Friendlier Skies

Ste

phen Kulakowski sat in the boarding area at Boston's Logan International Airport earlier this month, waiting for his JetBlue flight to Orlando and looking apprehensive. It was only the fourth airplane trip for the 19-year-old college freshman. But what really worried him was the suspiciously low one-way ticket — priced at $92.60--on an airline he had barely heard of. By the time he landed in Florida, the experience on board had left him wanting to fly again. "The flight attendants greeted everyone, the leather seats made it feel like first class and the satellite TVs were great. I thought the flight had been fast forwarded," said Kulakowski.

That's just the kind of glowing report that has major airlines fighting for their lives. Low-fare carriers are no longer simply competing on ticket price, they are also raising the bar with the services they offer. While the Big Six airlines (American, Delta, Continental, Northwest, United and US Airways) struggle with high costs and dissatisfied passengers, small, low-cost airlines like JetBlue, AirTran, Frontier and Spirit have learned to please customers, make money and grab market share, all at the same time. They have become major players in the industry. Low-fare carriers, including pioneer Southwest Airlines and the improved America West, account for 30% of the market, compared with just 5% a decade ago.

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The Big Six are desperately trying to adapt to the new rules of the marketplace. They are striving to match the smaller airlines' fares, and American and Delta just started giving away tickets to counter JetBlue's recent expansion. But the most dramatic escalation of the air war is the creation of two totally new airlines. Next month United, which has been in bankruptcy since December 2002, plans to start flying its own knock-off low-fare airline called Ted. Flying initially from Denver to Las Vegas and Fort Lauderdale, it will offer customers a multichannel entertainment system called Ted TV. Ted is aimed squarely at Frontier, the low-cost airline that has eaten away at United's dominance in flights out of Denver. Frontier accounts for 16% of that airport's passengers, up from 8% five years ago. Last year Delta created Song, a brightly colored, all-coach carrier, with a sassy marketing style, that flies lots of leisure routes to cities like West Palm Beach, Fla., and Las Vegas. Song is targeted at JetBlue, which has most of its flights on the East Coast. But even as United and Delta try to reach down to compete in the low-fare arena, that market has been changing radically.

Though Southwest actually created the no-frills, low-fare business model 30 years ago, the new-generation carriers have transformed the perception of cheap airlines. Price clearly still matters: airfares are on average 50% lower than they were 25 years ago, allowing for inflation, according to AirlineForecasts, an industry research firm. But passengers also expect better service — even if they do have to bring their own food. JetBlue, which started flying four years ago from its New York base, was the game changer. Its spanking new Airbus jets, live satellite TV and consumer-friendly policy of never bumping a passenger have significantly raised customer expectations of low-fare carriers. Its clever marketing campaign drew passengers who in the past might have shunned off-brand airlines. Indeed, the densest concentration of JetBlue passengers can be found in Manhattan's affluent Upper East Side. The airline, which has 214 flights to 22 cities and carried 9 million passengers last year, is likely to qualify as a major airline this summer when its revenues are projected to top the $1 billion threshold. But Wall Street analysts have begun to wonder if JetBlue can handle its rapid growth and new competition: its stock price is down to $25 from a high of $47 last fall. Denver-based Frontier, which flies mainly new Airbus planes to its 42 destinations, carried more than 5 million passengers last year, up 37% from the year before. It added Los Angeles last month as its second major airport base, and in the spring will start point-to-point service to Minneapolis, Minn., and to Kansas City and St. Louis, Mo.

The new entrants from United and Delta face a difficult battle against this latest generation of low-cost carriers. Major airlines have tried many times in the past to start an airline within an airline to compete against low-cost competitors. All such attempts have failed. United and Delta are trying again, a sign that they realize their financial problems will not be solved simply by getting over the post-9/11 travel slump and the recent recession. "We know which way the industry is going — towards quality, low-cost carriers," says John Selvaggio, the head of Song. "We had to play both defense and offense." Song's fares are competitive, the TV and music offerings that the company is installing on board are enticing, and the flight attendants have apparently been encouraged to shed the stoic professionalism of mainline Delta Air Lines and put on an irreverent face. On a recent Song trip, a flight attendant asked over the p.a. system, "Can I have your attention?" As travelers looked up from their video screens and newspapers, she proceeded to ask for a man by name and told him to stand in the aisle. "Mike is single, 26 and looking for a good woman," she chirped, leaving passengers to wonder if they were on an airplane flight or in a bar at spring break. More disconcerting are Song's plane interiors, which are blue accented with orange and a green that appears to be of Soviet vintage. And while the food is tasty — Asian chicken salad, turkey focaccia — you have to pay for it.