Southwest to expand flights to Philadelphia, challenging US Air

Friday, March 26, 2004 | 11:08 a.m.

SUN WIRE REPORTS

PHILADELPHIA -- Southwest Airlines said Thursday that it will double the number of flights it operates in and out of Philadelphia, raising the competitive stakes with US Airways, the dominant carrier in the city.

Southwest Chairman Herb Kelleher announced that after starting May 9 with 14 daily flights, Southwest will quickly expand service on July 6, adding trips to the Boston area and other cities and doubling the number of flights to 28. There will be one daily roundtrip between Las Vegas and Philadelphia.

But Kelleher, in Philadelphia to meet with reporters, discounted fears voiced by David N. Siegel, president and chief executive officer of US Airways, that Southwest posed a major threat to that airline's future.

"We will have 28 flights as of July 6. US Airways must have, what, 400 a day?" Kelleher said. "This is not the Viking killer ship coming in."

Siegel had said in a video conference with employees a day earlier that US Airways' survival was at risk without major concessions from labor groups.

"Herb Kelleher wants your job," Siegel said. He said matching Southwest on fares would require severe cost-cutting that would mean labor groups could face pay cuts as high as 25 percent.

US Airways emerged from bankruptcy court protection a year ago; Dallas-based Southwest remained profitable during the prolonged industry slump following the 2001 terror attacks.

In trading Thursday, Southwest shares closed up 46 cents at $13.84 on the New York Stock Exchange. US Airway shares finished up 6 cents at $4.56 on the Nasdaq Stock Market.

US Airways, whose unit costs last year were 50 percent more than Southwest's, has two-thirds of the passenger traffic at Philadelphia.

Siegel told workers that the new competition may require fare cuts of 30 percent.

"US Airways has probably never looked so vulnerable," said James Corridore, a Standard & Poor's analyst who rates Southwest "accumulate" and doesn't own the shares. "It's clear to everyone that they cannot compete with Southwest given their cost disparity."

Discounters such as Southwest and JetBlue Airways Corp., which are profitable, have forced money-losing network carriers such as US Airways and Delta Air Lines Inc. to slash fares and costs.

Southwest's fares begin at $29 for a one-way ticket from Philadelphia to Raleigh/Durham, N.C., purchased 14 days in advance. A round-trip, 14-day advance purchase ticket from Philadelphia to Raleigh/Durham was priced at $201 on US Airways' website. Southwest's most expensive fare from Philadelphia will be $299, for a last-minute ticket to fly to Las Vegas or Phoenix.

US Airways, which emerged from Chapter 11 bankruptcy last April, is trying to reduce unit costs by 40 percent. The airline earlier this month renegotiated terms on a $1 billion loan that is 90 percent backed by the federal government.

Arlington, Va.-based US Airways' cost to fly an airplane seat a mile was 11.4 cents last year, compared with 7.6 cents at Southwest.

US Airways is seeking additional pay and benefit concessions from workers, as well as changes to work rules to help save money, and is in talks with the pilots' union. It hasn't provided proposals to the other work groups, which Siegel said he hopes to begin meeting with by late April.

Southwest took on US Airways in Baltimore beginning in 1993 and today the city is Southwest's third-busiest in terms of daily departures with 161.