Aiming high with lower fares US Airways' MetroJet set to debut, battle Southwest, boost BWI; Transportation

THE BALTIMORE SUN

US Airways' first MetroJet flight takes off for Cleveland tomorrow morning at Baltimore-Washington International Airport, officially launching the carrier's long-awaited discount service and further solidifying BWI's position as a leading low-fare market.

MetroJet's debut comes as its low-fare rival, Southwest Airlines, is undertaking a major expansion at BWI with the addition of 10 gates that could add as many as 100 daily flights by 2002.

US Airways, the dominant carrier at BWI, lost nearly $3 billion from 1988 to 1995, in part because of Southwest's 1993 invasion of its East Coast stronghold. To compete, Arlington, Va.-based US Airways Group Inc. was forced to lower fares even while its operating costs remained the highest in the industry. Clearly a fundamental change was in order if the airline was to stay aloft. MetroJet is part of the answer.

"We had no choice," US Airways President Rakesh Gangwal said last week. "We had to bring low fares to the market to fill the niche of consumers who are willing to give up some amenities to save money."

MetroJet will initially have five Boeing 737-200s with six daily flights to Providence, R.I.; five to Cleveland; three to Fort Lauderdale, Fla.; and three to Manchester, N.H. US Airways was already servicing those cities -- except Cleveland, which it had discontinued last year -- with prices that for the most part matched Southwest's.

Four Florida destinations will be added later this summer, with plans calling for new routes to be added monthly and 20 jets to be in service by year-end.

The new carrier is following Southwest's lead in cheap fares and fewer frills, and in its streamlined, cost-saving operations. It is matching Southwest prices for last-minute one-way trips and seven-day advance round-trip tickets -- $65 will buy a one-way ticket to Providence on either carrier, for example. Both offer all-coach seating, peanuts instead of meals and neither charges a fee for changes made to nonrefundable tickets.

MetroJet also studied Southwest's operations to see how its planes managed their quick, cost-saving turnaround time. As a result, MetroJet will be able to pull into the gate, unload passengers and baggage, service the plane and load a new batch of travelers in 25 minutes -- compared with the 45-minute average for US Airways' 737s.

But US Airways wouldn't have been able to move ahead with MetroJet without a hard-won agreement with the Air Line Pilots Association that cut MetroJet's pilots' pay 24 percent but also limits the discount lines operations: flights, with some exceptions, must not exceed 1,000 miles or go west of the Mississippi River, and overall, MetroJet can't account for more than 25 percent of all US Airways flight hours.

Steven Lewins, an analyst at Gruntal & Co., said MetroJet's limitations mean that while it has a good shot at success, it's unlikely to damage Southwest, whose reach extends from Providence to Fort Lauderdale and Seattle to San Diego.

"I think MetroJet will do fine. It'll feed existing systems and I expect it will make a profit within a year," he said. "It only overlaps with about 2 to 3 percent of Southwest's flights."

Although Gangwal called the creation of MetroJet "the single most important thing US Airways can do" to protect its franchise, the company is embarking on the new venture from a strong financial base. It made more than $1 billion last year, it has more than $2 billion in cash and its stock has rebounded from $4 a share in 1994 to $70 Friday.

"MetroJet is just one of an array of steps the airline is taking for a more rational cost structure," said spokesman Richard M. Weintraub. He said US Airways' order for up to 400 Airbus Industrie jets will help streamline operations; the airline has gone from six to three maintenance facilities; it has a new engine-maintenance agreement with General Electric that will save it "tens of millions of dollars" and a 25-year multibillion dollar deal in which Sabre Group will handle all of US Airways' computer needs.

The industry-wide shift toward alliances, a trend that surfaced after MetroJet's conception, has not been lost on US Airways. It reached an agreement last month with American Airlines to combine frequent flier programs, and the companies are also considering codesharing, in which one airline can book travelers on its partner's flights. Certain provisions of that agreement would be subject to labor's approval and will be addressed in future talks with the airlines' unions.

US Airways said it is also looking at renewing its partnership with British Airways, which ended in 1996.

US Airways' alliances and recent financial upswing do not make MetroJet any less important to the airline's future, Weintraub said. The discount carrier might only account for 25 percent of US Airways' hours, but without it, it would be like handing those profits over to a competitor, he said.

"This is a very long-term strategic issue," Weintraub said.

So what is Southwest doing about the new competition?

"Really, nothing," said Richard Sweet, Southwest's senior director of marketing.

Late last week, however, Southwest Chief Executive Herb Kelleher asked employees to defend against an "assault" by US Airways. "US Airways will begin heavily bombarding Southwest Airlines," Kelleher wrote in a letter sent to all employees at their homes. "At the conclusion of this battle our flag, the flag of Southwest Airlines must still fly over the ramparts of Baltimore."

Dallas-based Southwest was recently ranked No. 1 in the annual Airline Quality Rating survey by the Aviation Institute at the University of Nebraska at Omaha and the W. Frank Barton School of Business at Wichita State University in Kansas. But tenth-ranked US Airways says it has some perks up its sleeve.

MetroJet will transfer baggage to passengers' connecting flights, even if they're with another airline. Southwest doesn't offer that service because it slows down operations and ultimately costs too much. MetroJet will also assign seating as passengers check in at the gate. Southwest gives customers boarding numbers on a first-come, first-serve basis.

Both offer a free round-trip ticket with every 16 one ways or eight round trips. MetroJet customers can also choose to opt out of that program and instead earn double miles good toward US Airways mainline flights.

Airport officials say MetroJet is good news for BWI. "We will see increased competition and that's a big win for the traveling public," said Ted Mathison, executive director of the Maryland Aviation Administration.

But there's more than just bargain fares at stake. A healthy airport feeds the local economy; a study last year commissioned by the Maryland Aviation Administration found that BWI generated $3.9 billion in economic activity in the area. A successful airport also makes a city more attractive to business.

"When a company is looking to come into an area, one of the top five questions it asks is, 'How good is the airport?'" said Jay Hierholzer, associate administrator for marketing and development at BWI. "Can customers get in? Can cargo needs be met? "

Yet the airport's fate won't be tied to that of MetroJet, Hierholzer said.

Five years ago, US Airways accounted for 70 percent of BWI's traffic. Even while the airline cut more than half its flights and now accounts for only 39 percent of traffic, BWI has seen increased business every year. It recorded its busiest ever month in April with nearly 1.3 million passengers, as traffic from other major carriers has grown. America West, for instance, was up 48 percent in April vs. April 1997, Northwest Airlines 39 percent, Southwest 22 percent and United 46 percent.

"We never want to see an airline fail, but we've had failures before, such as Continental Lite, but BWI has a strong local market and anything that fails is going to be quickly replaced by a stronger airline," Hierholzer said.

Failure, Weintraub said, isn't in US Airways' lexicon.

"We don't even think in those terms," he said. "There's an enormous demand for this service and this is a very well-planned, carefully conceived project."

Pub Date: 5/31/98

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