Major U.S. airlines in 2005 will cut unprofitable domestic routes to focus on core markets and more lucrative international flying. Though systemwide capacity is not forecast to decline enough to help airlines emerge from their financial morass, overall growth will slow. At the same time, low-cost carriers continue to add services and prepare to take delivery of scores of new aircraft.
The latest developments bring Southwest Airlines to several new business destinations, change the pecking order in such markets as Chicago, Dallas and Indianapolis, and shift the competitive balance on transcontinental routes.
For example, Delta Air Lines this year, as part of plans to significantly grow operations of all-coach, low-fare unit Song, will add a total of 15 daily nonstop flights between New York JFK and Los Angeles, San Francisco and Seattle. Song's expansion—which replaces many mainline transcon flights—positions Delta to expand its clash against JetBlue Airways from the East Coast battleground to coast-to-coast competition. JetBlue's newest transcon growth is slated to begin May 3 and would include additional nonstop frequencies from JFK to Long Beach and Ontario in the Los Angeles basin, San Jose and Oakland in the Bay Area and San Diego. It also will add transcontinental frequencies from both Boston Logan and Washington Dulles. The carrier last week announced Boston as a new focus city, where it finalized a long-term lease for use of 11 gates in Logan Airport's Terminal C.
United Airlines has gone the opposite direction from Delta by replacing mainline transcon flights from New York JFK with a premium product designed for business travelers
(BTN, Aug. 2, 2004). All flights to Los Angeles now feature the PS product, as will all flights to San Francisco by next month.
"Performance in terms of high-yield traffic on the PS flights is showing a statistically significant uptick compared to our previous services," said Graham Atkinson, United senior vice president of worldwide sales and alliances. "Improvement in the business class cabin has actually garnered more interest from corporations than the first class product. I am not ready to declare victory, but I am very encouraged."
Meanwhile, other competitors are exiting nonstop transcon markets to focus resources elsewhere. America West is pulling service between San Francisco and both Boston and New York JFK, as well as service between Los Angeles and Washington Dulles. American Airlines also has abandoned certain transcon routes, as did ATA Airlines last year.
Delta by September will grow Song's fleet by 12 planes and add 36 daily flights, for a total of 176. That growth is part of Delta's systemwide plans to boost capacity by as much as 8 percent in 2005. J.P. Morgan Securities analyst Jamie Baker said such growth is "nearly twice what we expected, with expansion most likely in markets where share loss to low-cost carriers was greatest."
Delta last week added dozens of flights to its Atlanta hub as part of a massive network overhaul that included nearly total retreat from the Dallas market
(BTNonline, Sept. 8, 2004).Unlike Delta, United is cutting domestic capacity. A 12 percent decline will push the carrier's systemwide capacity down 3 percent, even as it expands international flying by 14 percent. Similar to Delta, however, United continues to add flights operated by low-fare unit Ted. Across town from United's primary hub at Chicago O'Hare, for example, Ted on April 3 will launch multiple daily flights from Chicago Midway to United hubs in Denver and Washington Dulles.
American Airlines also is trimming capacity and announced plans to remove the equivalent of 15 mainline jets from domestic service. It also entered agreements with airplane manufacturers to defer deliveries of mainline and regional jets. It cut services in non-core markets and is concentrating on its Dallas Fort Worth hub, where by summer it will offer a total of 715 mainline and American Eagle departures. Morgan Stanley analyst William Greene, on a conference call with American executives, termed the capacity strategy "remarkably disciplined."
Meanwhile, Southwest is continuing efforts to overturn the Wright Amendment's federal restrictions at Dallas Love Field
(BTN, Jan. 17) and therefore did not include Dallas Fort Worth in the first wave of codeshare flights with ATA Airlines
(BTNonline, Dec. 16, 2004). "We didn't want to confuse our strategy," said Southwest CEO Gary Kelly, regarding the Dallas market.
The carrier beginning Feb. 4 will codeshare on several other ATA-operated flights, including service to Chicago Midway from such key business markets as Boston, Denver, Minneapolis, Newark, New York LaGuardia, San Francisco and Washington Reagan National. Travelers can connect at Midway to dozens of Southwest destinations. These codeshare flights give Southwest a presence in primary airports it previously avoided and place it in more direct competition against legacy carriers in their hub markets.
Southwest this year also will take delivery of at least 29 new aircraft, move into Pittsburgh in May and probably will add at least one additional city during 2005. "Given the turmoil in the industry, we will wait until the last minute to announce that city," Kelly said, who noted overall growth still is targeted between 5 percent and 10 percent. "If something changes in the environment that would support growing faster, obviously we'd take advantage."
In other Southwest news, the airline on April 2 will discontinue all operations at Houston George Bush Intercontinental Airport, marking only the fifth time in 33 years it has pulled service from an airport. It will maintain all existing services from Houston Hobby, the fifth-busiest station on its route map, and will make that airport "the focal point of our future growth," Kelly said.
Meanwhile, despite teaming with Southwest, bankrupt ATA Airlines cited "fierce competition" in its decision last month to significantly reduce operations at Indianapolis, its home market. ATA on Feb. 28 will end service from Indianapolis to Dallas, New York and San Francisco, followed by additional cuts in subsequent months. By April, ATA's Indianapolis schedule will include only a handful of mostly leisure-oriented destinations. The carrier said previously it would expand services and maintain Indianapolis as its primary hub
(BTN, Nov. 8, 2004).Northwest Airlines has added waves of flights to Indianapolis as part of its strategy to focus on key Midwestern cities. It offers the most service from the market, including multiple daily frequencies to key business destinations.