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Thursday February 19, 5:05 pm ET
By Elizabeth Souder, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--US Airways Group Inc. will have to go a few more rounds in the ring to defend its title of hub airline in Philadelphia.
On Thursday, Frontier Airlines Inc. announced it will begin service to Philadelphia in May.
The announcement comes two months after Southwest Airlines Co. , the country's largest low-cost carrier, said it will begin flying to Philadelphia in May, putting US Air on the defensive.
US Air had just cut some fares and adjusted its schedule in anticipation of Southwest's arrival when Frontier made its announcement. US Air is the heavy- weight in the competition, with a larger network and a longer legacy than the low-cost carriers. But this Apollo Creed is beginning to look more like Rocky, who was just happy to go 10 rounds.
The airline hasn't turned a profit since exiting from Chapter 11 bankruptcy protection last year. The company restructured to cut costs, but executives say it's not enough to withstand the arrival of more low-cost carriers on US Air's turf.
"We've got to get our costs down by 25% more," said US Air spokesman David Castelveter. "Yes, we made great progress in 2003 lowering our costs and bringing in revenue, but we didn't bring in enough revenue."
Executives are meeting with representatives of the pilots union Thursday and Friday to discuss the airline's problems. Pilot union spokesman Tim Baker said he expects managers to say how they will defend the Philadelphia hub.
"We're anxious to see some type of response" to the competition from low-cost carriers, Baker said. "This is the fork-in-the-road day."
But US Air spokesman Castelveter said Philadelphia is a work-in-progress, and no final plan exists at this time.
Matching Fares In Order To Defend Turf
US Air Chief Executive David Siegel has said the airline will match fares offered by the new low-cost carriers.
"We face little choice but to remain competitive and match fares. And if we don't, we see our market share evaporate in Philadelphia," Siegel said in an address to employees earlier this year.
Southwest will offer direct flights between Philadelphia and Chicago, Las Vegas, Orlando, Phoenix, Providence and Tampa Bay, with introductory fares as low as $29 one way. These days, many Philadelphians drive an hour-and-a-half to Baltimore to fly on Southwest.
On some of those routes, like Philadelphia/Chicago and Philadelphia/Las Vegas, Southwest will compete with other low-cost carriers, who have set fares that are similar to Southwest's fares from Baltimore. US Air's fares on those routes are often higher than the low-cost competitors.
Right now, US Air has a lock on the Philadelphia/Providence route, with the lowest non-stop fares currently at $465 round trip. Southwest offers round-trip fares between Baltimore and Providence for less than $100.
Frontier Airlines, on the other hand, will compete head-to-head with US Air out of Philadelphia, rather than competing with other low-cost carriers. Frontier, the 10-year-old Denver airline, will begin in May service between Philadelphia and Denver and Los Angeles. The airline will offer one-way introductory fares for as low as $109 between the destinations.
That means a round-trip will cost around $100 less than the current best offerings on those routes by US Air.
The Bleeding Continues
It's not clear how US Air will manage to stop bleeding as it endures these bouts. Lowering fares will cut revenue, and still US Air's unit costs remain above those of the low-cost carriers.
Already employees have given the company $1 billion in cost-savings through concessions. Pilots are discussing with management ways to reduce costs and boost productivity, but union spokesman Baker said the company hasn't yet made the most of those prior concessions.
"Management is not using the tools that were afforded them by the concessions given them by employees," he said.
US Air is considering selling some assets to buy time, as well as paying off some debt early. But the company hasn't yet nailed down how or when it might adjust the balance sheet.
By Elizabeth Souder, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--US Airways Group Inc. will have to go a few more rounds in the ring to defend its title of hub airline in Philadelphia.
On Thursday, Frontier Airlines Inc. announced it will begin service to Philadelphia in May.
The announcement comes two months after Southwest Airlines Co. , the country's largest low-cost carrier, said it will begin flying to Philadelphia in May, putting US Air on the defensive.
US Air had just cut some fares and adjusted its schedule in anticipation of Southwest's arrival when Frontier made its announcement. US Air is the heavy- weight in the competition, with a larger network and a longer legacy than the low-cost carriers. But this Apollo Creed is beginning to look more like Rocky, who was just happy to go 10 rounds.
The airline hasn't turned a profit since exiting from Chapter 11 bankruptcy protection last year. The company restructured to cut costs, but executives say it's not enough to withstand the arrival of more low-cost carriers on US Air's turf.
"We've got to get our costs down by 25% more," said US Air spokesman David Castelveter. "Yes, we made great progress in 2003 lowering our costs and bringing in revenue, but we didn't bring in enough revenue."
Executives are meeting with representatives of the pilots union Thursday and Friday to discuss the airline's problems. Pilot union spokesman Tim Baker said he expects managers to say how they will defend the Philadelphia hub.
"We're anxious to see some type of response" to the competition from low-cost carriers, Baker said. "This is the fork-in-the-road day."
But US Air spokesman Castelveter said Philadelphia is a work-in-progress, and no final plan exists at this time.
Matching Fares In Order To Defend Turf
US Air Chief Executive David Siegel has said the airline will match fares offered by the new low-cost carriers.
"We face little choice but to remain competitive and match fares. And if we don't, we see our market share evaporate in Philadelphia," Siegel said in an address to employees earlier this year.
Southwest will offer direct flights between Philadelphia and Chicago, Las Vegas, Orlando, Phoenix, Providence and Tampa Bay, with introductory fares as low as $29 one way. These days, many Philadelphians drive an hour-and-a-half to Baltimore to fly on Southwest.
On some of those routes, like Philadelphia/Chicago and Philadelphia/Las Vegas, Southwest will compete with other low-cost carriers, who have set fares that are similar to Southwest's fares from Baltimore. US Air's fares on those routes are often higher than the low-cost competitors.
Right now, US Air has a lock on the Philadelphia/Providence route, with the lowest non-stop fares currently at $465 round trip. Southwest offers round-trip fares between Baltimore and Providence for less than $100.
Frontier Airlines, on the other hand, will compete head-to-head with US Air out of Philadelphia, rather than competing with other low-cost carriers. Frontier, the 10-year-old Denver airline, will begin in May service between Philadelphia and Denver and Los Angeles. The airline will offer one-way introductory fares for as low as $109 between the destinations.
That means a round-trip will cost around $100 less than the current best offerings on those routes by US Air.
The Bleeding Continues
It's not clear how US Air will manage to stop bleeding as it endures these bouts. Lowering fares will cut revenue, and still US Air's unit costs remain above those of the low-cost carriers.
Already employees have given the company $1 billion in cost-savings through concessions. Pilots are discussing with management ways to reduce costs and boost productivity, but union spokesman Baker said the company hasn't yet made the most of those prior concessions.
"Management is not using the tools that were afforded them by the concessions given them by employees," he said.
US Air is considering selling some assets to buy time, as well as paying off some debt early. But the company hasn't yet nailed down how or when it might adjust the balance sheet.
