NYTimes.com Article: Southwest Comes Calling, and a Race Begins

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Southwest Comes Calling, and a Race Begins

May 10, 2004
 By MICHELINE MAYNARD





PHILADELPHIA, May 9 - Southwest Airlines Flight 741 took
off for Chicago a minute before 7 o'clock Sunday morning,
inaugurating a critical city for Southwest, the nation's
largest low-fare carrier, and setting off a flashpoint for
the brutally competitive airline industry.

While depicted as a threat to the struggling US Airways,
which uses Philadelphia as one of its three hubs and
operates 68 percent of its flights from here, Southwest's
presence has set in motion a battle for passengers between
low-fare carriers and traditional airlines that epitomizes
what is going on nationwide.

Now that Southwest has started service, Philadelphia
residents can soon expect Frontier Airlines to arrive, with
low-priced service from the West. Delta Air Lines,
meanwhile, has expanded flights to Philadelphia from
Atlanta, a route where it competes with AirTran, another
low-fare airline that preceded Southwest here, as did
A.T.A. Airways and America West.

"Is that where the new front is? Absolutely," said Robert
Roach, vice president for transportation at the
International Association of Machinists and Aerospace
Workers, whose union represents US Airways mechanics.

"This one brings the competition to a new level," said
Philip A. Baggaley, the airline industry analyst with
Standard & Poor's, which downgraded US Airways last week,
giving it the weakest rating of any major carrier.

Philadelphia is proof that no airline should consider
itself safe anywhere, no matter how dominant its
operations. "Given the overall financial shape of the
industry, I don't think you can argue that anyone is
controlling any market," said Doug Blisset, vice president
for network analysis at Delta Air Lines.

US Airways executives have expressed a mix of trepidation
and confidence in the face of the competitive onslaught.
The airline warned last week that increasing competition
from low-fare airlines put it in danger of a second
bankruptcy, unless it could win a third round of
concessions from recalcitrant union members.

But executives at US Airways also maintain that the fare
wars that have erupted here in Southwest's wake will serve
to attract more passengers. "You can expect to see
Philadelphia grow," said B. Ben Baldanza, US Air's
executive vice president for marketing.

But competitors think US Airways' long hold here will
probably be shaken, now that passengers have alternatives.

"Everybody wants a bite out of them," said David Neeleman,
chief executive of JetBlue Airways, the low-fare carrier
which as yet does not serve Philadelphia.

Still, the war began today with just a few shots.
Southwest, the sixth-largest airline over all, started its
service with 14 daily flights to six cities. That is only a
fraction of the 375 flights a day that US Airways offers
from here, including a bevy of international flights.
(Southwest does not fly outside the United States.)

Gary D. Kelly, Southwest's chief financial officer, said
its modest initial approach in Philadelphia was similar to
what it had done in other markets. "We've had our
Philadelphias before," he insisted.

Yet he acknowledged that the stakes this time were
tremendous for all airlines, which are struggling to deal
with soaring jet fuel prices, up more than 40 percent the
last year, and to respond to stiff competitive pressures.
Indeed, Southwest is wasting no time increasing service,
which will reach 28 flights a day to 12 cities by July.

Since last fall, Mr. Kelly said, "the airline industry has
continued to perform poorly from a financial perspective
and energy prices have risen dramatically and stubbornly."

Along with that, revenue for the nation's airlines is not
rising because of the influence of Southwest and its
low-fare rivals, which now have one-quarter of all domestic
flights.

If the enthusiasm among passengers that greeted Southwest's
first flights is any indication, the airline is clearly
welcome. Passengers were already lined up to check in at
Southwest's ticket counter, festooned with lavender, red
and gold balloons, at 5:05 a.m.

The travelers looked like a cross section of Southwest's
customer base, which is primarily leisure passengers with
some thrift-minded business fliers mixed in. Employees
dressed in golf shirts and khaki pants or shorts scurried
to assist them.

Three generations of Marie Geiger's family - her husband,
Harry; daughter Susan and son-in-law Michael Chatary; and
the three Chatary children - were on hand two hours early
for their trip to Orlando. The family, who live in
Philadelphia, bought tickets for $49 each way on Saturday.

Asked why the family was traveling on Southwest, Sayla
Chatary, age 7, piped up, "It's cheaper."

Mr. Chatary said a similar trip on US Airways would have
cost at least $200 a person, more than the family was
willing to spend at the last minute.

According to BACK Aviation, an industry consulting group,
US Airways resisted lowering its highest fares on competing
routes from Philadelphia until the last minute, still
charging more than $1,100 for walk-up fares to Phoenix a
week ago. But it has since begun offering deals from
Philadelphia, as billboards on the highway to the airport
attest. Meenu Guptu, a computer consultant who lives in
Wilmington, Del., had been driving 90 miles to Baltimore to
catch Southwest flights. With the airline now 30 minutes
away in Philadelphia, Ms. Guptu said she would travel more
frequently.

She took the inaugural flight to Chicago, where she planned
to spend the day with her mother and planned to return
Sunday night. While she travels on other airlines,
including US Airways, "if Southwest is heading that way,
I'm flying it," Ms. Guptu said.

Kanae Tsubaki of Philadelphia, traveling with her
5-year-old son Hiromi, had a more personal reason for
choosing Southwest: her admiration for its colorful
founder, Herbert D. Kelleher, who was born across the
Delaware River in Haddon Heights, a suburb in Camden
County, N.J. After reading a book about him, "I wanted to
fly Southwest" as soon as it came to Philadelphia, she
said.

Despite passengers' enthusiasm, all did not go smoothly in
the early hours. Southwest's ticketing kiosks were out of
service, forcing airline personnel to direct the
technology-savvy fliers who wanted to use them to an
express check-in lane whose line stretched back to the
door.

Likewise, a computer problem at Southwest's curbside
baggage stand meant some travelers had to carry their bags
into the terminal. But by 7:30 a.m., the first three
flights had departed, and airline personnel took a break to
await the first Philadelphia arrivals due later in the
morning.

John Minor, Southwest's station manager in Philadelphia,
said the real test for the airline would come this summer,
when air travel would be at its peak. Glancing at
Southwest's ticket counter, wedged into a corner of
Terminal E across the escalator from Delta, Mr. Minor said
the airline would probably need more space. "If only we can
get Delta to go away," he joked, before heading off to tote
a passenger's bag.

No doubt US Airways wishes the same of Southwest. But Mr.
Neeleman said he expected a lengthy confrontation here,
because of the significance that Philadelphia has assumed
for all involved. "They are not going to retreat out of
Philly. They'll pull out when they die," he said.

Last week, in fact, US Airways said that it planned to cut
back on operations at its hub in Pittsburgh to deploy
planes here and reorient its operations to offer more
direct flights, mirroring those operated by Southwest and
other low-fare carriers.

Mr. Kelly of Southwest said the heated challenge that US
Airways faced in Philadelphia proved that all airlines,
including his, had to be constantly vigilant. "The
competitive landscape can change literally overnight, by
the fact that you can direct airplanes to new airports"
assuming gates are available, he said.

Yet, Mr. Blisset at Delta said in the end the competition
was healthy even if the industry was not. "As carriers
continue to grow, opportunities to grow will overlap with
each other," he said.

http://www.nytimes.com/2004/05/10/business/10air.html?ex=1085195472&ei=1&en=7b1870b5a80d5563


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