasizing the accessibility of its low fares, arguing that many competitors make much less inventory available at the low prices. And it stresses that those fares are available even at the last minute, unlike some competitors that charge thousands of dollars for spur-of-the-moment round-trip flights. Under a list of fares displayed in one Philadelphia ad, the text reads: "The fares above are available on every seat, every flight, every day. And are even lower if you plan ahead." The new marketing attempts to turn things Southwest has been criticized for into selling points. The airline's policy of not assigning seats, for example, which is sometimes criticized as a "cattle call," is being promoted as an advantage in one ad: "You are now free to sit in any seat in the cabin," it says. Southwest won't disclose how much money it is spending on promoting this launch but says the figure tops any prior amount. According to the airline's executives, the effort is worth it so far: Bookings have been good, Chief Financial Officer Gary Kelly told analysts and reporters on a recent quarterly earnings conference call. "We have anticipated that Philadelphia could be a very big market for us and a very fast-growth market," he said. Southwest has played down comments made by US Airways's former chief executive, David Siegel, about how the airline is coming into town to crush US Airways. Southwest's flight schedule pales in comparison to US Airways's hundreds of flights daily, says Mr. Kelleher. "This is not the Viking killer ship coming in," he told reporters on a media tour of Philadelphia in March. US Airways is all too familiar with Southwest's aggression. In 1993, Southwest began serving Baltimore-Washington International Airport with sharply lower fares, launching an assault on US Airways that eventually caused the latter to shrink substantially there. At the time, US Airways's operating costs were too high to profitably sustain the lower fares. Today, Baltimore is one of Southwest's core cities, and the airline has knocked US Airways out of the No. 6 spot of the nation's largest carriers measured by traffic. This time around, US Airways is trying to cut operating costs in hopes of being able to charge lower fares and do so profitably. The airline emerged from Chapter 11 bankruptcy protection more than a year ago and hasn't turned a profit from operations since. Southwest has remained profitable for 52 consecutive quarters, though its costs have been creeping up recently, pressuring margins. Could New York be next on Southwest's list? The airline now uses Long Island MacArthur Airport, 50 miles from Manhattan, but a move closer to the city is highly unlikely because of congestion and fees to operate there. Wherever the next launch may take Southwest, the airline's Ms. Rogge says some of the marketing tactics it has used in Philadelphia will likely continue with future launches. But she still thinks Southwest's consistently low fares can stand on their own. Even though incumbent airlines are lowering their prices, "the proof in the pudding is, how long can somebody sustain that?" she says. ---------------------------------------------------------------------- Copyright 2004 AP