Excerpt from http://www.sptimes.com/2005/01/30/Business/Formula_for_failure.shtml ---------------------------------------------- Formula for failure Rising passenger numbers and slashed costs are failing to save airlines - the major carriers and discounters - from brutal ticket fare wars and skyrocketing fuel prices. By STEVE HUETTEL, Times Staff Writer Published January 30, 2005
.. ... ... .. ... ... My view is that there's unlimited demand for air travel at the right price," said Robert Mann, an airline industry analyst in Port Washington, N.Y. "The question is, can anyone make money at that price?" * * * For years after the federal government stopped setting airline fares in 1978, big carriers held the upper hand over discounters. They leveraged huge advantages to attract business travelers: international route systems, multiple daily flights to big cities, club rooms and frequent-flier programs. The perks came at a price. Carriers developed rules aimed at separating business and vacation travelers. The most common was charging steep premiums for buying tickets only a few days before flying, a practice more common for those flying for work. Business travelers and employers gritted their teeth but often had little choice. The early discount airlines were small and flew to only a handful of places. Most avoided flying routes in direct competition with the big airlines for fear of attracting a crushing response. The power began to shift in the '90s. Southwest became a nationwide airline by establishing an East Coast beachhead in Baltimore, then invading Florida and the Northeast, again staying away from head-to-head competition with the majors by flying into secondary airports. Keeping a tight rein on expenses is part of the airline's genetic code. Southwest started flying between Texas cities and had to keep costs in line to offer fares cheap enough to lure drivers from their cars. Legacy carriers focused less on costs than on reaping the high fares from business travelers. They rode the ups and downs of the economy, prospering when times were flush and suffering through downturns. But after the most recent downturn, following the terrorist attacks, many business travelers didn't return to the legacy airlines. The discount airlines had matured into legitimate rivals with vast networks. Business travelers had more choice of bargain flights and could instantly comparison shop on a variety of travel Web sties. In addition to Southwest, healthy discounters such as JetBlue and AirTran Airways were growing rapidly. The market share for low-cost carriers jumped from 13 percent in 1995 to 22 percent in mid 2004, according to the Air Transport Association. But even more important than the market share they have won is the way the discounters now pressure legacy carriers across their networks. Delta Air Lines, for example, faces low-cost competition on 70 percent of its routes. "Low-fare carriers are setting the price levels today," says Swierenga, the Virginia consultant. "If you want to be in the business, you've got to charge those fares. That's not going to change." * * * .. ... ... .. ... ... ---------------------------------------
