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US Airways hopes Caribbean flights shine sun on its bottom line
Carrier says island routes are crucial its climb back from bankruptcy
Wednesday, August 06, 2003

Excuse US Airways if its new theme music is heavy on calypso -- the Northeast's dominant carrier has been rapidly growing Caribbean service since emerging from bankruptcy in March.

Earlier this week, for example, the airline said it planned to begin nonstop service between Washington, D.C., and San Juan, Puerto Rico. Last month, the carrier said it would inaugurate new flights between Charlotte, N.C., and St. Kitts; New York and San Juan; Philadelphia and Cozumel. Many of the flights are slated to start in late fall, when travelers typically begin to look for ways to escape the cold.

The Caribbean expansion isn't a new strategy. Indeed, it was well under way when former Chief Executive Officer Stephen Wolf was still at the helm. But the shift to the warm seas has accelerated since US Airways CEO David Siegel took over in March 2002, just as US Airways was veering toward bankruptcy. In fact, Siegel has repeatedly said "a growing route structure in the Caribbean" was necessary if the airline were to start making money anytime soon.

Industry analysts note that such a move is a natural extension of the airline's existing network. US Airways is the largest carrier east of the Mississippi, with a major presence in Pittsburgh, Philadelphia, Washington, New York, Boston and Charlotte. Its Philadelphia and Charlotte hubs, they note, form "a natural gateway" to the Caribbean.

The East Coast presence also makes it easier for US Airways to tap into a market that seems eager to travel to the Caribbean. For many in the Northeast, the Caribbean is their preferred destination for a beach-paradise vacation, said John Heimlich, an industry analyst with the Air Transport Association.

This is due in part to the Caribbean islands' proximity to the U.S. mainland. Concern about terrorism, as well as recent fears about SARS, have made travel to Europe and Asia less attractive to many people, Heimlich said. The Caribbean, which includes U.S. possessions and English-speaking destinations, seems less intimidating to many.

Another benefit for US Airways is that, unlike some leisure routes on which airlines are forced to compete on price and thus undermine the profitability of such service, the Caribbean is pretty much US Airways' domain. Darryl Jenkins, head of George Washington University's Aviation Institute, noted that the airline faced little or no competition from low-cost carriers there.

This, of course, could change. JetBlue, a low-cost carrier that has cut into US Airways' Northeast markets, recently announced that it was launching service between New York and San Juan. But the Air Transport Association's Heimlich said that deploying planes to foreign destinations could drive up a company's overhead significantly, which could act to wipe out the price advantage that low-cost carriers have over the larger network carriers such US Airways.

Heimlich said that for airlines to make money on Caribbean flights, they need to be able to draw on a large local population as well as be in a position to fly people in to a hub from smaller destinations. But many low-cost carriers operate by flying point-to-point, without the advantage of drawing on a large population base.

So far, US Airways' Caribbean expansion hasn't benefited Pittsburgh International Airport. Nearly all the new flights are scheduled to depart from its East Coast locations. The additions come at a time the airline is eliminating unprofitable routes, in some instances reducing service to communities that have long relied on it for air travel.

US Airways officials have indicated that should the airline retain Pittsburgh as a hub, it would likely be the center for its regional jet unit, MidAtlantic Airways. Pittsburgh would handle a large portion of the airline's East-West traffic, while Philadelphia and Charlotte would handle much of the North-South traffic.

But no final decision on the future of the Pittsburgh airport is expected until later this summer, following the conclusion of negotiations between airline and Pennsylvania officials over a new US Airways lease at the airport.

Meanwhile, there are signs that the situation is improving for US Airways. The airline said yesterday that while passenger traffic for July was down 3.5 percent vs. June 2002, the drop-off was far smaller than a 9.5 percent drop in capacity, thus boosting its load factor -- the percentage of seats filled with paying passengers -- to 82.2 percent, the highest month in the airline's history.

But the decline in the carrier's traffic continued to hurt Pittsburgh International, which said yesterday that passenger traffic for June was down nearly 23 percent from a year ago. Airport officials blamed US Airways, which accounts for about 80 recent of the airport's traffic.

On the plus side, other carriers at the airport reported a 6.2 percent increase in traffic, the Allegheny County Airport Authority said. And it noted that although passenger traffic was down year-over-year, it rose 5.6 percent between May and June of this year as the summer travel season swung into high gear.

First published on August 6, 2003 at 12:00 am
Frank Reeves can be reached at freeves@post-gazette.com or 412-263-1565.