The Brancatelli File
OF THE AIRLINES
BY JOE BRANCATELLI
April 18, 2002 -- This is now fair to say: The nation's airlines are at economic war with each other.
And this is also fair to say: We have a vital stake in this airline civil war. The future of how, how often--and even if--we will fly on business hangs in the balance.
The "good" guys in this civil war are a small but growing collection of carriers that, for reasons both fundamental and pragmatic, are pitching lower fares for business travel and forging a rational, logical, understandable pricing structure. If they win, we will be able to travel on business at a reasonable price whenever and wherever we need to fly. And the good-guy carriers will make money and make their shareholders happy.
The "bad" guys in this civil war are the frightened, arrogant, petulant little generals who run most of the major U.S. carriers. They are squandering billions of dollars--and losing millions of frequent flyers--by defending the status quo: a lunatic fare structure that makes them less popular than the Internal Revenue Service, that costs their shareholders billions in equity, and that is, by their own admission, broken and incomprehensible. If left to their own devices, they will destroy their companies, obliterate their shareholders' remaining equity and permanently damage our nation's economic future.
One front in this civil war is in Phoenix, where America West has broken away from the mainline carriers' fare madness and simplified its pricing structure. It has eliminated Saturday-night stay restrictions and reduced its one-way fares. Its new structure is rational and it acknowledges the truth: Business travelers will pay more to fly on short notice, but they will not allow themselves to be played for fools.
America West's conversion to the side of the good guys is, I admit, the economic equivalent of a deathbed conversion. In recent years, America West has been a miserable airline, mechanically suspect and run by a despot who brutalized his employees and his customers. But a new team of managers has improved on-time performance, cleaned up many of its most severe mechanical problems and, now, come to its senses on fares.
In fact, America West has moved in lockstep with several major European carriers. At virtually the same moment that America West made its fare move, British Airways, BMI British Midland and SAS made similar changes in their home markets. All these carriers have opted for pricing sanity because they recognize their customers demand it.
But America West is being savaged by the mainline U.S. carriers for its fare apostasy. Hours after America West announced its new prices, Continental severed its code-share arrangement. All the other major mainline carriers have poured discount fares into the Phoenix market, hoping to discipline America West and force it to abandon the new fare structure.
This offensive may be economically brutal for America West, but it is financial suicide for the bad guys. It also helps explain how these maniacal defenders of the old pricing faith managed to lose about $9 billion last year and this week began reporting first-quarter losses that are expected to reach another $2 billion.
A second and equally vicious front in this airline civil war is on the transcontinental routes pioneered by JetBlue, one of the youngest and brightest of the good guys. Operating for just 26 months, JetBlue last year became the nation's second most profitable carrier. It is the new model of how to do things right: new planes; reasonable, one-way fares; nimble, focused management; hip promotions; and decent, one-class service with nice little perks like in-flight televisions and leather seats. It went public last week at a breathtaking price--$27 a share--and closed today in the stratosphere, a shade above $44.
All that success and creative thinking is infuriating the bad guys. Their self-appointed official spokesman, Continental chief executive Gordon Bethune, attacked JetBlue during his own airline's annual meeting on Wednesday. When asked about JetBlue's meteoric rise, he quipped, "It just says that P.T. Barnum was right. ... The odds of JetBlue having long-term success are remote."
This is one of the favorite tactics of the bad guys: Deflect attention from your own shortcomings--Continental reported a $166 million quarterly loss on Monday and today's spin-off of its commuter-jet division fizzled, closing at the initial offering price of $16--by denigrating the success of its competitors.
Yet name-calling is the least of the bad-guy tactics against JetBlue. Their attacks have assumed an almost fairy-tale quality: Everywhere that JetBlue goes, United and American are sure to follow.
JetBlue last year pioneered nonstop flights between New York/Kennedy and Oakland. Now American, the nation's transcontinental powerhouse, is competing, even though it had never flown the route in its long, transcon history. It has even matched JetBlue's fares: American offers $299 walk-up prices to Oakland, but its walk-up fares to San Francisco, just 11 air miles away and free of competition from JetBlue, are $1,221. American even announced service between JFK and Los Angeles/Ontario, another route JetBlue pioneered. But that tactic has already backfired. Days after it announced the flights, American changed its mind and slunk away from JFK-Ontario without ever selling a ticket.
United is doing the same thing at its Washington/Dulles hub. United has never flown to Oakland from Dulles, but the moment JetBlue announced last summer that it would fly the route, United announced Dulles-Oakland service. When the September 11 attacks led JetBlue to delay the launch, United dropped its plans. But when JetBlue announced in February that it would start flying from Dulles to Oakland on May 1, United reappeared and decided it would launch Oakland flights on May 8.
And then there is the matter of Long Beach, which may be the most crucial battleground in this airline civil war. About 18 air miles from Los Angeles, Long Beach has been woefully underserved for years. A local noise ordinance limits Long Beach to just 41 departures a day, but the airport hadn't been able to find takers for even half the available slots.
Recognizing an opportunity, JetBlue last year scooped up all of Long Beach's remaining slots and has begun adding flights. It already flies from Long Beach to Kennedy, it is due to add Long Beach-Dulles service next month and it expects to reach its limit of 27 flights next year.
But the bad guys won't have it. Alaska Airlines, which hasn't served Long Beach in seven years, suddenly wants some of JetBlue's slots so that it can launch service to its Seattle hub. And the Biggest Bully in the Air, American, is now demanding slots so it can launch its own flights to Kennedy and add service to its Chicago/O'Hare hub. Never mind that neither carrier wanted Long Beach slots when they were available. Never mind that American lost almost $2 billion last year, reported a first-quarter loss of $548 million this week and surely doesn't need to be launching any new routes right now. JetBlue is expanding its one-class/rationally priced service at Long Beach and the bad guys will be damned if they'll permit it.
Yes, fellow flyers, the airlines are at war. And, to me, the battle lines and the stakes in this civil war are clear.
March with the good guys and we'll be able to travel on business with a modicum of dignity. Fall in with the bad guys and we'll have to live forever with the madness they have created.
This column originally appeared at JoeSentMe.com
Copyright © 1993-2004 by Joe Brancatelli. All rights reserved.