May 21, 2005|By Paul Adams | Paul Adams,SUN STAFF
Since it first landed in Baltimore in 1993, Southwest Airlines has used cheap fares and savvy marketing to systematically dismantle US Airways' East Coast strongholds, leaving many in the industry to conclude that it was just a matter of time before the weakened airline became another footnote in aviation history.
But US Airways struck back yesterday by announcing a merger with America West Airlines, perhaps the only major airline that has managed to hold its ground while engaged in a head-on competition with Southwest, the nation's largest low-fare carrier.
While few expect the merged airline to slow the East Coast expansion that Southwest launched from Baltimore-Washington International Airport, the combination will alter the dynamics in what has so far been a one-sided battle for turf between Arlington, Va.-based US Airways and Dallas-based Southwest.
Analysts now see a reinvigorated US Airways surviving Southwest's onslaught and potentially diverting its attention toward smaller airlines such as AirTran Airways and weaker ones such as Delta Air Lines, which faces a life-or-death struggle to cut costs and erase debt.
"BWI is safe," said Robert W. Mann Jr., president of the airline consulting firm R.W. Mann & Co. in Port Washington, N.Y. "They [Southwest] will fill up the facility just as fast as they otherwise would have. They'll just take it out of somebody else's hide. There's lots of skin to go around."
A low-cost US Airways could lead to increased fare competition that will benefit consumers, analysts said.
"I think they're going to be a formidable opponent," said Terry Trippler, chief executive of Farefacts.com, a Minneapolis travel adviser. "I see nothing but a win for the consumers."
Southwest said it plans to stick to its current business strategy.
"Right now, as far as the Southwest business plan, we don't have any plans to change," said Whitney Eichinger, a spokeswoman for the airline. "We forecast continued growth independent of this merger, but also consider this could be a consolidation of the industry which results in a reduction in capacity, which would be good for the industry."
Few would have given US Airways any hope of getting Southwest off its back a few months ago. Struggling through its second bankruptcy, the airline was held back by high costs and operational problems that opened the door for Southwest to swipe market share on its most profitable routes.
After being routed by Southwest at BWI in the late 1990s, US Airways next faced a lonely fight against its low-cost rival in Philadelphia and Pittsburgh - two cities it once dominated with little effort.
The merger may give US Airways staying power in those markets, thanks to about $2 billion in cash and operating costs that will drop to about 7 cents per passenger per mile flown, excluding fuel costs. That's still shy of Southwest's roughly 6 cents per passenger mile, but analysts think it will be enough to keep the carrier flying.
"They will certainly have a more level playing field," said Daryl Jenkins, director of the aviation institute at George Washington University. "But do I think they will push Southwest around? I don't believe that for a minute."
However, analysts said a merged US Airways will have some advantages over Southwest, such as the ability to offer first-class seating and connections to international flights of its own and through its membership in the Star Alliance, a global airline partnership. Southwest has historically prided itself on its no-frills, all-domestic service.
If Southwest is the airline equivelant of low-cost retailer Wal-Mart, the new US Airways will look something like Target - a slightly more upscale store for the cost-conscious consumer, said Trippler, the airline expert. Both retailers have thrived in the same markets - a model that could be repeated in the airline industry.
"The current America West has learned to live, compete and to a certain degree prosper competing head-to-head with Southwest," said Raymond Neidl, an analyst with Calyon Securities, which is a market-maker for US Airways securities but doesn't have a financial interest in Southwest or America West. "So if anybody can - with the right cost structure - learn to live with Southwest in Philadelphia, it should be this combined company."
But US Airways and America West still face enormous challenges, such as successfully merging their staffs and creating a route structure that will maximize cost savings. There is some skepticism that the merged carrier will meet its cost-cutting projections, which could leave it still vulnerable to an attack from Southwest.
"They can produce all kinds of scenarios, but nobody really knows how this thing is going to shake out in the end," said Tim Sieber, vice president and general manager for The Boyd Group, an Evergreen, Colo., aviation consulting firm.
