- The Washington Times - Sunday, May 23, 2004

Independence Air started selling tickets last week, the newest competitor in the airline battle that is transforming Washington Dulles International Airport.

By midsummer, “Indy Air” will turn Dulles into the nation’s biggest hub of low-fare airline service.

The growth of low-fare airlines at Dulles is another problem for some of the nation’s biggest airlines, but an opportunity for less-expensive travel for D.C.-area residents.

“For anyone who thought the only way to get a decent fare was to drive all the way to Baltimore, that all ends this summer,” said Rick DeLisi, Independence Air spokesman.

At least seven low-fare airlines — five independents and two created by major carriers — are making Dulles a front line in the battle between major airlines trying to survive and their cheaper rivals trying to take their business.

Traditionally, Dulles has served as one of the nation’s biggest gateways for European and coast-to-coast airline service by major airlines, or network carriers.

The long-distance flights will continue, but they are increasingly being taken over by low-fare airlines, including JetBlue Airways, AirTran Airways, Frontier Airlines, America West, Song, Ted and now Independence Air.

So far, the low-fare airlines show no signs of slowing.

“They’re setting the pricing and they’re making the money,” said Ray Neidl, an airline-industry analyst for the Wall Street investment firm Blaylock & Partners.

Until the low-fares started moving in, Dulles had some of the most expensive fares in the country, running an average of $237 per ticket in 2003, according to the Transportation Department’s consumer airfare report.

On Wednesday, Independence Air announced fares from Dulles to New York City costing from $49 to $109 each way, depending on when the flight is scheduled. By comparison, United Airlines was advertising round-trip fares to New York between $172 and $307 for travel between June 1 and June 8.

Dulles offers the low-fare airlines three major attractions:

• Market research shows it is a largely untapped market for low-fare airlines.

• The D.C. area ranks fifth nationally for passengers traveling to or from the area, as opposed to just passing through.

• Northern Virginia residents who live near Dulles earn an average of more than $150,000 per household. They are exactly the kind of consumers looking for the travel bargains low-fare airlines offer.

“The more money people have, the more trips they are likely to take,” said David Swierenga, an airline-industry economist who operates the Vienna, Va., consulting firm AeroEcon.

About one-third of commercial airline passengers in the D.C. area use Dulles, according to the Maryland Aviation Administration.

Low-fare service at Dulles Airport multiplied by more than eight times in the past 10 years but still is only 10 percent of all flights.

“In 1999, among low-fare carriers, only AirTran was here with two gates, and the total number of gates was 11,” said Tara Hamilton, spokeswoman for the Metropolitan Washington Airports Authority, which manages Dulles and Ronald Reagan Washington National airports.

New flights by Independence Air, America West, Frontier and other low-fare carriers are expected to increase the low-fare flights to 52.5 percent of the market by the end of August.

Indy Air comes on strong

By the end of the summer, Independence Air with 300 daily flights will be the biggest airline operating at Dulles. United, which operates 282 daily flights, will slip to second place.

By comparison, Southwest offers 162 daily flights at Baltimore-Washington International Airport, where it is the biggest airline.

Atlantic Coast Airlines, Independence Air’s parent, had provided commuter service for United until a disagreement ended its contract in April. Now it will compete with its former business partner as it phases out the Atlantic Coast Airlines name.

Independence Air begins operations with a $300 million cash reserve and 4,100 employees. The airline on Wednesday announced 35 destinations for its flights out of Dulles. Fares to cities in the Northeast, Upper Midwest and Southeast will range between $39 and $178 each way.

While Independence Air celebrates its inaugural, network carriers are becoming worried.

The upstart presents “more of a threat by low-cost carriers, which affects our ability to bring in revenue,” said David Castelveter, spokesman for US Airways. “It reinforces the immediate need for this company to reduce its costs much further.”

US Airways operates 11 daily flights at Dulles, 177 at Reagan National and 39 at BWI.

Although US Airways operates few flights at Dulles, Independence Air will draw customers from other airports, Mr. Castelveter said.

“When you’re talking about Independence at Dulles, you’re talking about the whole Washington area,” he said.

United Airlines is fighting back by rolling out several frequent-flier promotions for travelers who use the area’s three airports.

Even JetBlue, the rising star of low-fare airlines, is intimidated by Independence Air’s impending turf battle with United.

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JetBlue said recently it would wait and see how the battle plays out before adding flights.

“We’re simply going to sit tight with what we have at Dulles and wait out the storm there,” Chief Financial Officer John Owen said at a Bear Stearns Cos. transportation conference in New York.

“It’s going to be a blood bath. There is going to be, in our view, a… war there.”

JetBlue flies nine daily round trips from Dulles to California and Florida. The number of passengers flying JetBlue each month has jumped from 14,698 in April 2002 to 65,595 in March 2004.

The Metropolitan Washington Airports Authority refuses to take sides in the fight between network carriers and low-fare airlines. Instead, the organization uses the market duel as a business opportunity.

“Dulles already offers the most choice for international air service,” said the airport authority’s Miss Hamilton. “Now it will have a full menu of international, major network domestic airlines and low-fare airlines.”

BWI followed a similar business strategy of courting low-fare airlines and became one of the fastest-growing airports in the nation.

Southwest started at BWI with eight flights in 1993. Now the airport is building a new pier to handle Southwest’s traffic, which has grown by more than 20 times since then.

The price is right

The biggest winners in the local competition will be travelers in the D.C. area, although they might not notice many physical signs of an airline struggle.

As the presence of low-fare airlines at Dulles grows, passengers will have the option of low-fare flights to nearly any destination they choose. Network carriers will need to lower their fares to compete.

“The price difference and the nonstop make a huge difference for me,” said Curry Mayer, a JetBlue passenger standing in a security-checkpoint line at Dulles recently. She was returning home to California after visiting her family in the District.

“They’re one of the few that fly coast-to-coast nonstop,” Miss Mayer said about JetBlue. “Their prices are awesome.”

Last week, JetBlue advertised one-way prices between Dulles and Oakland, Calif., from $129 to $299. The cheapest seat available on the same flight for travel June 1 is $190 on Delta Air Lines and $195 on US Airways.

Otherwise, visitors might notice the change in company logos at ticket counters.

Independence Air is putting up 20 of them. JetBlue started at Dulles in 2001 with four ticket counters and now has eight.

Rachel Pitzen, an American University student returning to California for the summer after her freshman year, travels home about three times a semester. She said she has paid as little as $99 each way on JetBlue.

Airlines see profits in the opinions of such satisfied customers.

“Indy Air will be a very good competitor and will loosen up fares to medium-size cities,” said Darryl Jenkins, a professor at Embry-Riddle Aeronautical University.

Survival of the fittest

Airline passengers have little sympathy for the plight of large airlines whose business is being taken by low-fare competitors.

“Like any other business, it’s consumer-based,” said Lance Moss, a computer scientist from Leesburg, Va. “It has to be competitive to survive. I don’t want United to go under. They’ve been a great airline. They just have to be competitive.”

The network carriers say they would operate like low-fare airlines if they could, but their high costs from using big jets and major airports make reinventing themselves difficult. They also have more inflexible union contracts that include high pension obligations.

They primarily serve business travelers, who can be depended upon as steady customers only when the economy is strong.

The low-fare airlines keep their costs down by flying between airports with the lowest landing fees and by shifting schedules often to match passenger demand. They also use smaller jets that are cheaper to maintain and easier to fill.

“For those airlines that can’t cut it, then they should go out of business,” said Eric Lund, a State Department diplomat traveling to China on a United Airlines flight. “We have a market economy.”

In the past three weeks, two major airlines, Delta Air Lines and US Airways, said in Securities and Exchange Commission filings that they are considering bankruptcy.

Continental Airlines warned Tuesday of hefty losses, potential employee furloughs and cuts to wages and benefits because jet-fuel costs are soaring.

United Airlines, the nation’s second-largest air carrier behind American, still is trying to emerge from bankruptcy protection.

If you can’t beat ‘em …

The network carriers have tried to adapt by starting low-fare subsidiaries that mimic the business plans of smaller airlines.

The most recent at Dulles was Ted, the low-fare subsidiary of United Airlines. It started service April 7 with 15 daily flights, mostly on vacation and regional routes.

United Airlines officials say they hope Ted will help them target leisure travelers and hang on to their dominance of Dulles, which included nearly 53,000 flights in the last year.

The company is spending $22 million to build a new terminal and expand facilities at Dulles. It also is starting nonstop service to Zurich this summer, spokesman Jason Schechter said.

Delta Air Lines is trying a similar plan with Song, a low-fare subsidiary it started a year ago that serves primarily the vacation markets of Florida and Las Vegas.

“Our bottom line looks real good with the changes we’re making,” Song spokeswoman Stacy Geagan said.

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