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USAir feeling heat of rivals' Florida fares Challenged: Carrier must defend its Florida business from lower-cost discounters.

THE BALTIMORE SUN

If USAir Chairman Steve Wolf is eager to launch an express service to Florida, he has three new reasons: Southwest, Delta Express and ValuJet.

All three low-cost discount carriers have aggressively invaded USAir's stronghold. While the race for Florida has meant more flights and even lower fares for consumers, it also spells trouble for higher-cost USAir.

While Florida has always been a highly competitive market, the entry earlier this year of the successful and highly focused Southwest Airlines changed the picture dramatically. In addition, Delta Air Lines just recently launched a discount express service to Florida. And ValuJet, which was grounded by the Federal Aviation Administration, is once again flying there.

Boosting demand for the popular Florida flights is the transformation of the Sunshine State from a seasonal tourist attraction to a fast-growing business stronghold.

"It's not just senior citizens and Mickey Mouse tourists," said Jay Hierholzer, associate administrator for marketing and development at Baltimore-Washington International Airport. "Planes out of here are full of laptops and business suits, too."

Yet the rush by discount airlines -- and smaller ones like Kiwi, East-wind and Carnival -- to serve Florida underscores USAir's dilemma. Once again, the carrier must keep prices low to stave off low-cost competition.

In the short run, USAir can match the $69 one-way fares, much as it did CalLite's bargains to Boston. But it can't do that forever -- especially if the competition is Southwest Airlines.

"They stayed in the game and outlasted Continental Lite, but it's hard to outlast a Southwest because they outlast everybody else," said David Stempler, president of Air Traveler Advisers Inc., a Washington consulting firm.

"This highlights the whole thing that Steve Wolf has been talking about," Stempler said. "USAir has to find a long-term solution to its cost problem."

USAir controls roughly a fifth of the Florida market, second only to Delta Air Lines. About 7.9 million, or 12 percent, of its 66.2 million annual passengers are Florida travelers.

"We have had a major investment in the Florida market for a number of years," said Richard M. Weintraub, a spokesman for the Arlington, Va.-based carrier, which handles nearly half the 31,000 daily passengers at BWI.

Marginally profitable

Because Florida historically has been a leisure market with low fares, yields there always have been relatively low -- no more than 8 percent of USAir's overall revenues, according to analysts. Still, the vast number of travelers is important to any East Coast carrier.

But, depending on future moves by Southwest and others, USAir, with the highest costs in the industry, ultimately could start losing money in the marginally profitable market.

"USAir will have to decide whether it wants to be a major player in a marketplace where it may not be able to make money." said Michael J. Boyd, president of Aviation Research Systems, an airline consulting company based in Golden, Colo.

"It will lose market share, but the name of the game is profit share," Boyd said. "It can't be Southwest."

Efforts to compete with low-cost carriers have prompted discussions by USAir with its union leaders about a new express operation, similar to Delta Express.

However, USAir's ability to launch a low-cost airline-within-an-airline is contingent on reaching agreements with pilots, flight attendants and mechanics, much the way Delta and United Airlines did before starting their low-cost, express services.

"We do have a cost problem that must be addressed," Weintraub said.

The latest Florida price war -- which has driven business fares down along with leisure prices -- began in January when Southwest entered the market with flights to Tampa and Fort Lauderdale.

In April, the Dallas-based carrier added Orlando, and it plans to expand service to Jacksonville in January.

"Florida was so ripe for a Southwest kind of operation," Stempler said. "It's a solid market with a growing economy."

Not only has Southwest added flights to Florida, it also has initiated intrastate jet service. In contrast, USAir has replaced its intrastate jet fleet with less expensive turboprops in order to cut costs.

Often, the entry of low-fare airlines into a market, such as Baltimore to Orlando, stimulates traffic for all carriers. But if USAir is forced to keep its fares low to meet its competition, even a substantial boost in traffic may not be enough to offset the loss of revenues.

Besides, Stempler and others say, there will be other Floridas.

"It's just an example of the world to come for USAir," he said.

Pub Date: 10/10/96

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