American gets in shape for fight with AirTran
By Mitchell Schnurman
Star-Telegram Staff Writer
American Airlines has some of its swagger back, and just in time.
"We're through retreating," Chief Executive Gerard Arpey said last week, after a year marked by deep cost-cutting and threats of bankruptcy.
That's good to hear, because low-cost competitor AirTran Airways is getting rowdy in American's back yard at Dallas/Fort Worth Airport.
This is the reason that American went through the pain of restructuring: So it could compete with the discounters that are gobbling up market share.
Now its new business model -- leaner and supposedly more efficient -- gets a test in its hometown.
Are the cuts deep enough? Is the brand name worth enough?
For years, American has been under assault in most of its network. But its fortress hub at D/FW has been, well, pretty much a fortress. Impenetrable.
Now AirTran, an Orlando, Fla., discounter, has begun an expansion there. AirTran has long flown from D/FW to Atlanta, but it added nonstop service to Orlando last month; it's adding Baltimore next week and Las Vegas in February.
The smart money is betting that Los Angeles will join the itinerary soon.
The competition is already heating up, lowering fares for a region with some of the country's highest ticket prices.
For AirTran, this is a bold move, considering how American vanquished others that ventured onto its home turf.
Remember Vanguard, Legacy, Sun Jet, and Western Pacific? They challenged American in North Texas, and all were driven out of business.
American matched their fares, offered more flights, touted its frequent-flier program and bet on its brand name. That was more than enough then.
But AirTran is much different than the others and won't be easily dislodged. It has strong financials and a management team that has already proved its mettle against Delta, another large legacy carrier.
American may not have the deep pockets of past years. But the stakes are so high at D/FW that it has to take a stand, regardless of the costs.
One airline consultant, Scott Hamilton, called the showdown, "American's battle of the Alamo," with American trying to hold discounters at bay.
Not that anyone expects AirTran to unseat American as the No. 1 carrier. The question is what AirTran will do to American's bottom line.
AirTran usually drives down fares by almost 50 percent, and we've seen that already on tickets to Orlando, Baltimore and Vegas. AirTran could significantly cut into American's profits, as it has with Delta in Atlanta, and as Frontier has done with United in Denver.
American dominates traffic at D/FW, its most profitable hub, and enjoys a big premium on fares. It's vital to match fares and keep its customers, even if some flights lose money.
In some cities, American will walk away from business that's not economical. Not D/FW, where American doesn't want to give competitors any foothold, much less a reason to expand faster.
Delta is countering low-cost carriers with a discount airline within an airline, an upstart called Song. American's plan is to cut costs across the network -- a process that's still under way -- and then use its strengths to generate more revenue.
The strategy was evident in a Tuesday newspaper ad. American emphasized low fares, lots of flights, double the number of frequent-flier miles and the airline's cachet. Then it listed fares to three cities, all served by AirTran.
American has a huge edge on frequency, according to Bestfares.com: twice as many daily nonstops to Atlanta; nine to one to Orlando; seven to one to Baltimore; 10 to two to Las Vegas.
Eventually, AirTran will add flights, after it opens three more gates in January. But American will probably always have the edge in frequency.
That's one reason, said airline consultant Mike Boyd, that American will hold its ground, and he predicts that AirTran will be a minor player here.
Maybe, but in other markets, airfare wars have attracted more passengers, growing the pie. Ultimately, it was the discounters that gained the most ground.
That's a long-term trend that's hard to stop, said consultant Stuart Klaskin, even at an airline's fortress hub.
"A win for American is not too bad a loss," he said.
Mitchell Schnurman's column appears Wednesdays and Sundays. (817) 390-7821 email@example.com