More Discount Air Service

<H1>More Discount Air Service</H1><H3>By Barbara Cook</H3>Washington, D.C. - While travelers in California and southwestern air markets have the greatest access to routes served by low-cost, low-fare airlines, such discounted service is still limited in the eastern half of the country, according to a new Department of Transportation study.

The availability of discounted carriers like Southwest and Valujet saved consumers $6.3 billion in fares last year alone, according to DOT. That translates into 47 million new passengers who flew in 1995 due to their presence, DOT Secretary Federico Pe&ntilde;a said. In cities where low-cost airlines fly, travelers pay $54 to $70 less per flight, on average.

Pe&ntilde;a said the spread of low-cost service, which "is far from complete," will put pressure on traditional carriers to become more efficient. Pe&ntilde;a made two predictions: "One is that you'll see low-cost carriers elbow their way into new cities, because as long as there is a need, they will find it and fill it," he said. "And two, I believe we will see low-cost service spread to international markets."

While low-cost, low-fare service has penetrated all areas of the country (BTN, Feb. 26), the benefits of that service are heavily concentrated in the West and Southwest, the DOT study found. So far, Southwest Airlines and Valujet have made limited forays into eastern markets.

Of the 11 cities nationwide that have fare premiums in excess of 15 percent, all but two-Dallas and Minneapolis-are in the East. Of the 16 cities studied with fare discounts greater than 15 percent, all but two-Louisville and Fort Myers, Fla.-are located in the Southwest and West.

In addition, the largest decreases in fares since deregulation have occurred at airports located in the West and Southwest, according to a General Accounting Office study examining changes in air service since deregulation. Conversely, the largest increases in fares have been at airports located in the Southeast and in the Appalachian region.

"Clearly, there is considerable room for growth of low-cost service in the eastern part of the U.S., and low-cost carriers are now moving into this area," the study said. DOT urged communities with little or no low-cost carrier service to actively seek it out. To some extent, this is a marketing effort, meaning the cities need to sell themselves to low-cost carriers.

In a DOT review of 60 large and medium hub cities nationwide, the following cities had a fare premium and thus could benefit from new or increased levels of low-fare service: Buffalo, N.Y.; Charlotte and Greensboro, N.C.; Hartford, Conn.; Jacksonville, Fla; Norfolk, Va.; Raleigh-Durham, N.C.; Washington, D.C.; Atlanta, Boston, Chicago, Cincinnati, Cleveland, Dallas, Denver, Detroit, Houston, Memphis, Minneapolis, Nashville, New York, Philadelphia and Pittsburgh.

The cities with the greatest availability of low-cost service are El Paso, Texas; Spokane, Wash.; Reno, Nev.; Sacramento, Oakland, Burbank and Ontario, Calif.; Albuquerque, Oklahoma City and Tulsa, Okla. The least availability of low-cost service is in Minneapolis, Dallas, Cincinnati, Pittsburgh, Buffalo, Boston, New York, Norfolk, Greensboro, Charlotte, Miami and Memphis.

Eventually, as the route systems of low-fare carriers expand, they will be faced with a choice between overlapping routes and competing with other low-fare lines, or increasing their presence in markets they already serve, DOT said. If they choose the latter, they probably will pressure incumbent network carriers to step up their competitive responses, such as Delta has in Salt Lake City, "with very substantial consumer benefits," DOT said.

The low-fare carriers whose results were included in the DOT study were Southwest, Air South, American Trans Air, Frontier, Reno Air, Spirit, ValuJet, Vanguard and Western Pacific.

The DOT study formed the background for a hearing convened in late April by the Senate Commerce Committee to examine the growth of low-fare, low-cost airlines, as well as the adequacy of airline service to small communities across the nation.

At the hearing, Southwest chairman Herb Kelleher suggested actions the federal government can take to foster the continued development of this special niche of carrier. Because low fares depend on low costs, Kelleher emphasized that the government should adopt tax and regulatory policies that do not add cost burdens to the carriers.

Kelleher specifically attacked Federal Aviation Administration reform legislation-now pending in the Senate-that was introduced by Senate Aviation Subcommittee chairman John McCain (R-Ariz.) and Sen. Wendell Ford (D-Ky.). The bill calls for user fees that would finance operation of the nation's air traffic control system, replacing FAA reliance on appropriations from Congress.

Kelleher said carriers operating in short-haul markets would feel the greatest impact from the fees. He charged that fees are favored only by some of the mega carriers, describing them as a "sky-high tax on low-fare air travelers."

A study prepared for Southwest by Simat, Helliesen & Eichner calculated that the average user fee would approach $12 per passenger. For the 53 percent of Americans who flew in 1995 for less than $100, a $12 head tax would result, on average, in a fare increase of 11.4 percent. The bottom line of a ticket price increase in this range would mean that "customers would either stay home or return to their automobiles," Kelleher said.

Other impediments to growth in the low-cost carrier industry include the imposition this year of the 4.3-cents-per-gallon jet fuel tax, Kelleher testified, as well as "excessive regulation under the guise of safety," such as the proposed limits on pilot duty time.

Another barrier to low-cost airlines is the lack of slot availability at the four high-density airports-Washington National, New York's LaGuardia and John F. Kennedy, and Chicago O'Hare. "Although established carriers trade slots with each other frequently, it is difficult for new entrants to acquire slots," said ValuJet president Lewis Jordan.

Jordan pointed to the need for more vigorous enforcement of antitrust laws against predatory pricing. "The Department of Transportation and Department of Justice have examined some of these problem areas, but I believe these agencies need to be more vigorous and aggressive in prohibiting anticompetitive practices," he said.

ValuJet and other carriers also are concerned about DOT's pending rules on ticketless travel, Jordan said, because they could increase carrier costs without providing needed consumer benefits.

On a brighter note, Edward Beauvais, chairman of Western Pacific Airlines, told committee members that although the challenges facing new carriers today are "formidable," they are nevertheless more favorable today than in the early 1980s. He pointed to lower interest rates and fuel costs, and greater willingness on the part of financial companies to underwrite start-up airlines and on the part of communities to improve their airports in the hope of attracting low-fare service.

Jordan said the degree of community support, including financial support, is one of the factors in ValuJet's decision to enter a new market. He cited Jackson, Miss.; Mobile, Ala.; and Newport News, Va., as cities that have offered cash incentives in order to obtain ValuJet's service.