ACA, Prepared To End United Relationship, Plans Independent Low-Fare Carrier

Atlantic Coast Airlines and United Airlines are likely to end their longstanding relationship, leaving the latter without its strong United Express affiliate at Washington Dulles International Airport and the former positioned to start its own low-fare operation. ACA, which also serves as a Delta Connection carrier, yesterday said the low-fare unit will be built around 50-seat regional jets with a range of up to 1,000 miles. ACA also is seeking to acquire larger Airbus or Boeing aircraft to serve longer routes and is planning to use Navitaire's Open Skies reservations system.

Details of the new operation, including possible codeshare arrangements, will be announced "in the near future," while the actual launch depends on the terms and timing of United's decision to end the ACA contract, should it choose to do so as part of its bankruptcy reorganization. ACA said it expects "United will reject the United Express agreement." The two airlines had for some time wrangled over 2003 contract specifics as well as a new, long-term contract.

Once independent of United, resulting either from an immediate cessation of the United Express contract or a gradual phase out, ACA expects to initially offer as many as 275 daily departures from Dulles, making it the largest operation in the Washington area.

An ACA spokesperson said the new low-fare operation, once launched, will be marketed exclusively on its Web site and that there are no plans to use the global distribution channel. "We believe our fares will be so low that they will be lower than any discounted corporate rates from competitors," the spokesman said, "but we do plan to have a corporate liaison team that will meet with corporate travel folks to explain the product and services."

Analysts had differing opinions on ACA's prospects. Despite short-term transition costs, Deutsche Bank's Susan Donofrio said there is "a high likelihood that Atlantic Coast will be successful at this new endeavor." J.P. Morgan's Jamie Baker, however, said, "We think there is a reason that nobody on the planet has successfully launched discount operations with a small jet airplane--because it can't be done."

United responded to ACA's announcement by saying it was "surprised," but added that its ACA contract "remains in full force and effect." United, which also has United Express agreements in place with Air Wisconsin, Mesa, SkyWest and Trans States airlines, said a deal with ACA still is possible, though a contingency plan is ready for servicing customers on routes now operated by ACA. Baker, who noted that ACA is "the backbone" of United's operations at Dulles, predicted United's competitive response would "be crafted in such a way as to inflict maximum pain" on ACA.

"It is potentially pretty damaging to United," said Kyle Perry, vice president of industry relations at WorldTravel BTI, emphasizing that it is too early to draw any firm conclusions. "Corporations walk a fine line between their commitments to major players and keeping average ticket prices down by utilizing low-cost carriers."