=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/2004/07/29/f= inancial1742EDT0369.DTL --------------------------------------------------------------------- Thursday, July 29, 2004 (AP) Shifting structure of airline industry seen in Pittsburgh CHARLES SHEEHAN, AP Business Writer (07-29) 14:55 PDT PITTSBURGH (AP) -- On the verge of losing its hub status and with no indication that indust= ry star Southwest Airlines will land here anytime soon, Pittsburgh International Airport is searching for a new identity. Twelve years after a new terminal was built at a cost of $1 billion, the airport's fate is closely tied to the struggles of money-losing US Airways, which controls 80 percent of all traffic out of Pittsburgh. It has been known for months that US Airways would demote Pittsburgh International from a hub to a so-called "focus city," though no one was quite sure what that meant. Then last week the mystery ended. In an attempt to defend the airline's two other hubs in Philadelphia and Charlotte, N.C., US Airways said it would slash a third of its flights out of Pittsburgh in the fall -- to 240 daily flights to 65 destinations, down from the current 373 daily flights to 102 cities. A little too far west of big travel markets in the East, but too far east to be considered a logical hub for connecting flights west and south, Pittsburgh has little chance of ever regaining hub status, industry experts say. "The population in that region just isn't that big," said Michael Boyd, a Colorado aviation consultant. "But that's a moot point because no airline wants to open a hub, period. No one has the resources and it's just not a great market." Still, no one is predicting the demise of the airport. With a metropolit= an population of 2.4 million, Pittsburgh International is tough to ignore. And its portion of the revenues from slot machine gambling, recently approved for the state, is expected to help the airport pay down its $650 million debt obligation -- one of the reasons US Airways said it was packing its bags. The airport spends about $62 million every year on debt service. Uncertainty at Pittsburgh led Moody's Investors Service last year to downgrade the airport's credit rating to two notches above speculative grade, a rating it reaffirmed this year. It is the lowest rating for any hub airport in the country right now, said Edward Roche, an analyst with Moody's. But there is a silver lining for Pittsburgh, according to industry experts. "One of the causes for higher fares in Pittsburgh has been the domination of US Airways," Roche said. "You assume low-cost airlines will see nice yields with less pressure." Major and low-cost airlines already have stepped in to pick up some of t= he slack from US Airways, and airport officials say new competition is pushing down ticket prices. That may not be enough to halt what the U.S. Department of Transportation calls the "Southwest Effect." Airport officials estimate that 750,000 passengers every year drive from the Pittsburgh metro area to Cleveland, Columbus, Ohio, or Baltimore -- all airports served by Southwest. The Allegheny County Airport Authority this month approved a $360,000 media campaign to reverse that flow by highlighting increased competition in Pittsburgh. Airports in San Jose, Calif., Nashville, Tenn., and Raleigh-Durham, N.C., have thrived after losing hub status. Those airports, Boyd points out, have been on the winning side of the Southwest Effect, which drives down prices and boosts traffic radically. When Southwest came to Raleigh-Durham in 1999, four years after American Airlines cut the airport as a hub, the cost of the average round-trip ticket dropped by $140, said Mindy Hamlin, airport spokeswoman. One year after Southwest opened service between Providence, R.I., and Baltimore/Washington, average fares dropped by 73 percent and passenger traffic jumped by 782 percent, according to Southwest. Southwest Airlines continues to talk with Pittsburgh officials, but industry experts say the airline has its hands full as it expands into Philadelphia. Whether increased competition at Pittsburgh will decrease passenger motivation to cross the border for better deals is not known. But passenger traffic was on the rise this spring, ending an 18-month span during which traffic dropped to its lowest levels since 1984. American Airlines reported a 17.9 percent increase in passengers at the airport, AirTran had a 16.1 percent increase and Northwest had a 6.6 percent increase. While US Airways traffic was down 6.6 percent, the airline still flew more passengers than all other airlines combined. "We lost a million people a year to the lack of competition, but the paradigm has shifted and everything is changing at Pittsburgh," said JoAnn Jenny, airport spokeswoman. "I just can't say what effect Southwest will have, or continue to have." On the Net: www.pitairport.com/ ---------------------------------------------------------------------- Copyright 2004 AP