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Southwest Airlines Returns to Denver After 20-Year Absence

Posted on: Friday, 21 October 2005, 18:00 CDT

By Kelly Yamanouchi, The Denver Post

Oct. 21--Low-cost carrier Southwest Airlines will start flying into Denver early next year, challenging United Airlines and Denver- based Frontier Airlines and likely bringing lower airfares to Denver travelers.

"It's going to be great for Colorado consumers," said Colorado Gov. Bill Owens. "And it says DIA has become an essential part of the nation's transportation network." The announcement is a coup for Denver International Airport and for local officials, who have chased Southwest for years.

The carrier is known for low fares and cattle-call open seating. It also has been known as the airline that refused to fly into DIA.

Southwest had shied away from flying into DIA because it was too expensive, charging airlines about $20 per passenger in its early years.

Southwest's decision to return to Denver after a 20-year absence was influenced by drastically lower airport costs, United's flight cutbacks and Hurricane Katrina.

DIA has significantly reduced its costs in the past few years by increasing revenue from sources other than airlines, such as concessions, parking fees, car rentals and farming. Southwest's potential cost per passenger has now declined to less than $9, said Southwest chief executive Gary Kelly.

At the same time, bankrupt United has reduced its flights to DIA.

"We are expanding at a time when the airline industry is finally beginning to shrink and consolidate," Kelly said. "Denver is an example of one that is going through a transformation and certainly presents us a good opportunity at this point." And after Katrina hit New Orleans, Southwest cut back its flights there, leaving planes available for other uses.

Southwest could be starting with nine to 14 daily flights from Denver, based on past examples, said Southwest spokeswoman Whitney Eichinger. Details about flights and routes will be released next week.

Kelly said only that the airline will start with a modest number of flights but eventually could have more than 38 daily departures at Denver.

"A lot of that, of course, will depend on the competitive landscape in Denver, but the opportunity is there," he said, adding that Southwest customers often request flights to Denver.

Southwest probably will occupy two gates on Concourse C at DIA, according to DIA spokesman Chuck Cannon. Two other gates on the concourse also may have some room for a few Southwest flights.

"It's going to make life difficult for Frontier," said Robert Mann, consultant with R.W. Mann & Co.

Between 97 percent and 98 percent of Frontier's flights begin or end in Denver.

Frontier's stock price fell 28.6 percent to $7.68 Thursday after the downgrade of its shares as a result of the Southwest announcement. According to a Merrill Lynch research report, analyst Michael Linenberg lowered his rating on Frontier to "sell" from "buy," saying Southwest's entrance could be a formidable competitive challenge for Frontier.

"This certainly isn't good news for Frontier," said aviation expert Darryl Jenkins. "Southwest has the tendency to win battles (with) exceptionally good service, exceptionally low fares, good on-time performance." But Evergreen-based aviation consultant Mike Boyd warned not to discount the strengths of United and Frontier. United offers assigned seats, a movie and in some cases more leg room, while Frontier offers assigned seats, in-flight TV and movies.

"It's a challenge for Frontier and United, but I think they're up to it," said Owens.

Frontier spokesman Joe Hodas said that in any "comparison of our product with Southwest's, ours shines really well -- comfortable seats, new aircraft, DirecTV, a great frequent-flier program." And Frontier employees have developed customer loyalty, he said: "We are Denver's hometown carrier, and I think we've created a pretty strong relationship with people here."

Hodas said Frontier already competes against Southwest on hundreds of "city pairs" such as Los Angeles to Kansas City, which Frontier connects through Denver.

Southwest Airlines reported third-quarter 2005 earnings of $227 million, or 28 cents per share, compared with $119 million for the third quarter of 2004, or 15 cents per share.

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Source: The Denver Post

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