"Low-fare airlines setting their sights on overseas routes"

Wednesday, August 18, 2004

Flying farther for less 
Low-fare airlines setting their sights on overseas routes 
By David Armstrong
The San Francisco (CA) Chronicle


Low-cost carriers, flying new planes and featuring low fares, have
already grabbed about 25 percent of the U.S. domestic air travel market
from established mainline carriers. Now, they are planning to offer
expanded international service, hoping to grow even more -- again,
largely at the expense of older, long-established airlines. 

Figuring that if they can't beat 'em, they should join 'em, United
Airlines' low-fare unit, Ted, will also be getting in on the act. Ted
plans to launch a new flight from San Francisco International Airport to
Puerto Vallarta, Mexico, on Dec. 18. 

In an even more ambitious move, Virgin Blue, a low-cost carrier in
Australia linked to Richard Branson, founder of Virgin Atlantic Airways,
said last month that it is considering starting service between
Australia and the West Coast. Branson is also the creator and minority
owner of Virgin America, a low-fare startup that plans to base its
operational headquarters in San Francisco when it begins flying sometime
next year. 

Moreover, the Indianapolis low-cost carrier ATA Airlines said it plans
to begin flying to several as yet unnamed European cities from its hub
at Chicago's Midway airport by next summer. ATA's senior vice president
for marketing and sales, John Happ, said ATA's European flights will
have both economy class and a newly created business class. If the
low-cost carriers succeed beyond U.S. borders, they could offer big
savings and multiple travel choices to passengers, airline experts say. 

But this growth strategy may only go so far without significant upgrades
in service, experts say. For one thing, the crimped food service and
cramped seats that work fine on two-hour domestic flights might not be
welcomed on 10- hour flights across the Pacific to Asia or over the
Atlantic to Europe. 

"Low-cost carriers are realizing that people want service, and not just
a dried-up turkey sandwich,'' said Terry Trippler, a consumer advocate
for SideStep, a travelers' search engine on the Internet. "No-frills is
OK for a point-to-point domestic flight, even a transcontinental, but on
a flight from San Francisco across the Pacific? I don't think it would
cut it.'' 

Bigger planes for long-haul service, a greater need for expensive fuel,
prying loose prized landing rights at major international airports and
the expensive in-flight entertainment systems and full meals expected by
world travelers could all raise costs significantly. Even the low-fare
leader Southwest Airlines -- the most highly valued airline in the
world, with a market capitalization of $11.5 billion -- has so far
stayed out of international markets. 

However, discounters commonly fly international routes in Europe, where
nations are small and close together, and discounters are beginning to
fly throughout Southeast Asia. Singapore Airlines, for instance, has
taken a 49 percent stake in Tiger Air, a new, Singapore low-cost
airline. 

Taking note of this, U.S. discounters -- which keep fares low by flying
new, fuel-efficient airplanes, using staff often paid less than workers
at mainline carriers and flying one type of aircraft to hold down
maintenance costs -- are increasingly looking beyond the border for new
business. 

So far, low-cost carriers are nibbling around the edges of the
international market, concentrating on flying to sun-and-fun holiday
destinations or to places with cultural, ethnic and commercial links to
their home bases. 

JetBlue Airways, for example, flies between its hub at New York's John
F. Kennedy International Airport and several resort cities in Mexico, as
well as to the Dominican Republic and Puerto Rico, home countries of
many Latino New Yorkers. 

ATA flies between SFO and Puerto Vallarta, a service it markets mainly
to vacationers. United's low-fare unit, Ted, will compete with ATA for
Bay Area passengers on that route come December. 

"San Francisco is really playing a key role in Ted,'' said Sean Donohue,
United vice president in charge of Ted, which began service in February
and uses a fleet of 45 Airbus 320s that were reconfigured from three
classes into two -- premium economy and coach -- for Ted travelers.
Ted's Mexico service, he said, will be marketed to "fare-sensitive
leisure travelers.'' 

Critics have complained that, even before the start of Ted's low-cost
service on its domestic routes, the low-fare unit might cannibalize the
revenue of its full-fare parent, if both fly on the same route. 

That isn't the case in San Francisco. Ted's planned fall service to
Puerto Vallarta isn't something United Airlines offers to full-fare
passengers. 

After its first six months aloft, Ted is bringing in enough passengers
to fill percentages in the high 80s of its seats, as compared with the
low to mid- 80s for the larger carrier. The main United division has
been in Chapter 11 bankruptcy protection since 2002 and is looking for a
boost in revenue. 

Ted, said Donohue, is likely to fly to other international destinations,
perhaps by next year. These will probably also be resorts and vacation
spots. The Caribbean, Donohue said, is a possible destination. 

"In terms of transpacific or transatlantic, I don't see Ted flying those
routes,'' he said. For one thing, United wants to fly a single type of
aircraft, to contain costs and retain fleet simplicity, and the A320,
with a maximum range of 2,500 miles, can't cross the Atlantic, let alone
the Pacific, nonstop. 

For another, Donohue said he doesn't think long-haul passengers would
like the pared-down service typically offered on LCCs in return for
cheap seats. 

Rightly or wrongly, the major network carriers who dominate long-haul
international routes think the same thing. 

"The no-frills thing is OK if you're flying just an hour or two,'' said
Tom Fredo, a spokesman for All Nippon Airways, which operates a daily
nine- or 10-hour flight between SFO and Tokyo. "But on a nine-hour
flight, you don't want somebody saying, 'Here you go, here's a bag of
peanuts.' " 

Cheap overseas flights 

Low-cost carriers are increasingly adding flights to sun and fun
destinations, some of them international, as they consider new ways to
expand. 

Here are some international routes presently served or planned by low-
cost carriers.. 

Ted (United Airlines' discount unit): 

Will begin service from San Francisco International Airport to Puerto
Vallarta, Mexico in mid-December. $159.. 

JetBlue Airways: 

New York (John F. Kennedy International Airport) to Santo Domingo,
Dominican Republic, for $99 and to San Juan, Puerto Rico, for $69.. 

ATA Airlines: 

>From San Francisco International Airport to Cancun, Mexico, for $204.. 

America West Airlines: 

>From Oakland International Airport to Mazatlan, Mexico, for $231.. 

Fares are one-way, booked on airline Web sites, for travel on Sept. 18


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