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Low airfares don't always equal customers
Many air travelers still are choosing traditional carriers
Sunday, June 24, 2007

A year after JetBlue Airways launched low-fare service to New York and Boston, hundreds more people fly to both cities from Pittsburgh -- and pay a lot less for the trip.



Click photo for larger image.
The bad news, for JetBlue at least, is that many of these new price-conscious travelers are still flying US Airways or Continental Airlines instead of the upstart carrier from Forest Hills, N,Y., which ended 2006 with just 20 percent of Pittsburgh-New York City travelers despite walk-up fares as low as $89. US Airways, on the other hand, ended 2006 with 40 percent of the traffic on that route, carrying 128 more passengers each day compared with the year before, according to U.S. Department of Transportation data.

"The market is growing the way we wanted it to," said Tim Luceno, JetBlue's manager of national sales, "but the people aren't changing their minds on who they want to fly."

JetBlue, trying to overcome the lukewarm corporate support that chased other low-fare entrants out of Pittsburgh in the 1990s, hopes to win over more business travelers with a public relations campaign that begins Tuesday with a visit by new Chief Executive Officer Dave Barger, who plans to mark the airline's one-year anniversary in Pittsburgh with a Downtown speech and a closed-door roundtable discussion with local chief executive officers.

JetBlue's struggles at Pittsburgh International Airport highlight the larger challenges -- and new opportunities -- of airport life after the drastic downsizing of US Airways.

After the Sept. 11, 2001, terrorist attacks, as a part of a companywide restructuring that accompanied two bankruptcies and a merger with America West Airlines, US Airways stripped Pittsburgh of its hub status, eliminated 10,000 local jobs and pulled more than 400 nonstop daily flights, including overseas destinations of Frankfurt and London and many on the West Coast.

The dramatic retrenchment raised questions about the financial standing of the Pittsburgh International Airport and its ability to pay off hundreds of millions of dollars in debt on a terminal completed in 1992 that was built to accommodate as many as 32 million passengers (10 million people passed through in 2006). There was even the suggestion that the airport declare bankruptcy in 2003 when US Airways abruptly canceled its contracts hours before emerging from the protection of bankruptcy court. Airport officials ultimately decided to stand firm, despite concerns about nearly $700 million in debt.

"We said, 'There has never been an airport that has gone into bankruptcy . . . and we are not going to be the first,' " said Jeff Letwin, solicitor for the Allegheny County Airport Authority, which manages the airport.

Airport officials, led by Allegheny County Airport Authority director Kent George, clawed back by recruiting US Airways' low-fare rivals to fill some of the empty space. The first victory was the arrival of Dallas-based Southwest Airlines, which now has 12 percent of the airport's traffic two years after starting service here, making it No. 2 after US Airways. JetBlue arrived last June.

The new competition forced US Airways, still the No. 1 carrier with more than 40 percent of all traffic, to lower its fares on select routes.

Average ticket prices at Pittsburgh International fell to $136 one way, lower than the national average, contributing to a steady rise in so-called "origin and destination" passengers -- those who begin or end their trip in Pittsburgh.

In 2006, there were 8.2 million of these passengers, a record for the airport and up 9 percent from 2001. These passengers now account for 82.6 percent of all traffic at the airport compared with 37.5 percent in 2001, when US Airways used the airport as a place primarily to connect people from city to city. Meanwhile, the airport's debt is due to drop below $500 million this year.

"The real story is the Pittsburgh airport not only survived the demise of the hub, but it's thriving," said Allegheny County Chief Executive Dan Onorato.

Mr. George argues this piece of the airport story does not get enough publicity. "Passengers are going up," said Mr. George, and "fares are going down.

"I bet people don't know that."

But there is a trade-off, said Sean McCurdy, vice president of the Pittsburgh Business Travel Association and global director of worldwide sales for hospitality operator Interstate Hotels Inc.

The era of monopoly pricing -- a system that drove some local travelers to Cleveland in searching of lower fares -- is over. But in its place is a system of fewer nonstop destinations (dropping from a pre-9-11 high of 110 to today's 64) and daily departures (dropping from 600 to 244) and no direct flights overseas.

"You can feel the loss of those direct flights," said Mr. McCurdy, zipping up a suitcase for a business trip last week to New York.

A "road warrior," Mr. McCurdy likes the lower prices now available at Pittsburgh International, but as a business traveler who needs to get places quickly and efficiently, he had been willing to pay the higher prices in exchange for the convenience afforded by many more flying options to all parts of the country, including the West Coast. "Can I still get to where I need to go?" he said. "Absolutely."

"But it does take more time and a little more work."

When he flies to New York, Mr. McCurdy still chooses US Airways, which lands at LaGuardia International Airport. He has yet to fly JetBlue in the year since it started service to John F. Kennedy International.

Many other business travelers are making the same buying decision, said Mr. Luceno, JetBlue's manager of national sales. Consider the route from Pittsburgh to Boston. Before JetBlue arrived, the average one-way fare was $178, with US Airways the only major option. After JetBlue's arrival, the average fare dropped by 46 percent to $97, according to JetBlue, and the total number of daily passengers doubled to 409. While JetBlue netted 109 of the new passengers, US Airways got 96, bringing its overall share of that route to 62.9 percent, or 257 total passengers.

JetBlue, with two flights daily to Boston, now has 26 percent of the passengers on that route.

"Changing buyer habits is not going to change overnight," Mr. Luceno said. "We definitely understand that." But more needs to be done, he said, to educate business travelers and CEOs "on the significance of our existence in the marketplace. Had we not started flying to New York and Boston, that average fare wouldn't change." Having JetBlue in Pittsburgh and supporting it "is like your insurance policy that low fares are there to stay in the marketplace."

Pittsburgh International is littered with the past failures of low-fare upstarts that came and went due to US Airways' market power and its ability to match prices on certain routes. A decade or so ago, ValuJet, Nation's Air and JetTrain all started and then ended service. Independence Air followed in the early part of this decade only to fold in early 2006 amid a larger industry slump. ValuJet later changed its name to AirTran Airways and, amid high expectations, launched service to New York, Philadelphia, Chicago and Atlanta, but due to a lack of local support, it dropped the flights to New York, Philadelphia and Chicago. Southwest has expanded three times and now offers 23 daily flights, but it also struggled with competition on the Philadelphia and Chicago routes, and a local group known as the Regional Air Service Partnership dipped into a $250,000 marketing budget to help Southwest with some radio ads to publicize those routes.

"You have to empathize with the airport authority in trying to build back momentum after a devastating loss," said Kevin Mitchell of the Business Travel Coalition, which represents business travelers. "They are doing everything that is part of the playbook to get carriers and service back in there. There is no glossing over the fact that it is a long and uphill battle."

Former Allegheny County chief executive James Roddey said "the airport authority has done a good job at making the best of a bad situation. The work done to bring in other airlines certainly has kept it from being much worse." But convincing business travelers to switch will be an uphill fight. "Convenience and frequency for the business traveler is more important," he said.

As a result, Mr. Roddey maintains that "on balance we are not as well off as we were" when the US Airways hub was still in place.

Mr. Onorato took office the day US Airways cancelled its leases at Pittsburgh International. He has a different view of the airport's standing, citing the fact that Pittsburgh has more destinations than several other cities of a similar size, including Milwaukee and Indianapolis, and arguing that "we are doing well compared to those cities."

Mr. Onorato is a member of the Regional Air Service Partnership, the group formed in 2004 to maintain competitive air service regardless of what happened to US Airways. The coalition continues to argue that many of the most-popular business destinations are still in place at Pittsburgh International. Of the 30 U.S. cities that account for 80 percent of Southwestern Pennsylvania business travel, only Providence; Manchester, N.H.; Westchester, N.Y.; and San Diego are currently unavailable, while San Francisco and Los Angeles, they note, are the only two big business markets with less than two flights per day -- both drop to one a day in September.

Of course the airport could benefit from more destinations and frequencies, but "at what cost?" asked Ken Zapinski, a senior vice president with the Allegheny Conference on Community Development, a business booster group that participated in the formation of the Regional Air Service Partnership. When US Airways was a virtual monopoly in Pittsburgh with almost 90 percent of all traffic, prices were among the highest in the country. "Is that better of worse than what we have now?" he asked.

For millions of local passengers who are using the airport in greater numbers each year, "this is a better model," he asserted.

US Airways may decide at some point to ramp back up in Pittsburgh -- the Tempe-Ariz.-based carrier recently reiterated the importance of Pittsburgh in a meeting with Mr. George -- but that will not affect the competitive strategy being pursued by local officials, who continue to pursue a direct flight to Europe. (Michael Langley, CEO of the Allegheny Conference, believes that a Pittsburgh-Amsterdam route is most likely option).

"What we have to figure out is are we meeting the needs of the local area," Mr. Zapinski said. "If US Airways wants to be a part of that, great." But "there is a good future regardless of what happens to US Airways."

First published on June 23, 2007 at 8:40 pm
Dan Fitzpatrick can be reached at dfitzpatrick@post-gazette.com or 412-263-1752.