Bumpy ride for major airlines

Security scares, low-fare fights rock hopes for a year of smooth flying

Strategies

February 15, 2004|By Micheline Maynard | Micheline Maynard,New York Times News Service

The nation's airlines were optimistic that 2004 would be the best year yet in what has been a difficult decade. Instead, the year has gotten off to a turbulent start, both for the airlines and their customers.

The major carriers thought the fledgling economic rebound might result in good winter results that would bring them back to break-even levels, and allow them to raise fares. Instead, the year began in chaos, because of security scares overseas that forced delays and cancellations, and bad weather that gripped much of the United States.

And the big airlines face the prospect of even more unsettled skies because of competition from low-fare carriers, which are planning to expand service on the East Coast and across the country.

Meanwhile, passengers, who were hoping that the air-travel experience was going to smooth out, must now deal with the fact that it may not. While they are being bombarded with offers of cheap fares, meant to make flying more attractive, they also have to face the uncertainty that their trips might not go off as planned.

For the industry and its customers, uncertainty is becoming the norm, and flexibility a watchword.

"I think this year is going to be another tough year" for improving financial performance, said Larry Kellner, president of Continental Airlines, who will succeed Continental's colorful chief executive, Gordon Bethune, at the end of 2004.

For Continental, and the rest of the industry, this year presents a number of challenges. The airlines are grappling not only with security issues but also with soaring jet fuel prices that they are trying to pass along to consumers, who simply refuse to pay more to cover higher costs.

Nor do consumers have to pay more. Passengers have been deluged with offers of cheap fares this winter. Some of the deals are seasonal, such as British Airways' offer of $99 each way from New York to London, to help fill planes that would otherwise be sparsely loaded.

But deals have also popped up on routes where customers once had to pay top dollar, like New York to Los Angeles or San Francisco. Increased transcontinental service by JetBlue, AirTran and Southwest means fares on almost every carrier have come down, as the major airlines have matched their low-fare rivals.

JetBlue, for example, offered fares from $79 each way from New York to Los Angeles. Its chief rival, American, which JetBlue passed last year to become the biggest airline serving Kennedy Airport, vows it will not be undersold.

In addition, customers are being offered a variety of new extras along with low fares, from satellite radio systems on JetBlue and ATA, to fancy snacks from Dylan's Candy Bar, the trendy Manhattan confectionery, for sale on Song, Delta Air Lines' low-fare carrier.

But passengers are dealing with some headaches, too. Ticket prices are bouncing up and down as the airlines try, thus far unsuccessfully, to increase fares to cover higher costs. Twice during December and January, several airlines applied and then abandoned charges meant to offset rising fuel prices, because competitors would not go along with them.

Rather than put up with attempts to make them pay more, passengers are heading where they can pay less. According to a Department of Transportation study published last month, low-fare airlines carried 22 percent of domestic passengers in 2003, compared with 16 percent in 2000, the industry's peak year for domestic travel. Traditional airlines carried 54 percent of domestic passengers in 2003, down 10 percentage points from their market share three years ago. Regional carriers made up the rest of the industry's business in both years.

The industry gets two more low-fare players this year. Ted, the carrier started by United, recently began service in Denver, where it will serve a collection of Western cities as well as two in Florida (and Dulles Airport beginning in April). Atlantic Coast Airways, which has operated as United Express on the East Coast, plans to introduce its own separate low-fare carrier, called Independence Air, which will fly later this year from Dulles.

If those low-fare carriers weren't enough competition for the traditional airlines, they're seeing the passengers they value most -- business travelers -- dwindle, not just because the economy has been suffering, but because they are choosing low-fare airlines, too.

People flying for work reasons, without buying tickets in advance, made up 20 percent of passengers in the first half of 2000, but that fell to 13.5 percent in the first half of 2003. And industry executives say slow job growth will keep that number of last-minute corporate travelers stagnant for now.

"Until you see more corporations hiring people and beating the street for business, you are going to see some sluggish business travel," said Gary Kelly, the chief financial officer at Southwest Airlines.

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