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Archive for Saturday, December 15, 2001

Low-fare airlines rebound while giants struggle

December 15, 2001

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— The nation's biggest airlines continue to languish after the terrorist attacks, but some smaller carriers offering discounted fares have rebounded as travelers seek out bargains during these tough economic times.

The stock prices of Southwest Airlines, Frontier Airlines and Air Tran Holdings have bounced back sharply since mid-September, when the entire sector was battered because of the attacks. Shares of Delta, United and American Airlines, meanwhile, continue to struggle.

Analysts say another reason for smaller airlines' rise is the post-Sept. 11 decision by several major airlines to eliminate or dramatically cut back schedules at their low-fare subsidiaries.

The cutbacks created a void that has been filled partially by Air Tran, Frontier and Southwest in cities such as Baltimore, Denver and Los Angeles, respectively.

"The fact is, low-fare carriers continue to grow relative to an industry otherwise in retreat," said Jamie Baker an analyst for UBS Warburg.

Because of schedule cuts made when demand slumped after Sept. 11, industrywide capacity for November was down 16 percent from a year ago. But Southwest's capacity grew by 7 percent in November and Air Tran's bulged more than 5 percent, Baker said.

Southwest's passenger traffic fell about 1 percent in November, Baker added, but it pales in comparison to declines of more than 20 percent at American Airlines and United Airlines, the country's top carriers.

Investors appear to have noticed, boosting shares of Southwest the only major U.S. airline expected to report a profit for 2001 by 46 percent since Sept. 17, the first day of trading after the terror attacks.

During the same period of time, Frontier's shares have risen more than 100 percent while Air Tran's climbed 83 percent.

Shares of these companies are trading higher than they were a day before the attacks.

Shares of AMR Corp., the parent of American Airlines, remain 24 percent below Sept. 10 levels, while those of United Airlines are off 51 percent.

Analysts said airlines whose fares already were low had been in a strong position lately because they hadn't had to reduce prices dramatically to appeal to penny-pinching Americans.

Because their costs are lower, their revenues per passenger are higher than major airlines with expensive operations.

Corporate travel managers also have been more vociferous lately about the disparity between leisure and business fares.

"I think the fare structure is absolutely broken," said Hal Rosenbluth, chief executive of Philadelphia-based Rosenbluth International, a corporate travel management firm.

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