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Watch the trailer at: http://www.foxsearchlight.com/sideways/index_nyt.html \----------------------------------------------------------/ Southwest Adds Pittsburgh to Its Route January 6, 2005 By MICHELINE MAYNARD CHICAGO, Jan. 5 - The stocks of major airlines were hurt on Wednesday by the prospect that lower fares would spread even more thickly across the country, fueled by strategic moves by the industry's healthiest player and one that is trying to regain its footing. Southwest Airlines, the industry's healthiest player, delivered another punch to struggling US Airways, announcing plans to start service from Pittsburgh, where US Airways is dismantling its hub after a long reign as the airport's dominant carrier. The industry's shares fell sharply on word that Delta Air Lines, the country's third-biggest airline, planned to cut its fares by as much as 50 percent and join its low-fare competitors in setting caps on its ticket prices. Shares in the AMR Corporation, the parent of American Airlines; Continental; and Northwest all dropped on fears that the companies would have to respond to Delta's move, eating into their revenues. Even Southwest's stock fell for a time on Wednesday on concerns that its dominance of the low-fare market could be threatened. The moves came as a federal bankruptcy judge in Alexandria, Va., was set to rule on US Airways' request to void its labor contracts, a move likely to ignite the wrath of its mechanics, who have refused to grant pay and benefit cuts. Meanwhile, in Chicago, another bankruptcy judge will hear arguments on Thursday by creditors, bankers and unions at United Airlines against a proposed contract covering pilots that terminates their pension plan in return for equity in the company and other sweeteners. Pilots finish voting on the deal on Thursday. Southwest's move into Pittsburgh had been rumored, but its timing was a surprise, coming two weeks after it was the winning bidder for some of the assets of ATA Airlines, another low-fare player that filed for bankruptcy protection last fall. Southwest said its Pittsburgh service would begin in May, a year after it began service to Philadelphia, another hub for US Airways, which is in its second bankruptcy in two years. Southwest, the sixth-biggest airline in the United States and the biggest low-fare carrier, declined to say how many flights it would offer from Pittsburgh or which cities it would serve. But its chief executive, Gary C. Kelly, hinted in a conference call that the airline considered Pittsburgh the equivalent of Nashville, which is the airline's 12th-largest market with 81 flights a day. Southwest began service in Nashville after American took apart its hub there in 1996. The 81 flights would be about double the 41 flights a day that Southwest offers from Philadelphia, where its arrival last year was seen by analysts as hastening US Airways' bankruptcy filing in September. The former chief executive of US Airways, David N. Siegel, used the specter of Southwest in 2003 to exhort employees to grant wage and benefit cuts, warning, "They're coming to kill us." Mr. Siegel resigned in April 2004, a month before Southwest arrived. Since May, US Airways has expanded its Philadelphia flights and offered discounts called GoFares to many of the cities that Southwest also serves from there. At the same time, US Airways has sharply cut its service from Pittsburgh. It had 87.9 percent of the airport's flights in the first quarter of 2002, but 65.4 percent of flights this quarter, according to an estimate by Back Aviation Solutions, an industry consulting firm. The cuts prompted airport officials to appeal to US Airways' competitors to start or expand service. A number have. But Southwest, which was the only major airline to be profitable in 2004, and which has five times the market capitalization of any of its big rivals, is clearly the airport's biggest prize. Mr. Kelly said the airline considered Pittsburgh an ideal place to start service, because it fits the criteria Southwest uses to figure out where to fly. "Overpriced and underserved, that's Southwest," he said. Adding flights in Pittsburgh will give Southwest a use for the 29 new Boeing 737 jets it will acquire this year, Mr. Kelly added. He said the airline was not looking to harm US Airways. "It's a coincidence," Mr. Kelly said, that Southwest is arriving while US Airways is in dire straits. US Airways, meanwhile, said the growth of low-fare airlines at Pittsburgh International Airport was not unexpected. A spokesman, David Castelveter, said Southwest's announcement "underscores the importance of us establishing a cost structure comparable to that of our low-cost competitors." US Airways has warned it could liquidate, a prospect many industry specialists believe is inevitable, unless it is able to cut its labor costs by another $1 billion. On Wednesday, US Airways' flight attendants approved a new contract containing wage and benefit cuts worth $94 million a year, joining pilots and customer service agents in granting their third set of concessions in two years. That leaves only US Airways' mechanics, among its major unions, as holdouts. Earlier this week, the International Association of Machinists and Aerospace Workers said it did not expect to get a deal by Thursday's court hearing. Michael Allen, the chief financial officer at Back Aviation, a consulting firm, said Southwest had the opportunity to hurt US Airways as well as make things tougher for airlines already serving the airport. Southwest was one of the few airlines whose stock price was not hurt by Delta's decision to introduce a simplified fare program. Its shares were unchanged at $15.61. Other airlines were not as fortunate. Shares in AMR fell 96 cents, to $9.05; Continental fell 99 cents, to $11.21; and Northwest fell $1.04, to $8.60. Under the fare plan, Delta will charge no more than $499 for one-way coach fares or $599 for one-way business-class fares. It is ending the need for a Saturday night stay and reducing fees charged to change tickets. Its shares fell 51 cents, to $6.80. Some airlines, including Northwest and US Airways, were beginning to match the cuts by Delta on routes where they compete, airline executives said. Delta barely avoided a bankruptcy filing last fall by persuading pilots to grant $1 billion in wage and benefit cuts. But company executives said they expected increased demand to offset the lower fares. Northwest, however, said the plan would hurt revenue in the struggling industry, where the average coast-to-coast ticket price has dropped by half in the last two years, mostly because of the growth of low-fare companies like Southwest and JetBlue. On Wednesday, industry analysts said there could be short-term damage for major airlines, which they estimate lost as much as $5.5 billion in 2004 because of the combination of pressure from low-fare companies and record prices for fuel. But Robert N. Ashcroft, the airline industry analyst for UBS Investment research, termed the move a "necessary step." He said Delta "may ultimately do well by doing good." Despite the potential challenge to his company's position, Mr. Kelly at Southwest applauded Delta, which used Southwest's operations as a model for its restructuring plan. Said Mr. Kelly: "It's a low-fare environment. We think that is the future." http://www.nytimes.com/2005/01/06/business/06air.html?ex=1106022052&ei=1&en=e9531d6ca76cc4e2 --------------------------------- 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! Click here: http://homedelivery.nytimes.com/HDS/SubscriptionT1.do?mode=SubscriptionT1&ExternalMediaCode=W24AF HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2004 The New York Times Company