By Thomas Olson
TRIBUNE-REVIEW
Friday, April 23, 2004
US Airways will significantly reduce fares on East Coast routes and perhaps elsewhere as early as next week to combat low-fare competitors and preserve its dominant share of that market, industry experts said Thursday.
The strategy is primarily aimed at Southwest Airlines, the discount carrier that starts service in Philadelphia May 9 with 14 daily flights, doubling in July to 28 flights. Philadelphia is US Airways' most important hub, representing about 25 percent of the airline's ticket revenue.
Fare cuts would be the first major strategy move by new CEO Bruce Lakefield, who was installed by Chairman David Bronner and the US Airways board Monday, following the resignation of David Siegel.
"They're going to have to match Southwest fare by fare," said Kevin Mitchell, chairman of the Business Travel Coalition, a consumer advocacy group in Radnor, outside Philadelphia. Some fares could come down as much as 40 percent, he said.
"The market has been screaming for this for years," said Mitchell.
But don't count on US Airways to reduce fares in Pittsburgh very soon. Mitchell said with some 80 percent of the passenger traffic at Pittsburgh International Airport, US Airways isn't pushed by discounters to lower fares here.
Simplifying and reducing fares is part of US Airways' restructuring plan, according to the outlines disclosed thus far.
In addition to fare cuts, US Airways plans to increase the number of direct flights from Philadelphia, Washington and possibly elsewhere. Many of those routes, now flown with slow, noisy turboprop planes, will be fitted with regional jets with 50 to 72 seats.
"It is well known that the airline industry is moving to a simplified and lower fare structure that customers are increasingly demanding. But we do not comment on future pricing actions," said US Airways spokesman David Castelveter. He would not elaborate about adding flights or regional jets, saying, "As we implement changes, we will announce them."
Based in Arlington, Va., US Airways controls about one-quarter of the passenger traffic east of the Mississippi River, more than any other carrier.
But while fare cuts may retain passengers, it also bites into revenue. As it is, US Airways is expected to post a loss Tuesday of roughly $197 million for the three months ended March 31, according to one analyst's estimate. And US Airways already loses money on about 70 percent of its flights, Siegel told employees earlier this year.
"This certainly will cut into revenue. The question is, by how much?" said Betsy Snyder, credit analyst for Standard & Poor's, New York. The debt ratings firm has had US Airways on its credit watch list with negative implications since January.
"It's easy to cut prices, but you can't do that unless you've got ongoing cost-cutting in tandem," said Bob Jankowitz, senior credit officer at Moody's Investors Service, New York. "They have been working on it, but they need to do a lot more."
As reported, Air Line Pilots Association negotiators are expected to begin contract talks in early May. And pilots currently are receiving ratification ballots on an agreement that would let US Airways reassign regional jets to express partners in order to save money.
"With the new CEO in place, it could help get the cost-reduction process started again," said Snyder. "The pilots seems to be on board with Mr. Lakefield."
TRIBUNE-REVIEW
Friday, April 23, 2004
US Airways will significantly reduce fares on East Coast routes and perhaps elsewhere as early as next week to combat low-fare competitors and preserve its dominant share of that market, industry experts said Thursday.
The strategy is primarily aimed at Southwest Airlines, the discount carrier that starts service in Philadelphia May 9 with 14 daily flights, doubling in July to 28 flights. Philadelphia is US Airways' most important hub, representing about 25 percent of the airline's ticket revenue.
Fare cuts would be the first major strategy move by new CEO Bruce Lakefield, who was installed by Chairman David Bronner and the US Airways board Monday, following the resignation of David Siegel.
"They're going to have to match Southwest fare by fare," said Kevin Mitchell, chairman of the Business Travel Coalition, a consumer advocacy group in Radnor, outside Philadelphia. Some fares could come down as much as 40 percent, he said.
"The market has been screaming for this for years," said Mitchell.
But don't count on US Airways to reduce fares in Pittsburgh very soon. Mitchell said with some 80 percent of the passenger traffic at Pittsburgh International Airport, US Airways isn't pushed by discounters to lower fares here.
Simplifying and reducing fares is part of US Airways' restructuring plan, according to the outlines disclosed thus far.
In addition to fare cuts, US Airways plans to increase the number of direct flights from Philadelphia, Washington and possibly elsewhere. Many of those routes, now flown with slow, noisy turboprop planes, will be fitted with regional jets with 50 to 72 seats.
"It is well known that the airline industry is moving to a simplified and lower fare structure that customers are increasingly demanding. But we do not comment on future pricing actions," said US Airways spokesman David Castelveter. He would not elaborate about adding flights or regional jets, saying, "As we implement changes, we will announce them."
Based in Arlington, Va., US Airways controls about one-quarter of the passenger traffic east of the Mississippi River, more than any other carrier.
But while fare cuts may retain passengers, it also bites into revenue. As it is, US Airways is expected to post a loss Tuesday of roughly $197 million for the three months ended March 31, according to one analyst's estimate. And US Airways already loses money on about 70 percent of its flights, Siegel told employees earlier this year.
"This certainly will cut into revenue. The question is, by how much?" said Betsy Snyder, credit analyst for Standard & Poor's, New York. The debt ratings firm has had US Airways on its credit watch list with negative implications since January.
"It's easy to cut prices, but you can't do that unless you've got ongoing cost-cutting in tandem," said Bob Jankowitz, senior credit officer at Moody's Investors Service, New York. "They have been working on it, but they need to do a lot more."
As reported, Air Line Pilots Association negotiators are expected to begin contract talks in early May. And pilots currently are receiving ratification ballots on an agreement that would let US Airways reassign regional jets to express partners in order to save money.
"With the new CEO in place, it could help get the cost-reduction process started again," said Snyder. "The pilots seems to be on board with Mr. Lakefield."
