Thursday, November 29, 2001

JetBlue Airways’ entry into the Washington market yesterday represents a low-cost alternative for travelers and a long-term threat to major airlines still recovering from the September 11 attack.
Low-fare carriers like JetBlue are taking over flights the major airlines are dropping as they struggle to regain profitability.
As a result, the airline industry might never be the same, according to industry representatives and analysts.
JetBlue introduced twice-daily service between Washington Dulles International Airport and Fort Lauderdale, Fla., at a beginning fare of $49 each way. Other low-fare airlines that follow the JetBlue model of bare-bones cost efficiency are AirTran Airways, Southwest Airlines and Frontier Airlines.
While large air carriers, like United Airlines and American Airlines, racked up industry-wide losses of $2.4 billion after the terrorist attacks, JetBlue continued making profits in the third quarter of 2001.
“They have lower costs, they’re more flexible,” said Ray Neidl, an airline analyst for the Wall Street investment firm ABN-AMRO.
Low-fare airlines were cutting into major airlines’ profits even before September 11, Mr. Neidl said. The attack speeded up the business trend in their favor.
Major airlines have high overhead costs that include the industry’s best-paid technical employees and tough unions. The large number of passengers they must carry to make a profit give them little flexibility in starting or changing routes.
Low-fare airlines have fewer employees, operate simple city-to-city routes, have lower overhead costs and greater flexibility.
The business advantages of the small airlines position them to capitalize on the September 11 attack like no major airline could.
“The big carriers, when they come back, are going to come back with less capacity,” Mr. Neidl said. “The lower-yielding traffic will go to the low-cost carriers.”
Since September 11, the number of airline passengers continues to be down by as much as 20 percent in many markets.
In response to the business downturn, major airlines have cut back on the number of flights to ensure as many passengers as possible on the remaining planes in the air. On average, their planes must be at least 65 percent booked before they can make money.
Major airlines also have curtailed service to midsize cities that brought in only small profits even when business was good. Instead, they try to concentrate their flights between large cities in the United States and overseas, where profits are greatest.
US Airways, for example, dropped its Metrojet service that operated six daily flights out of Dulles Airport and 49 out of Baltimore-Washington International Airport to cities in the East.
Where the large carriers are stopping or reducing service, the smaller airlines are stepping in to take over.
“The smaller carriers, if they can survive, are going to come out with more market share,” Mr. Neidl said. “It gives them an opportunity to grow.”
The new JetBlue service to Fort Lauderdale is only the most recent example.
“With so many flights to Florida being cut this winter, we wanted to introduce the Fort Lauderdale service immediately to provide travelers with flights for the holidays,” said David Neeleman, chief executive officer of the 21-month-old airline.
Next spring, JetBlue plans to introduce coast-to-coast service from Washington.
On the day before Thanksgiving last week, many airlines in the Washington region suffered drops in the number of passengers compared with last year. Southwest Airlines’ operations at BWI, however, reported more than 20,000 bookings, a record for the airline at BWI.
Even if passengers return in their previous numbers, the major airlines will have difficulty maintaining fares that match the low-fare airlines that replace them.
JetBlue, for example, plans to charge regular one-way fares from Dulles Airport to Fort Lauderdale of $79 to $199, which is as much as 71 percent below rates charged by some major airlines, JetBlue officials said.
One competitive strategy being considered by the major airlines is to operate more small regional jets on routes that traditionally have fewer passengers. Whether the strategy will be successful in regaining markets from low-fare carriers remains to be seen.
“It’s too early to tell,”said Michael Wascom, spokesman for the Air Transport Association, the airline industry group that represents 95 percent of the nation’s passenger and cargo air carriers. “Most people I’ve talked to have said the recovery is going to occur over years, probably three to five.”
He cautioned against predictions about radical changes in the industry.
“Ultimately, it’s the marketplace that will make that decision.”

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