http://www.dallasnews.com/sharedcontent/dws/bus/stories/101204dnbusair.9 74c6.html =20 Don't count big airlines out=20 They can use hubs to squeeze discounters, analyst says=20 09:45 AM CDT on Tuesday, October 12, 2004=20 By ERIC TORBENSON / The Dallas Morning News=20 DENVER - Despite low-fare competition, bankruptcies and threats of liquidation, the biggest players in the airline industry still could strike back.=20 That's a key message this week at the 9th Annual Boyd Group Aviation Forecast Conference, which attracted several hundred airline executives and airport officials.=20 Conference host Mike Boyd said he sees signs of hope for the top hub-based carriers, even though they've had their lunches handed to them by point-to-point discounters.=20 "The empire will be striking back," said Mr. Boyd, president of the Boyd Group, an aviation consultancy based in Evergreen, Colo. "The hub-and-spoke operating model is far from broken."=20 Assuming oil prices settle down from their current record levels, big players such as Fort Worth-based American Airlines Inc. will use lowered costs and fortress hubs to play hardball with low-cost foes.=20 AirTran Airways Inc., which serves five cities from Dallas/Fort Worth, is looking elsewhere for growth because it's concerned about American's possible response to an expansion, said its president, Robert Fornaro.=20 "There may be better opportunities for us other than Dallas," he said. "We have one flight a day to Los Angeles, and American has basically put in 30 times the number of seats against us. They're ready to spend millions against what we might put in there."=20 JetBlue Airways Corp. president Dave Barger said D/FW "remains on the radar screen" for the New York-based carrier and could become more attractive once it starts using smaller jets.=20 But JetBlue officials have been wary of a head-to-head fight with American despite the beefy passenger market between New York and Dallas/Fort Worth International Airport.=20 As low-cost carriers have soaked up nearly a third of domestic airline capacity, traditional carriers have watched their revenue advantage slip away.=20 Many are emulating Northwest Airlines Inc.'s model. The carrier fiercely defends its largest hubs - Detroit, Minneapolis-St. Paul and Memphis - and relies on international flights for profits.=20 "The hub-and-spoke model still produces more revenue than any other model out there," said Jim Cron, vice president of domestic pricing at Northwest. "If we're not out there growing and protecting our hubs, some other carrier is going to make a move in there, and we can't let that happen."=20 Shake-out=20 Despite sentiment that traditional airlines may find themselves better armed in the low-fare war, a painful shake-out still awaits the industry's largest players, said analyst Ray Neidl of Calyon Securities (USA).=20 Record oil prices will help accelerate a process that could see the liquidation of bankrupt US Airways Group and see No. 3 player Delta Air Lines Inc. seek bankruptcy-court protection.=20 American, which has already sliced $4 billion in annual costs, could be forced to dig deeper, Mr. Neidl said, if Delta and No. 2 United Airlines Inc. come out of their financial crises as leaner rivals.=20 As traditional carriers make substantial cuts to be more competitive, including reducing pension benefits, they run the risk of alienating employees, he said.=20 Morale and upbeat customer service may be the trump card for low-cost airlines no matter how the traditional carriers restructure, said JetBlue's Mr. Barger.=20 His carrier is hiring about seven people a day but expects to get 120,000 applications for the 2,500 positions it will fill this year. The ride ahead for low-cost carriers will get substantially bumpier as the big names regroup and easy expansion routes dwindle.=20 Cutting costs=20 "The good news is that the legacy carriers can still squeeze another 15 percent of costs out of their non-labor operations," Mr. Boyd said. "The bad news is that they've got no choice but to do that because of where oil is. Job 1 for these carriers is to burn less fuel."=20 Aircraft makers could be big winners, Mr. Boyd predicted, as they fill demand from low-cost carriers and develop more efficient models.=20 The Boeing Co.'s new 7E7 jet could help traditional airlines find profits by lowering the operating costs on long-haul flights.=20 "If I'm American Airlines and I can buy a plane that lowers my costs by 15 to 20 percent over my competitors, I've got to put in a call to Seattle and see if they can schedule me in," Mr. Boyd said. "And if American buys them, United and everyone else is going to have to follow."=20 American officials said earlier this month that they were interested in knowing more about the 7E7, but they have no plans to add new aircraft in the near term.=20 =20