The low-cost carrier starts service to Philadelphia on Sunday, long the domain of struggling US Airways.
By STEVE HUETTEL
Published May 5, 2004
PHILADELPHIA - Here in the cradle of American independence, Linda Martiniano fancies herself a foot soldier in a new revolution.
She and other employees of Southwest Airlines are participating in an intense marketing campaign to announce the airline's arrival Sunday in the City of Brotherly Love, long dominated by US Airways.
This is no sibling rivalry. This is war.
Last week Martiniano, a reservations agent, sported an inflatable airplane hat as she jumped into a trolley bus on a busy downtown street. She gave riders bags of peanuts.
"We're bringing freedom to Philly!" she shouted. Other employees worked the streets, handing out promotional trinkets, all with one message: Southwest Airlines, coming May 9.
Southwest's entrance into the Philadelphia air market already has sparked plenty of fireworks. Former US Airways' chief executive David Siegel told employees in March that Southwest was coming to Philadelphia to "kill" their financially ailing airline.
It's hard to exaggerate what the city means to US Airways. It's the airline's biggest customer base and major international gateway. "What did Michael Jordan mean to the NBA?" says Ben Baldanza, US Airways' senior vice president of marketing and planning.
The battle between these two carriers on different trajectories also has serious consequences for the industry.
Southwest, the most successful low-cost carrier, consistently rings up profits and keeps growing. US Airways, a full-service airline that has lost $4.3-billion since 2001, is struggling to change its business model in time to avoid another bankruptcy filing, or worse.
The outcome could provide clues about the direction of the industry, particularly whether traditional "legacy" carriers such as US Airways can fend off the threat from discounters like Southwest, JetBlue Airways and others.
Southwest caught almost everyone by surprise last fall when it announced plans to land in Philadelphia. The airline hadn't gone into a new city since Norfolk, Va., in October 2001 and had not entered one the size of Philadelphia since landing at Baltimore-Washington International in 1993.
Southwest typically avoids going into a competitor's big-city hubs, preferring secondary airports where it can avoid congestion and move planes in and out quickly. To serve the Boston area, for example, it flies into Manchester, N.H.; Providence, R.I.; and Hartford, Conn.
The low-fare king has moved into other airlines' hubs but not in such a big way or without the dominant carrier retreating first, says Kevin Mitchell, chairman of the Business Travel Coalition.
"Southwest has never done anywhere what they're about to do in Philadelphia," he says. "It's a new risk profile. ... The whole industry's going to watch this."
Officials at Southwest call Philadelphia a perfect fit for its strategy of going places where high fares keep people from flying. The metro area is the nation's sixth largest, but Philadelphia International ranked as only the 17th busiest U.S. airport last year.
"If you look at a map, there are not a whole lot of other places where we can go and provide service to a lot of people," says Joyce Rogge, Southwest's senior vice president for marketing.
Southwest quickly drove down prices on its initial 13 routes. The cheapest, advance-purchase tickets - $29 one-way to Providence or Manchester - attracted the most attention. But walkup fares favored by business travelers went down most dramatically.
A last-minute, one-way ticket to Tampa that had cost as much as $664 one-way dropped to $129. A one-way ticket booked at least 14 days in advance, already fairly cheap because discounter AirTran Airways flew the route, went down by $20 to $79.
Experts suggest Southwest targeted Philadelphia for another reason: the precarious financial position of US Airways, which emerged from bankruptcy court a year ago and remains arguably the weakest major U.S. airline.
Southwest officials considered going to Lehigh Valley International Airport in Allentown, an easy drive from Philadelphia's northern suburbs though a little too far from downtown and points south, said George Doughty, the airport's executive director.
Their focus seemed to shift three years ago, when US Airways took a huge financial hit in the wake of the terrorist attacks, he said. After US Airways filed for bankruptcy court protection in August 2002, Doughty said, Southwest made up its mind.
"Instead of having a significant piece of the pie, I think they said, "We can have the whole pie and go after US Airways on their own turf,' " he said.
Siegel resigned last month and was replaced by Bruce Lakefield, a US Airways board member and former Lehman Brothers International chief executive. US Airways' message remains the same: The Philadelphia invasion is a life-or-death challenge.
"It threatens our jobs and US Airways," says Baldanza. "If we can't win in Philadelphia, our prospects are less everywhere else."
Southwest dismisses such talk as overheated rhetoric. The airline starts Sunday with 14 daily departures to six cities, including Tampa, and expands to 28 flights and 13 cities July 6. By contrast, US Airways flies 375 daily departures to 106 cities from Philadelphia.
"This is not Viking killer ship coming in," Southwest's legendary and highly quotable co-founder and chairman, Herb Kelleher, told reporters during a visit to Philadelphia in March.
Maybe not yet. But Southwest started in Baltimore with eight flights a day in 1993, when US Airways flew about 200. Now, Southwest has 161 daily flights compared with 42 for US Airways. At Tampa International, Southwest began with 12 daily departures in 1996 and now has 58.
With 31 consecutive years of profits, Southwest has deep pockets and staying power, says Darryl Jenkins, a visiting professor at Embry-Riddle Aeronautical University in Daytona Beach.
"These guys have the money and can last it out as long as they want to," he said. "Philadelphia is one of the few places US Airways makes money. It's going to hurt."
"People love to hate them'
Customers rarely have warm feelings for the power company, cable provider or any businesses with a corner on the market.
In Philadelphia, where US Airways flies six out of every 10 air passengers, the airline has long been a favorite whipping boy, especially for business travelers.
As travel manager for a chain of retail bridal shops, Kim Long routinely booked midweek trips on US Airways that made her bosses wince: $1,200 round trip to St. Louis, $800 for Boston, as much as $700 to Florida.
"It's been a real love-hate relationship - people love to hate them," says Long, chairman of the Philadelphia Business Travel Association, which represents corporations that buy large volumes of airline tickets. "There's no choice. It's put up or shut up."
Philadelphia's average one-way fare of $197 ranked fourth-highest among the busiest U.S. airports, according to a Transportation Department survey of fares in the second quarter of 2003. Tampa International, with robust low-fare competition, had an average price of $135, the eighth lowest.
US Airways says Philadelphia customers like how US Airways employees treat them, says Baldanza, the marketing chief. And they want perks all-coach Southwest doesn't offer: seat assignments, upgrades to first class and meals for sale. "They just don't want to get gouged on fares," he said.
Last week, US Airways announced new low ticket prices called "GoFares." The airline slashed walkup prices by at least 40 percent, cut first-class fares and waived Saturday-night stays for deeply discounted tickets.
The fares are limited to Philadelphia routes where US Airways is going head-to-head with Southwest and largely match the low-cost competitor's prices.
US Airways will bring GoFares to more routes, Baldanza says. But how far the airline can expand the lower, simpler fare structure depends on whether US Airways can cut its costs, the highest in the airline industry. The airline says labor costs are too high, largely because of a veteran work force earning top pay rates and contract work rules that promote inefficiency. Unions blame a series of bungling chief executives that kept changing US Airways' battle plan.
Flying one airliner seat one mile costs US Airways 10 cents, excluding fuel expenses. The comparable cost for Southwest is 7 cents. Southwest invades a new market and cuts fares to levels where it can make money but higher-cost airlines can't. They're forced to match fares and bleed red ink or run away.
US Airways executives say the airline needs to reduce costs enough to make a profit at prices charged by Southwest and other low-cost competitors.
The airline hopes to begin talks with unions this month on a new plan that includes lowering labor costs. Workers took two cuts during the bankruptcy reorganization that concluded a year ago. So far, only the pilot union has agreed to even discuss concessions.
Radio ads and free pizzas
In the battle for hearts and minds, Southwest grabbed an early advantage associating itself with things Philadelphian.
The airline signed sponsorships in January with three local pro sports teams: basketball's 76ers, hockey's Flyers and baseball's Phillies.
Southwest's Kelleher, who grew up in the 1940s across the Delaware River in Haddon Heights, N.J., made a bus tour of his old haunts with reporters, visiting his old high school and stopping to buy a hot pretzel at Reading Terminal Market.
Southwest has blanketed the air waves with radio and television ads embracing the city and its symbols. One favorite has Philadelphians saying "DING" - the chime sound in airplane cabins Southwest plays on commercials before its slogan: "You are now free to move about the country."
The message has struck a chord. As Martiniano and other Southwest Squad volunteers worked the downtown streets, wearing T-shirts with "Ding" across the front, drivers responded by Dinging back.
The squads fly in for a day or two, hit college campuses, sports events and bars, and head back to their jobs.
"We want to show this is a family, show how much we love our airline," says Tracey Craft of Dallas, wearing a smiley-face Southwest jet around her waist. "It also shows we're a little crazy."
Not to be outdone, US Airways launched its own off-beat marketing campaign last week with employees in yellow caps and bowling shirts emblazoned with "GoFares: They're Unbelievably Low."
They offered free chair massages to pedestrians near City Hall. They put coins in parking meters, delivered pizza to office workers and spun a Wheel of Fortune where people could win Dividend Miles and other prizes.
The strategy isn't lost on Philadelphians.
"This," said Joanne Dunphy, "is like a political campaign."
- Researchers Kitty Bennett and Cathy Wos contributed to this report. Steve Huettel can be reached at huettel@sptimes.com or 813 226-3384.
