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Pittsburgh the next frontier for Southwest

Southwest Airlines Co. stepped up its assault against bankrupt US Airways Group Inc., announcing plans Wednesday to offer service in Pittsburgh in May.

Analysts said the move could speed the demise of US Airways, the dominant carrier in Pittsburgh. The nation's seventh-largest carrier, which has been crippled by fare wars with Southwest and other airlines, has said if it can't reduce labor costs it could begin liquidating assets this month.

The airline's flight attendants approved a new labor contract Wednesday that cuts their pay by nearly 10 percent.

David Castelveter of US Airways said the growth of low-cost service was not surprising in Pittsburgh "and further underscores the importance of us establishing a cost structure comparable to that of our low-cost competitors."

Last May, Southwest moved into Philadelphia, one of US Airways' main airports, and has since expanded service there, forcing US Airways to cut fares. Southwest said traffic on Philadelphia-based routes to Tampa, Chicago, Orlando, Phoenix, Las Vegas and Providence, R.I., rose 51 percent and average fares fell 37 percent.

Now Southwest is extending its reach to Pittsburgh.

Gary Kelly, Southwest's chief executive, said Southwest went into Philadelphia because it could undercut high fares there, and became interested in Pittsburgh as US Airways reduced the number of flights. He denied targeting US Airways.

"It's a coincidence," he said.

Kelly said Southwest would announce its Pittsburgh schedule and fares before April. He said Southwest would begin with fewer than five gates and a "modest" number of daily flights. The airline typically begins in new cities with one or two gates and 10 to 15 flights.

Industry experts said Southwest's move into Pittsburgh would have dire results for US Airways.

"That's the nail in the coffin. It's the end of US Airways," said Michael Boyd, president of the Boyd Group, an aviation consulting firm in Colorado. "There is just no way an airline like Southwest is going to go into Pittsburgh unless it knows US Airways is through and it knows there's going to be a huge gap there."

Suzanne Betts, an analyst with Argus Research Corp., said Southwest took customers away from US Airways in Philadelphia and could do the same in Pittsburgh with lower fares and better service _ especially after US Airway's well-publicized mishandling of thousands of bags over Christmas because of bad weather and labor troubles.

"It's going to put pressure on fares in and out of Pittsburgh, which is good for customers but not for US Airways," she said.

As recently as 2002, US Airways operated more than 82 percent of flights out of Pittsburgh, but that number has fallen to about 65 percent. The number of outbound seats from Pittsburgh on US Airways has fallen 28.4 percent from the first quarter of last year, according to Michael Allen, an analyst with Back Aviation Solutions in New Haven, Conn.

Wednesday's deal with the flight attendants leaves only one US Airways union that has refused to accept the cuts the airline says is necessary to avoid imminent liquidation.

The Association of Flight Attendants, which represents about 5,000 workers at the airline, approved the contract with 64 percent of the vote, according to a union spokeswoman.

The new contract cuts pay immediately by 8.4 to 9 percent, with pay raises of 1 to 2 percent beginning in 2007 and extending through 2011. Tougher work rules will also be implemented.

The airline estimates that the new contract will allow it to save $94-million a year, part of nearly $1-billion the airline is trying to squeeze from its 28,000 workers.

Only the International Association of Machinists, which represents almost 8,500 mechanics, baggage handlers and cleaning crews at the airline, has failed to negotiate a new contract.

Southwest, which flies to 59 U.S. cities, has remained profitable during the industry downturn of the past three years, and has continued to add planes.

Southwest is adding six gates at Chicago's Midway International Airport from bankrupt ATA Airlines, and Kelly said it could add another city this year. Southwest plans to increase its jet fleet by 29 this year, a 10 percent increase in passenger seats, which Kelly said was a return to the company's historic growth rate after the slowdown caused partly by the 2001 terrorist attacks.

"There's nothing extraordinary about what we're doing," he said. "It's just classic Southwest."

The deal with ATA also nets Southwest another prize: Hawaii. It might soon begin to sell tickets to the 50th state.

In the deal, Southwest agreed to code-share with ATA. That provision, which lets the two airlines funnel passengers to each other and sell seats on each other's planes, could prove to be the most important part of the $117-million deal.

For the first time, Southwest will be able to offer flights to congested airports it shied away from in the past and to popular long-haul destinations for which its small Boeing 737s were ill-suited. Using ATA as a surrogate, Southwest is about to gain access to New York's La Guardia Airport and Washington's Reagan National Airport. And Southwest will close one of the big gaps in its blanket-the-U.S. route strategy by offering Waikiki, the Wall Street Journal reported, citing people familiar with Southwest's plans.

Hawaii is an important destination for airlines, one that helps separate the discounters from the big network airlines. Competitors have often derided Southwest's frequent-flier program as less appealing to travelers because it didn't offer Hawaii.

Southwest has looked at flying to Hawaii in its new longer-range 737s, but it's more appealing economically with bigger planes.

Enter ATA, which flies nonstop to Honolulu from Los Angeles, San Francisco, Phoenix and Seattle, and to Maui from Phoenix, San Francisco and Los Angeles. It offers one-stop, direct flights from Chicago. Southwest said it will begin its code-sharing from Chicago, and expand it in the future to Las Vegas, Seattle, Phoenix, Los Angeles and Orlando.

Information from the Wall Street Journal was used in this report.

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