Southwest Airlines bound for Pittsburgh

THE BALTIMORE SUN

In a move that is expected to reverberate locally and nationally in the already turbulent airline industry, Southwest Airlines Co. announced yesterday that beginning in May it will add Pittsburgh to the cities where it flies.

The news is considered a major blow to US Airways Group Inc., the bankrupt Arlington, Va.-based carrier that was already shrinking in Pittsburgh, and is emblematic of the shift in power toward discount airlines over the more traditional, so-called "legacy" carriers.

Drawn back by cheap fares and greater choice, passengers have returned to the air at levels that preceded the attacks of Sept. 11, 2001. But the growth of discount carriers continues to force bankruptcies, service cuts, employee givebacks and layoffs in the $116 billion airline industry.

The announcement by Dallas-based Southwest was just one of several headlines yesterday that reflected the turmoil.

Delta Air Lines, the nation's third-largest carrier, confirmed that it is slashing higher-priced fares, perhaps forcing its rivals to do likewise at a time when many can ill afford to shed billions of dollars in revenue. UAL Corp.'s United Airlines, meanwhile, continues to face off with its unions and creditors as it nears a critical deadline in its two-year-old bankruptcy restructuring.

Southwest's announcement was welcomed at Pittsburgh International Airport, which has feared the loss of US Airways. The move will also provide low-cost travel options to Pittsburgh from Southwest's current airports, which include Baltimore-Washington International Airport.

"It's one of the biggest cities that remains underserved," airline analyst Robert Mann of Port Washington, N.Y., said of Pittsburgh. "It has a big red target on it."

Mann said the pattern that rejuvenated BWI Airport in the past decade, where Southwest passed US Airways as the dominant carrier, may continue in Pittsburgh. At BWI, US Airways has about 40 flights, down from its peak of about 190. Southwest has about 165 flights at BWI.

Southwest declined to say where initially it would fly from Pittsburgh, its 61st market, or at what cost to passengers. But CEO Gary Kelly did say the company will follow its established path of taking over a small number of gates and then growing rapidly.

"This announcement ... is the result of a great deal of hard work, careful planning, creative enterprise and an unwavering focus on this important vision," Glenn R. Mahone, chairman of the Allegheny County Airport Authority, said in a statement yesterday. The authority operates the Pittsburgh terminal.

Southwest, the iconoclastic company that uses LUV as its stock ticker symbol and stars in a cable TV series, has become one of air travel's major stories in the past decade. It has swooped into airports in small and medium-size cities such as Albany, N.Y., and Norfolk, Va., slashing fares to undercut rivals.

Tweaking its model

Its impact grew last year when the carrier began expanding more aggressively in major city airports, such as Philadelphia International and Chicago Midway. Southwest once avoided larger U.S. markets, fearing they would be too expensive and crowded. But as the carrier has become stronger, with 31 consecutive years of profitability, it has become more willing to tweak its model.

In the latest sign of the intense competition spurred by Southwest's expansion to new markets, Delta confirmed after days of speculation that it would cut some fares up to 50 percent. It will also eliminate its Saturday night stay rule and lower fees for changes to tickets. Those moves are expected to force other carriers to lower their fares to compete, although at least one, AirTran Airways, said yesterday that its fares are already low enough to compete.

But the resulting competition has created a glut of seats and a revenue dearth for some operators - most visibly, US Airways.

Yesterday, US Airways' flight attendants approved an agreement to cut their pay 9 percent and reduce benefits to save the airline $94 million a year. US Airways had warned in a bankruptcy court filing in September that it could be forced to liquidate by next month if the court does not impose a 23 percent pay cut on union workers. The airline plans to seek court approval today to throw out any remaining union deals not already renegotiated, which includes those with its machinists and baggage handlers.

A 'coincidence'

US Airways has accused Southwest in the past of trying to engage it in a fare war. Kelly denied yesterday that he was trying to ground the competition. He called it a "coincidence" that Southwest, by moving into Pittsburgh, was entering its second US Airways market in a year, after Philadelphia in May.

"Low-fare growth in Pittsburgh, just like other cities in the U.S., was not unexpected and further underscores the importance of us establishing a cost structure comparable to that of our low-cost competitors," said David A. Castelveter, a US Airways spokesman.

Mann, president of R.W. Mann & Co. Inc., an airline consulting firm, said US Airways had hoped to revive itself in Pittsburgh with its own low-cost model of more direct flights on smaller planes. But Southwest's move could undercut that plan.

US Airways still has a substantial presence in Pittsburgh with 229 daily flights, although that is down from a peak of more than 540 daily flights in 2001. As US Airways has shrunk there, other emerging low-cost carriers have moved in, including AirTran and Frontier Airlines.

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