Transcon Battle Heating Up

America West Airlines is set to launch this fall its first-ever transcontinental routes when it links New York JFK and Boston Logan with Los Angeles and San Francisco international airports. In doing so, AWA will enter a fiercely competitive coast-to-coast battlefield recently defined by skirmishes between low-cost airlines AirTran and JetBlue and major network carriers American and Delta. ATA Airlines last month also joined the transcon fray (BTN, Aug. 11).

AWA's strategy is simple. It will seek to lure travelers away from major carrier incumbents by leveraging its simplified business fare structure, while holding its own against the likes of JetBlue Airways by flying to more centralized airports. JetBlue, for example, flies from JFK to Long Beach, Calif., rather than Los Angeles, and to Oakland instead of San Francisco. No low-cost carriers currently operate transcontinental services from Boston, though JetBlue has indicated the city ranks high on a long list of possible new markets.

"This new strategic opportunity will bring convenient, low-fare service to the last major nonstop routes dominated by high-cost carriers," said AWA CEO Doug Parker. AWA said its existing transcon routes, which involve a connection in Phoenix or Las Vegas, have performed more strongly since the implementation of the new fare structure last spring (BTN, April 8, 2002) and represent some of its biggest origin and destination markets. The carrier said requests from business travelers led to the decision to upgrade those services to nonstop routings by adding new point-to-point flights to its network.

For such major carriers as American, Delta and United airlines—already forced to lower transcon prices in the face of stiff low-cost competition—AWA's entry is yet another challenge. American, for example, already matched JetBlue's highest one-way coach fare of $299 on certain transcon routes from New York. AWA is offering business fares starting at $299.

"$299 is better than where they were," said Dan Garton, executive vice president of American Airlines parent AMR Corp., in a recent interview with BTN. "In the end, it is all about profitability. Marketshare only matters if it helps drive profitability. We have faith that we will begin to make money again in New York City in total. That means we cannot cede marketshare." Garton, however, acknowledged that American, and other legacy carriers, overall will continue losing share to low-cost carriers until differences in operating margins are minimized.

Indeed, AWA—with a slimmer cost structure and corresponding ability to offer low fares without necessarily sacrificing profitability—expects to steal share by wooing travelers primarily from unmanaged and lightly managed programs. "We definitely will also have larger corporate relationships," said Mark Gillen, AWA senior director of corporate and global agency sales, "but if they include discounts, they won't be large."

Gillen added that corporate travel managers, obviously enthusiastic about lower transcon fares, "are expecting legacy carriers to push back aggressively." Major airlines last year slashed fares dramatically in AWA's Phoenix hub following the introduction of the carrier's redesigned fare structure. Gillen also said the new transcon services "open up all sorts of possibilities," but would not comment specifically on potential service additions along the East Coast or codeshare possibilities. AWA currently cooperates with British Airways, which uses New York JFK as a U.S. gateway.

JetBlue, meanwhile, is squaring off against Delta on nonstop transcon routes from Atlanta as it continues to battle American on nonstop transcon routes from New York JFK. The low-cost carrier on Sept. 8 will launch service between Delta's Atlanta hub and Oakland. Delta responded immediately, announcing it will triple service on the route to thrice daily, and on Aug. 1 also added a sixth daily nonstop from Atlanta to San Francisco. AirTran also announced new service between Atlanta and San Francisco, effective Nov. 12.

Meanwhile, to fend off JetBlue's advance and AirTran's entry into the market, Delta has been boosting capacity between Atlanta and the Los Angeles area, including a planned increase in capacity to Orange County, Calif. In response, JetBlue recently decided to reduce Atlanta-Long Beach service to one flight per day.

"To us, this seems like the right decision, given Delta's disproportionate competitive response between Atlanta and the L.A. basin," said J.P. Morgan Securities analyst Jamie Baker, who added that Southwest Airlines "is a fairly safe bet within the next year or so" to begin Baltimore-Seattle nonstop service.