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Room to grow for low-cost carriers; challenges loom for newbies
07/05/2006
By Andrew Compart, Travel Weekly

MIAMI -- There is plenty of room for more low-cost carriers in the U.S., according to an industry consultant and airline aspirant at a low-cost carrier conference here. That proposition may soon be tested by several proposed airlines.

All of them, however, face serious challenges in getting off the ground and making their business plans work.

Discussions of the new entrants and their prospects came during panels and insider chatter at the World Low Cost Airlines Congress-Americas here on June 27 and 28. The conference was a regional version of the third global World Low Cost Airlines Congress that will take place this September in London.

The global conference, which attracted about 600 participants and 100 airlines in just its second year, reflected the growing presence and influence of low-cost carriers around the world. Their numbers have been booming in Asia and especially Europe, so much so that Europe is widely considered oversaturated and due for some weeding out of the weaker entries.

The U.S. market has been more stable and less dynamic. The only new low-cost, low-fare carriers recently have been Independence Air, which flopped financially, and Mesa Air Group’s Go!, which just started and offers only Hawaii interisland service. But a few more entrepreneurs are hoping to give it a shot within the next year or so.

Anthony Tangorra, CEO of Latitude Transport Advisory, offered them hope.

Tangorra told conference attendees that Ryanair charges half as much for a ticket as Southwest, and he contended there’s nothing inherent in the U.S. that makes it a higher-cost market than Europe.

“There’s an opportunity for lower-fare new entrants in the U.S.,” said Tangorra, a former chief strategic adviser for DJ Air Group, which aims to be among the new entrants.

Several other proposed new entrants also are poised to find out whether there is more room, if they can overcome obstacles.

One is Virgin America, which is still stalled and struggling for approval from the Dept. of Transportation because of a debate over whether it really is under U.S. control, as required by law, given the involvement and investment of Virgin Group Chairman Richard Branson.

Brian Clark, Virgin America’s vice president of planning and sales, arrived here to proclaim confidence his airline would get off the ground in 2007, if not this year. But he didn’t reveal more about its strategy.

Virgin America, which signed a licensing agreement to use the Virgin name, is relying on the brand to give it a big boost. Clark said the Virgin brand has greater than 90% recognition in large metropolitan areas.

Clark also emphasized pricing and “next-generation” onboard products as key differentiators, but he didn’t say a lot about either. CEO Fred Reid, however, recently told the San Mateo County Times that product plans include broadband access, an entertainment system with a 9-inch screen, interactive games, on-demand movies and the ability to use a touch screen to order food that is sold on board.

Another proposed new entrant, Skybus, did not show up here, but there was some chatter about the Columbus, Ohio-based airline, which in March received DOT approval to fly.

Skybus already is billing itself as “America’s Ultra-Low Fare Airline.” But it remains to be seen whether the Ryanair model will work in the U.S.

Industry insiders said Skybus had retained Ryanair or former Ryanair managers and was trying to make itself the Ryanair of the U.S. market. Skybus reportedly plans to outsource everything it can and has been pushing uncrowded airports to provide big incentives and price breaks to win Skybus service.

But the latter strategy, which Ryanair has used to great effect in Europe, is not being greeted warmly by airports here, the insiders said. And one of them said there has been some disgruntlement and disagreement over Skybus’ proposed routes.

Europe’s biggest low-cost carrier not only gets big cost breaks from airports, but it cuts costs by removing seatback pockets and reclining seats and recently began charging for checked baggage. It also relies heavily on ancillary revenue from items such as hotel and rental car bookings, travel insurance, onboard sales and other travel-related items, so much so that it is aiming to let half of its customers fly for free by 2010 since it would make money from their other spending.

Another proposed low-cost carrier for the U.S. market is Louisiana-based Air Gumbo, which has been persistently pursuing its plan since 1998 despite seeing it derailed by 9/11 and Hurricane Katrina.

Air Gumbo CEO Ralston Champagnie said he came to the conference amid a new fund-raising effort and hoped to file for DOT approval this year and fly by 2007.

But Champagnie still faces what may prove to be his biggest challenge: convincing investors that New Orleans will bounce back enough to make feasible his plan to fly Bombardier regional jets out of New Orleans, Baton Rouge and Shreveport for service to neighboring and nearby states.

Champagnie said he hoped to tap into federal dollars for rebuilding New Orleans as an incentive for new investors to come onboard. He said Air Gumbo also planned to tap into the culture of New Orleans and southwest Louisiana with a gumbo design on its planes, gumbo onboard and jazz music while boarding. He said the carrier was working with Apple and cabin designer BE Aerospace to incorporate an iPod-based entertainment system in seat armrests.

He proclaimed little concern about competing against Southwest out of New Orleans. “I think there’s still lots and lots of room [for new entrants],” he said.

In other conference happenings:

* Executives for three low-cost carriers declared their opposition to in-flight cell phone use. “We’ve heard loud and clear from our customers that they don’t want cell phones in flight,” said Travis Christ, US Airways’ vice president for sales, marketing and distribution. AirTran’s vice president of marketing and sales, Tad Hutcheson, said his airline did not want them either. Barry Biffle, Spirit’s senior vice president and chief marketing officer, said cell phone use would be “too loud.”

* Most airlines are worried about the rising cost of fuel. But Subodh Karnik, ATA Airlines’ chief operating officer, said the biggest concern for low-cost carriers should be the possibility it will come down too much. Karnik, who previously worked for Delta, Continental and Northwest, said legacy airlines have cut costs so much that a significant decline in fuel prices would suddenly make them profitable and could entice them to place large aircraft orders that would flood the market with capacity. That would eliminate the capacity constraint that has allowed U.S. airlines to raise fares.

* Spirit is still aiming to become the leading low-cost carrier to the Caribbean and Latin America, but not to everywhere in Latin America. Biffle said the range of Spirit’s aircraft limit the future service to Central America and the northern part of South America. That could include the northern part of Brazil, but Biffle said the lack of Portuguese speakers on Spirit’s staff makes him leery of entering that market.

To contact reporter Andrew Compart, send e-mail to acompart@travelweekly.com.

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