• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Low-Cost Carriers Poised to Reap Benefits From Delta Bankruptcy

Posted on: Monday, 19 September 2005, 15:00 CDT

Southwest Airlines Co., AirTran Holdings Inc., JetBlue Airways Corp. and other growing low-cost carriers are poised to benefit as Delta Air Lines Inc. and Northwest Airlines Corp. reduce flights in bankruptcy.

"Airlines like Southwest are going to be opportunistic and go in where there is a cut in capacity," said Michael Miller of Velocity Group, a Washington-based aviation consulting firm. "Southwest is waiting in the wings and AirTran, I'm sure, is waiting in the wings to do the same thing in Atlanta."

Discount carriers now have a chance to pick up passengers and market share in cities where the bankrupt carriers reduce service. Low-cost airlines hold about 30 percent of the U.S. air-travel market. Delta, the third-largest U.S. airline, and No. 4 Northwest both filed for bankruptcy protection last week, battered in part by low fares charged by the discount carriers.

AirTran, based in Orlando, Fla., shares the most routes with Delta, including direct competition in Delta's home base in Atlanta. Dallas-based Southwest, the largest low-fare airline, and JetBlue, based in New York, face off against Delta primarily along the East Coast and the northeast U.S.

"Depending on what happens, we may alter our growth plan," AirTran President Robert Fornaro said in an interview Thursday. "The change at Delta will mostly help us on the East Coast."

With Delta and Northwest now bankrupt, four of the seven biggest U.S. carriers are under court supervision, representing about 50 percent of U.S. airline capacity. The two companies joined US Airways Group Inc. and UAL Corp.'s United Airlines in Chapter 11 protection.

The shares of some of the discount carriers have risen since the bankruptcies, with JetBlue gaining 1.4 percent over the past two trading days, and Southwest up 7 percent.

Delta said it would reduce its fleet of planes by removing four aircraft types, fly smaller jets on some routes, adjust flying from its hub airports and increase international flights. The airline may shrink more than 15 percent, said Ray Neidl, a Calyon Securities USA analyst in New York.

Northwest told its pilots this week it will reduce flying hours by 13 percent. The carrier, based in Eagan, Minn., is likely to cut service on routes where it flies older, less fuel-efficient planes, said Helane Becker, a Benchmark Co. securities analyst in New York.

In bankruptcy papers filed in New York on Sept. 14, Northwest said it was seeking to immediately eliminate 13 planes it's not currently using. It may get rid of about another 100 if it can't negotiate lower lease rates.

The changes may benefit discount carriers that serve the U.S. Midwest, such as Frontier Airlines Inc., Spirit Airlines Inc. and ATA Holdings Corp., given the overlap of their routes with Northwest. ATA Holdings filed for bankruptcy last year and later created a marketing alliance with Southwest.

A smaller Northwest will mainly benefit UAL Corp.'s United Airlines and AMR Corp.'s American Airlines, Merrill Lynch analyst Michael Linenberg said in a report Thursday, without providing details. United is also a major competitor in the U.S. Midwest, with airport bases in Chicago and Denver.

Southwest is increasing capacity 11 percent this year and as much as 8 percent next year. AirTran will grow by 30 percent this year and 20 to 25 percent each of the next three years, Fornaro said. New York-based JetBlue plans to expand as much as 28 percent this year.

"What we're seeing here is the low-fare carriers are steadily gaining market share and, in this process, it seems likely that will continue," said David Swierenga, president of AeroEcon, a Vienna, Va., consulting firm.

Any reduction in capacity by Delta may prompt AirTran to increase flights or add connections on some routes, Fornaro said. "I don't think the actions of Delta will really impact whether we open a new city or not," he said.

Other beneficiaries may be US Airways and Continental Airlines Inc., Linenberg said.

Contributing: John Hughes; Lynne Marek

Source: Deseret News (Salt Lake City)

More News in this Category