THE BIG PICTURE

Thought things would return to normal in the months following September 11? Would have been nice. Many fliers would welcome the days of crowded concourses and air-traffic-control delays. But they’re gone, artifacts of what seems another era.

A new set of problems besets the frequent flier A.D. 2003—anemic airlines, security and SARS.

Out of the chaos that seems to be consuming the travel industry a new world order is emerging.

Soon the term “low-fare carrier” will be redundant. In order to survive, all airlines are going to have to dramatically lower their costs. Some are doing so more successfully than others.

As things stand, the traditional low-fares—Southwest, JetBlue and AirTran—are redefining the rules of the game for beleaguered major carriers. Frequent fliers, once lured by loads of perks and loyalty upgrades, are venturing out and trying cheaper alternatives—and finding they like them.

The trend that started in the United States has spread to Europe, where easyJet, Ryanair and Virgin Express are causing the continent’s once smug flag carriers to alter route structures—and assumptions. Closer to home, WestJet continues to pressure Air Canada.

As United continues to successfully negotiate deals with its unions and make its payments, its prospects for survival seem, if not bright, at least better. Still no word if the carrier will spin off a low-fare clone. At the beginning of the year, there was much talk of such a venture. Now, it’s died down.

So far, the Asia/Pacific arena appears immune from the kind of radical fare restructuring that’s swept North America and Europe. Australia is an exception, where Virgin Blue is gaining real traction.

But Asia is not immune from SARS—Severe Acute Respiratory Syndrome.

While the rest of the world wallowed in the post-September 11 mire, Asia—especially China—forged ahead. New airports. New airplanes. New routes. As this story went to press, all that was in mortal jeopardy. Hong Kong’s magnificent new aerodrome is a ghostport. Singapore is reeling. South China, especially once robust Guangzhou, is hurting.

As for security at U.S. airports: the biggest problem will be the expeditious processing of passengers. This may mean adding more security lanes, or finally rolling out a Trusted Traveler program. The potential monkey wrench: The federal screening force could be reduced because of budget problems.

Against a backdrop of receding war, emerging disease and persistent economic problems, Frequent Flyer presents what amounts to a State of the Regions report—a look at the changing patterns of air travel in an age of angst. We don’t try to cover all that’s happening in each region, just the trends that have the most potential for long-range impact.

THE WORLD

THE SARS EFFECT
As long as SARS persists, corporations will desist from traveling. The Business Travel Coalition indicates 58 percent of the corporations it surveyed said they were banning travel to Asian countries; 33 percent were providing their employees with advisories and guidance.

The result has been massive service cuts on the part of Asian carriers, especially on routes emanating from the disease’s epicenter—Hong Kong. Cathay Pacific, Hong Kong’s glamorous flag carrier, is reported to have considered grounding its fleet if things get worse.

At press time, carriers had slashed their HKG schedules by 40 percent. Meanwhile, China Southern Airlines—just over the border in Guangzhou—has made only modest changes.

THE WAR EFFECT
Prior to Operation Iraqi Freedom, European traffic was actually on the upswing. The war “completely wiped out” those gains said AEA Secretary General Ulrich Schulte-Strathaus. It remains to be seen how quickly that momentum can be recouped. The Association of European Airlines (AEA) said international traffic plummeted 10.4 percent during the third, and climactic, week of the conflict. Long-haul routes to the Middle East took the biggest hit. Traffic to the region was off 45.5 percent.

GOOD-BYE TO A LEGEND
The pride of Anglo-French technology will soon be rendered a mere museum piece—an artifact of an age when time was money and fliers would spend gobs of it to get from here to there exceedingly fast and in unparalleled style.

The economics of the Concorde dictate that Air France was set to stop flying its supersonics in late May. The Brits are hanging on a bit longer. The last transatlantic flight on the rapier-like craft will be October 25. From then on, if you want to cross the Atlantic by air, you’ll have to do it a prosaic 600 miles per hour.

INSIDE LOOK
There are three airports to watch in Europe—two big, the other small. Lufthansa continues to make Munich a viable second air portal to Germany—a European hub in its own right. Paris Orly, once home to low-fare AirLib, could see a resurgence in cut-rate seats as new competition emerges. Meanwhile, tiny London City Airport continues its remarkable growth, lofting an increasing number of regional jet flights from the English capital’s close-in airport.

The real hotel news in Europe and Latin America is the ascendance of mid-market lodging. Companies such as Courtyard by Marriott and Best Western continue to set up shop in cities that were once the province of only four- and five-star hoteliers.

THE WEST

TERMINAL CHANGES
Major construction projects at western airports continue, but in some cases planned additions and expansion are being held off, or even cancelled. Take Denver International—its new, $165-million Number 6 N-S runway is on target for early September. A new check-in module on the east side of the main terminal building also opened in March. But plans for a 500-room Westin airport hotel have been "put on hold," says a spokesman. The same for a planned five-level parking structure on the airport's west end. At Sea-Tac, components of the massive $2.6-billion expansion and modernization project continue as scheduled. In May, new trains on the North Satellite loop started operating. Their arrival coincided with the reopening of the Concourse C train stop. The new trains replaced units in operation for some 30 years.

ROAD WORKS
Look for car-rental companies to provide better convenience in the months ahead. Avis has already introduced Satellite Guidance Systems in some 3,000 vehicles in California and Nevada. Developed through a partnership with Audiovox and Siemans VDO Automotive, Avis uses Global Positioning Satellite (GPS) and Vehicle Speed Sensor (VSS) technology to provide point-to-point driving directions. Avis claims to be the only rental car company featuring VSS technology that allows for accurate calculation of the vehicle's location, even if the GPS signal is lost. Other highlights include audible turn-by-turn directions for safe driving, a large color display with split-screen capabilities to view both the map and directional arrows simultaneously and 1.5 million points of interest. Other features: alternate-route calculation and storage of previous destinations for quicker navigation starts. Vehicles equipped with the system may be rented for an additional cost of $7.95 per day.

SAFE KEEPING
Airports increasingly invest in advanced technology that they hope will enhance security. Sea-Tac is in the process of upgrading its ID cards for employees to "smart card" status. ImageWare, the company providing the system, says it can't divulge the nature of the "specific biometric minutia" that the airport will use. It does say that the system has the ability to collect such information as hand geometry and fingerprints. In the months ahead, look for more and more airports to use similar systems for frequent travelers. One Canadian company, Bioscrypt, Inc., says such a system is planned for London City Airport.

HOTEL RATES
High-end properties are being a bit creative with pricing to generate business. Designed to lure in entertainment-industry execs and legal types in town for protracted trials, the luxury St. Regis Hotel in Los Angeles now offers long-term stays. It has a 30-day minimum stay with a $7,000 tab for the deluxe room (rack rate: $329 per night) and $12,000 for an executive two-room suite. Freebies include local phone calls, parking, fax/printer and morning paper. After the first 30 days, room taxes are waived.

INTERNATIONAL FARE
While the SARS outbreak has decimated trans-Pacific services from the west coast, the trans-Atlantic picture remains less grim, with signs of a return to normalcy. For example, Lufthansa, for the summer, has started a daily nonstop service between LAX and Munich Airport. Service is operated with the 235-seat A340 in three-class configuration. British Airways has weathered the Iraqi storm remarkably well. It didn't lose any services, and starting June 1 it goes to its hefty summer schedule. That means a daily double out of LAX and SFO to Heathrow and a daily flight from Sea-Tac. Most services are operated with the 747. However, a drop in travel to France, blamed on the Iraq War, caused Air France to make a number of schedule adjustments. Because of the war—and just maybe public resentment to France's political stance—the schedule has changed a couple times within a month—first from 17 a week down to 10, then to seven. Now service has been moved back up to 10. Daily service out of SFO remains intact.

THE MIDWEST

HUB REPORT
Of all the airports in the Midwest, why would you look to Akron/Canton as an exemplar of change? Because it serves to illustrate what happens when a low-fare carrier moves into an airport near a major’s hub. The low-fare carrier is AirTran, which now flies from CAK to New York LaGuardia. The major is Continental, which operates a domestic hub at Cleveland.

In the midst of war, in the throes of economic angst, Akron/Canton set a single month boarding record. Fliers were flocking to the Ohio’s alternative airport to catch AirTran to LGA and Atlanta. So concerned about the state of affairs is Continental that CEO Gordon Bethune has suggested that CAK potentially threatens CLE’s status as a Continental hub.

Query: As AirTran adds new Boeing 717s to its fleet this year, could it be planning other routes out of Akron/Canton? If so—and assuming they’re as successful as the LaGuardia run—will this cause Continental to bail out of its hub at Cleveland’s Hopkins International?

COOKIE CUTS?
Remember Midwest Express in its prime? Remember the fabulous food, the wine, the overall ambiance? Well, times change. Perks have been pummeled by the economy. Now called Midwest Airlines, the carrier is cutting costs by charging for food. Breakfast will set you back $7; lunch or dinner sells for $10. One saving grace: the carrier’s signature, baked-on-board chocolate chip cookies, continue to be free.

Northwest, with hubs in Detroit and Minneapolis/St. Paul, has been hit hard by SARS. Much of its high-ticket business travel was to Asia, especially China. Still, analysts project it as an ultimate survivor in the tumult that’s rocking the industry.

The rebirth of Chicago Midway proceeds apace. Hands down, it’s the best low-fare airport in the country. Southwest, American Trans Air and AirTran have rendered the postage-stamp airport a favorite of Chicagoland business fliers, especially those looking for in-and-out day trips. Latest evidence of why MDW rates all the kudos: five new Southwest Airlines gates have opened on Concourse B. They’re a far sight better than the digs WN used to occupy. Officials expect B to be complete by December, raising the total number of new gates at the Windy City’s “other airport” to 34.

THE WHOLE PACKAGE
Detroit Metropolitan Airport is Northwest’s prime Asian gateway. Fliers connecting to the carrier’s vast domestic network might do well to break their trip (Jet lag can be a profoundly nasty beast after 14 hours aloft.) and book a room with a view at DTW’s magnificent new Westin hotel. It’s a nice adjunct to the airline’s new WorldGateway complex. The 400-room hotel is an $85.1-million affair, and it’s located within the terminal proper. This Westin features a business center, 25,000 square feet of flexible meeting space and a 7,600-square-foot ballroom. It’s the package that demarks one airport from another—airline, terminal, runway layout, hotels. After years as a laughing stock, DTW is downright dominant.

THE SOUTHWEST

DELTA’S REMAKE
Once Delta’s second largest hub, the airline relegated its Dallas/Fort Worth operation to tertiary status in the 1990s. American Airlines’ “Based Here, Best Here” effort put DL in perpetual catch-up mode. In a bold move, Delta decided late last year to remake DFW as a regional jet hub, replacing a slew of mainline jets with 50-seat Canadairs. What this is allowing Delta and Delta Connection to do is actually improve service to a number of cities—especially in the southeast—out of DFW. The result: more flight frequencies and connections.

BRIGHT HORIZONS, FOR SOME
Phoenix is one of the lowest-fare airports in the country now that hometown America West is billing itself as “the country’s second largest low-fare airline.” The largest, of course, is Southwest. Between them, WN and HP control the lion’s share of the traffic out of Sky Harbor International. Southwest is as solid an airline as exists. Recent management moves at America West brighten that carrier’s long-term prospects. Between them, Southwest and America West put Phoenix in the position of being the new pricing paradigm for commercial aviation in this country.

The two airlines based in Texas—American and Continental—are in trouble. American’s fall from grace has been precipitous. As this story went to press, there were rumors of possible top-management changes. Continental’s theory of maintaining perks for fliers while competitors were axing them hasn’t worked terribly well—at least from a bottom-line perspective. During the first quarter of 2000, almost half its business consisted of business fliers. By the first quarter of 2003, that had fallen to 34.4 percent. Could that presage a change in Bethune’s philosophy of keeping airport clubs open and maintaining in-flight amenities?

The third Texas-based airline, Southwest, continues to make money—although not nearly as much as before. Forget about cutting back on amenities. They never existed. Frequent Flyer’s only real gripe: They did away with raisins as an in-flight goody. Look for the airline to connect more of the dots on its existing route map rather than engage in aggressive expansion.

FROM WORST TO BEST
Here’s a Tale of Two Airports. Wasn’t that long ago that Dallas Love Field was busting at the seams. The Wright Amendment, which circumscribed commercial air service out of DAL, had been effectively modified. Legend Airlines occupied a nifty new terminal across the field. American had moved into a new enclave in the main terminal and Delta Connection was flying to Atlanta. Now, only Southwest and Continental remain—Southwest in force, Continental Express only in token.

It’s downstate, at Houston Hobby, where the action is. The first six gates of HOU’s 24-gate Central Concourse are now open for business. Southwest Airlines is the tenant. The Central Concourse is part of a $500-million makeover. When all the dust settles, HOU will sport 806,000 square feet of new terminal space and 36 new gates. Twenty-four of them will be in the Central Concourse, the remaining 12 in an East Concourse. What was arguably one of the worst airports in the country is primed to become one of the best.

THE OTHER SOUTHWEST
Want to know perhaps the best way to get to Mexico from the United States? Try flying via Houston’s Bush Intercontinental, specifically via Continental and Continental Express. This December, Continental Express will start flying IAH-Manzanillo. Nothing special about the route per se. But what it does is give CO 22 destinations in Mexico, served by more than 300 weekly departures. IAH bespeaks the success of the North American Free Trade Act (NAFTA) and highlights the tremendous ties that bind Mexico to the Southwestern United States.

THE SOUTH

MAJOR TAKEOVER
Call it the “second siege of Atlanta.” The Yankees are at the gates. The Yankees come from New York, in the form of JetBlue. The low-fare carrier is ending Delta’s virtual monopoly on nonstop service to the Los Angeles area, with new service from Hartsfield to Long Beach. Hometown carrier Delta is besieged from another angle. AirTran—once an east-of-the-Mississippi airline-—is forging new routes to Denver, Las Vegas and LAX.

JetBlue may have gotten more of the press, but it’s AirTran’s new West Coast routes that pose the greatest threat to Delta’s dominance. That’s because JetBlue is “sterile” at Atlanta. Its Long Beach route doesn’t connect to anything. AirTran, on the other hand, has an extensive (and growing) route structure. The low-fare wünderkind is light years removed from the days when it was called ValuJet—new airplanes, new management, new fliers. As AirTran acquires new longer-range aircraft (perhaps A319s or 737-700s) look for the carrier to launch new West Coast routes out of ATL.

Delta’s survival strategy is two-fold: first, to shift as many routes as possible to smaller, more economical regional jets. (Witness what’s happened between Atlanta and JFK.) Second, the carrier has repainted a number of its 757s in a new livery, converting them to lime-green, all-coach, pay-for-frills conveyances. The line is called Song, and the idea is to drive down costs.

MIAMI NICE
Once upon a time, Miami International was a must to avoid—unless you were transiting to Latin America. That is changing. $2.5 billion worth of work is going on at MIA, with another $1.3 billion in the design, bid and award phase.

MIA is improving before our eyes, North and South Terminal development projects promise shorter connect times and co-location of airline alliance partners. A badly needed 8,600-foot runway should curb congestion at this country’s gateway to Latin America, and a Central Collection Plaza will ease the vehicular flow in the parking garages. When the dust clears, fliers might change their opinion of the place.

THE NORTHEAST

LOW-FARE DOMINANCE
JetBlue continues to re-engineer the way New Yorkers travel to the West Coast. JFK-Oakland, JFK-Long Beach and (just announced) JFK-San Diego are setting the tempo. Out of Washington, D.C., BWI and Dulles are the hot launch pads. JetBlue is making converts of United fliers between Dulles and the L.A. Basin, specifically Long Beach. Meanwhile, Southwest followed its successful BWI-Los Angeles International service with nonstop BWI-Oakland flights. In all fairness, we’ve got to point out that neither JetBlue nor Southwest offer real meals en route. You’re going to fly coach on these guys, anyway you cut it. Still, the contention by industry pundits, a few short years ago, that frequent fliers would never put up with low-fare carriers on 5 1/2 hour flights seems to have been blown out of the sky.

COMPETITIVE MOVES

The East Coast establishment has reacted to the incursions of cheaper-seat carriers by changing (at least to some degree) the way they operate. First Delta. Pounded by competition, embarrassed by executive pay in a time of unprecedented peril, the carrier is turning to regional jets for salvation—regional jets and a “Song.”

Once merely “feeder” craft, DL has dispersed Delta Connection RJs on once mainline routes between places such as JFK and Atlanta. They’re cheaper to operate and the carrier can offer decent frequency on key routes.

On the other end of the spectrum, Delta took a bunch of 757-200s from its mainline fleet, painted them lime green and threw them into the intensely competitive New York-Florida market. The effort is called “Song,” and Delta hopes it has the notes right. Song’s all-coach seven-fives are fitted with all sorts of entertainment gear, and neat eats, but for a price. You pay for the extras on this airline.

US Airways may, just may, be on the verge of stability. Now that it’s emerged from Chapter 11 Bankruptcy, the Retirement Systems of Alabama has a big say in running the carrier. The airline’s new strategy relies heavily on regional jets, connecting New York LaGuardia nonstop to the likes of Chattanooga and Birmingham.

LaGuardia and Reagan Washington National continue to be US Airways’ strongholds. Philadelphia International is the carrier’s prime transatlantic gateway. In a departure from the past, the airline is loading up on Caribbean routes. That boosts its leisure traffic, an increasingly important component of its business plan.

In testament to how far the airline has come, US Airways ranked first in the Airline Quality rating, an annual effort undertaken by the University of Nebraska and Wichita State University. The study tracks four criteria: on-time arrivals, mishandled baggage, customer complaints and denied boarding.

JetBlue and US Airways are both expected to place major orders for new airplanes. With JetBlue, that means expansion out of the carrier’s JFK base. It’s ordering a slew of new A320s. For US Airways, the action translates into a fleet of new regional jets. They’re cheaper to operate than mainline craft. That gives US a fighting chance of re-establishing itself as a power player.

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