"Discount airlines' success might limit BWI's growth"

Sunday, November 14, 2004

Discount airlines' success might limit BWI's growth
Letdown: Attracting more airlines is getting harder with rival airports
beckoning to the low-fare carriers. 
By Meredith Cohn
The Baltimore (MD) Sun


In the past decade, Southwest Airlines and a handful of small followers have
turned a sleepy Baltimore-Washington International Airport into a low-cost
powerhouse and the envy of other airports. 

But when Southwest moves into a state-financed $264 million terminal of its
own next year, the airline that so pleases the airport and its
budget-conscious travelers might hamper BWI's efforts to lure other carriers
that could bring new services, destinations and income. 

The industry is not widely expanding in the face of overwhelming financial
woes resulting from fuel and labor costs, and a decline in big-spending
business travelers. And the gold rush that brought Southwest, AirTran
Airways and others to BWI has spread to other airports, where low-fare
carriers hope to find a new niche. 

"We're not avoiding competition with Southwest, but we're looking at where
fares are still high," said Gareth Edmondson-Jones, a spokesman for JetBlue
Airways Corp., the industry's newest low-cost darling with its leather seats
and televisions. 

The slowdown in growth at a mature BWI will affect all kinds of service. The
airport probably won't get more low-fare carriers that travel to the
nation's biggest cities and offer first-class amenities that set them apart
from Southwest. 

International service is expected to expand even more slowly, despite a $140
million terminal that opened in 1997 to accommodate more overseas flights.
Ghana Airways recently was shut down, and Aer Lingus has said it will
suspend service in the winter, and possibly longer, shrinking the number of
international carriers at BWI to six. 

At the same time, BWI faces new threats to its regional market share from
Washington and Philadelphia airports, which have also landed low-cost
airlines. 

"There has been a real demand for low fares, and what low-fare carriers have
tended to do is grow into the available capacity at airports," said Robert
Mann, president of R.W. Mann & Co. Inc., a Port Washington, N.Y., airline
industry analysis and consulting company. 

"At BWI, Southwest and a few others have done that. The issue now is
Southwest has outgrown the space it has, and BWI had to do something or risk
strangling the one thing keeping it going." 

So, BWI is expanding its terminal to allow Southwest to grow, but the
airline will leave eight empty gates that Mann and other analysts say might
be only partially filled by other healthy low-cost airlines serving BWI. 

A small amount of growth could come from major airlines that shift airplanes
as they undo their traditional hub-and-spoke networks in favor of more
point-to-point flights. But the rate of growth will be nothing compared with
the rapid expansion of Southwest, which surpassed US Airways as the dominant
carrier at BWI in 1999. 

Jonathan Dean, a BWI spokesman, said airport and Wall Street officials worry
when an airline takes over 70 percent of the service in a city the majority
of travelers are passing through rather than coming to or from that city.
Southwest is just nearing half the market share at BWI. 

"Southwest clearly changed BWI forever," Dean said. "That's the Southwest
effect. But BWI offers a healthy level of competition. ... Some airlines
have already said they plan more service here. And the airport is
consistently working with all its current airlines, as well as others, to
boost service." 

Carriers now at the airport have confirmed that they will expand in
Baltimore. They include low-cost airlines AirTran, the airport's No. 2
carrier, which flies directly to big cities that Southwest doesn't serve,
and USA 3000, which flies to some international cities not served by
Southwest. US Airways, a major carrier operating under bankruptcy
protection, said it will move a few flights to BWI as it shifts its
airplanes around in its reorganization. 

AirTran's executives say they feel no pressure to move quickly at Baltimore
because space will be readily available. The more urgent focus for that
airline and others has shifted to airports such as Chicago's Midway, where
ATA Airlines recently agreed to give up its hub after filing for bankruptcy
protection. 

AirTran is ATA's choice to take over 14 gates there and a smaller number of
gates at New York's LaGuardia Airport and Washington's Reagan National
Airport. But Southwest, which announced new flights for Chicago last month
in response to the ATA developments, and other airlines have expressed
interest. 

"There is plenty of room to grow in Baltimore, but in Chicago this is it,"
said Stan Gadek, AirTran's chief financial officer. 

Southwest has much the same attitude about BWI. In the spring it will begin
to move into its new terminal space, where it will have room to grow from
163 daily flights to more than 200, but the airline has not said how fast it
plans to add service. The number of Southwest gates at BWI will increase
from 21 to 26, with room for five more. 

Because of Southwest's size, that means much of the flights and amenities
offered by the airport will be up to the airline. 

Southwest does not offer meals, posh hospitality suites or assigned seats,
although officials said recently they are reconsidering the seating policy.
The airline does not have first-class or business-class sections and doesn't
fly directly to most large cities. 

Further, analysts say there is excess capacity in the Northeast, so
Southwest and other airlines will have to slow their growth at the airports
they serve or add to their networks cities that are under-served. 

Southwest has said it will add service, but to only one city in the next
year. It will continue to identify airports that, like BWI, are near large
populations but not so crowded as to slow the quick turnaround time that has
allowed Southwest to keep its planes in the air and making money. 

"It has to fit into our business model," said Whitney Eichinger, a Southwest
spokeswoman. "It has to be overpriced and under-served. We look at landing
fees and the radius to pull customers." 

Southwest has a history of moving swiftly into airports, pushing high-cost
airlines out and keeping others from moving in. 

The airline passed over airports in Washington and Philadelphia in 1993 to
move into BWI. But more than a decade later it started service at
Philadelphia International Airport when others started looking there, even
though the move could siphon off some of its business in Baltimore. 

Southwest officials said they are near capacity in Philadelphia and would be
interested in the 20 to 25 gates controlled there by US Airways if that
carrier surrenders them. 

"The country wants low-cost carriers," said Chris Chiames, senior vice
president of corporate affairs at US Airways, who added that the airline
will compete with Southwest by matching its low fares. "How we exist
together remains to be seen." 

Airports, which are largely owned by states and municipalities, have a stake
in keeping their carriers as long as possible, their managers say. They want
to provide service. They also want to protect jobs and revenue from gate
fees and the spinoff economic development for the region. 

The total annual economic impact from BWI, according to a report last year,
exceeded $5.6 billion in 2002 and is bound to grow with Southwest's
expansion. 

Business neighbors are thrilled about the posh new terminal, which will not
only entrench Southwest here but also offer modern baggage handling and
security gates, as well as a new food court and shops. 

"The ability of this new terminal to increase Southwest capacity here is a
boon to the economic development of this region and to the state in
general," said Samuel F. Heffner, board chairman for the business membership
association BWI Business Partnership Inc. and a principal at Heffner & Weber
Cos., a real estate business. 

Keeping airlines happy and growing is important to BWI and other airports.
Some have stopped practices irksome to airlines, such as charging them more
in gate fees when another airline leaves the airport. Others have expanded
or improved their terminals. 

Dallas-Fort Worth International Airport is undergoing $2.7 billion in
capital improvements. The work began before it was known that Delta Air
Lines would dismantle its hub at the airport in coming months, but officials
say they don't regret the expansion, that they hope to land JetBlue or
Southwest. 

"Most airports are finding ways to adapt to the ever-changing environment,"
said Kevin Cox, chief operating officer at Dallas-Fort Worth International.
"If you sit on your hands and assume everything will be OK, you'll be in
trouble." 

BWI agrees and plans to improve the outside condition of the gates that
Southwest will leave behind on an older concourse rather than try to sell
outdated space to another carrier. That will give BWI more time to find
replacements, Dean said. 

"Southwest won't be completely out of its space until the end of 2005," he
said. "This [gate renovation] project would take about two years to
complete."


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