ANALYSIS: Low-Fare Airlines: Discount airlines benefit from big guns' problems

With big airlines being forced to rethink their business models, the smaller, cheaper airlines are now taking steps to win over business travelers.

With big airlines being forced to rethink their business models, the smaller, cheaper airlines are now taking steps to win over business travelers.

At last week's press launch of two short-haul routes from its new West Coast hub at Long Beach, CA, JetBlue wasn't interested in bragging about its low prices or the efficiency of its business model. Rather, airline executives wanted reporters to notice the gleaming new video screens in the backs of JetBlue's assigned, leather-clad seats. The airline, which is turning a healthy profit while larger rivals seek shelter in Chapter 11, is now setting its sights on rival Southwest, and targeting the lucrative business-travel market by emphasizing service over the price proposition traditional to budget airline communications. "It's the first time we've really ruffled the feathers directly of some competitors," says JetBlue VP of corporate communications Gareth Edmonson-Jones. "In particular, Southwest. But we're looking to differentiate ourselves from everybody." Welcome to the brave new world of commercial aviation, where bigger is no longer better, and "discount carrier" can mean any number of things. As the major airlines - burdened by excess capacity and an overwrought cost structure - struggle to stay aloft, a dogfight is brewing among their low-cost competitors as they seek to unravel a tangle of brands interchangeable in the minds of consumers. The segmentation of the discount market is filling a void in airline marketing, with most of the major carriers stuck in a holding pattern as they focus on more earthly concerns. Hit with a triple-whammy of a stricken economy, a travel slump driven by ongoing post-9/11 jitters, and the threat of a war that could send fuel prices sky high, America's airline industry is hurting all over, but none more so than the majors. US Airways, the nation's seventh-largest airline, filed for bankruptcy protection in August. United, burdened by high labor costs and locked in a dispute with its unions, has warned that it may yet be forced to file for bankruptcy protection as well, despite being the nation's largest airline. Emerging lean from an earlier bankruptcy, the nation's fifth-largest airline, Continental has managed to ride out the storm so far, as have third-ranked Delta and fourth-ranked Northwest. But all have had their wings clipped, with heavy cuts to capacity and staff. And all of the major airlines are facing passenger wrath, as a root-and-branch cost-cutting guts conveniences such as last-minute no-fee rescheduling, upgrades, and extra luggage allowances. American Airlines, the nation's number-two airline, has fared better, standing firm in its positioning as the airline of choice for the business world and its "more legroom" message, while shifting capacity to leisure markets to pick up the slack. But even American has little room for error, and like its big-league competitors, the airline has had to sideline much of its marketing efforts to focus on operational concerns. Analysts and industry watchers say that the crunch was coming long before September 11. "All six may not survive," says Richard Mintz, an aviation expert and chairman of Burson-Marsteller's US public affairs practice. "There's clearly a market for a high-end business-focused network airline. The question is how big, and how many it can sustain." 'Chaos as usual' for big carriers September 11 turned industry PR efforts upside down. After the dust settled and the initial crisis work wound down, airline PR pros found their budgets slashed and their focus shifted to IR and the business press as their companies conducted top-down business reviews. "Our term for it around the office is 'back to chaos as usual,'" says Tim Doke, American VP of corporate communications. "We're spending an inordinate amount of time on financial issues. We've suspended any of the classic brand-communications support we were doing until we've got a better handle on things. We're still finding time to do some of the proactive stuff, but it's an odd time to be doing anything, because the brand is being redefined through an exhaustive business-model review." American also diversified its agency roster, awarding the bulk of its PR work to Weber Shandwick Worldwide, while retaining Burson-Marsteller for public affairs and strategic work. Employee relations has also come to the fore, as the airlines try to repair shattered staff morale amid an atmosphere of ongoing uncertainty. "We've increased our communications with employees," says Catherine Stengel, GM of communications for Delta. "We're making sure they understand the financial situation, the business, what we need to do to grow and survive." Survival, for most airlines, has meant deep cuts and a fundamental retooling. In imitation of the low-cost model, the major airlines are rescheduling flights to off-peak hours to ensure quicker turnaround times, simplifying their fleets by paring down the number of models used, and cutting out the middleman by doing more of their booking on the internet. But while the traditional business model has been badly shaken, it is not without its advantages. Doke concedes that with companies cutting costs wherever they can, the discount carriers are encroaching on his depleted business-travel market. But for all their fanfare, he argues that the majors' loyalty programs will soon hit them like a brick wall. "Try as they might," says Doke, "a lot of people in our AAdvantage pool are not going to be turned away from earning those miles by any offers." And burdensome though their complex hub-and-spoke networks may be, they provide passengers a wealth of coverage that they won't find at the discount carriers. Nearly all boast regional fiefdoms as well, dominating major hubs and routes that the low-costs would find tough to crack. Some discount airlines - notably JetBlue and Southwest - are indeed posting healthy profits. "The irony is that every carrier is a low-cost carrier these days," says Edmonson-Jones. "But the low-cost carriers are the only ones turning a profit." But there's plenty of misery to go around. "Our business model girds us for this type of environment much more than some mainstream carriers," says Southwest director of PR Linda Rutherford, "but there are still some pockets of pain. Demand is down, and revenue is far weaker than we'd like to see. So we're focused on getting into position to return." Southwest is communicating changes made to ease the "hassle factor" of check-in. "2002 is the year of the airport," says Rutherford. Southwest has instituted an automated boarding pass, expanded check-in lanes, and set up ticketing kiosks at its terminals. Delta has been running a nearly identical airport charm offensive. Moving to the business market Indianapolis-based discount carrier American Trans Air (ATA) is also targeting the business market, dropping its palm tree logo in a redesign of livery and staff uniforms - a move designed to jettison its association with leisure travel and draw more business passengers. ATA is breaking with the discount model to offer business-class seats, and going forward, will emphasize assigned seating and other amenities. It's hardly a novel approach, but for an airline so long identified with cheap flights to vacation hot spots, it seems revolutionary. Southwest, whose pioneering budget model has spawned a dozen imitators, has the best-known low-cost brand in the business. But with rivals attempting to siphon off business travelers, positioning themselves as "premium" discount brands, and major airlines regrouping their own low-cost short-haul operations, the airline may have to up its ante as well. For the moment, it's just trying to hold onto pole position. "We want to under-promise and over-deliver," says Rutherford. Burson's Mintz notes that airline brands hold a special fascination, as the industry touches so many aspects of our lives. "It takes you places, and that has a certain mystique," says Mintz. "It runs throughout all kinds of coverage - labor, business, finance, travel. It's like the NFL of American business. Everyone has their favorite team, and is rooting for that team."

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