Oct. 16--SARASOTA, Fla. -- Aviation consultant Michael Boyd likes nothing better than to destroy myths about the airline industry, and the myths surrounding low-cost carriers and the old network carriers are among his favorite targets.
In particular, Mr. Boyd takes aim at the common wisdom that low-cost carriers, or LCCs, will inevitably beat the traditional carriers in any market they choose to enter.
The good low-cost carriers with good strategies will succeed, he suggested to attendees Monday at the Boyd Group's annual aviation forecast conference at a hotel here next to the Gulf of Mexico.
"But the days of being able to toss a 737 out there and stimulate traffic just with fares, those things are over," Mr. Boyd said. "The LCC model is evolving."
Among the low-cost carriers, Mr. Boyd said, he's most intrigued by what's going to happen at Frontier Airlines Inc. and Southwest Airlines Co. -- Frontier, because it is moving upscale with nicer airplanes, and Southwest, because it's planning major changes in the way it operates.
Southwest officials know "they have to morph and change things," Mr. Boyd said, "and when they do, they're going to be the nastiest competitor on this planet.
"If you're American or any other carrier, watch out for Southwest. What you see today ain't, in our opinion, what you're going to see in three years. It's going to be a very tough competitor again."
Among the things that the industry can expect to see, Mr. Boyd said:
-- Some low-cost airlines are diversifying their fleets, an idea that goes against Southwest's simple core concept of one airplane to serve all markets.
For example, Frontier has introduced into smaller markets the Embraer 170, a 76-seat airplane with wider seats than jets from the Boeing 737 or Airbus 320 families.
JetBlue Airways Corp. is flying the Embraer 190, a 100-seat jet that lets it enter markets that are too small for its core 150-seat Airbus 320s.
Frontier president and chief executive Sean Menke said a lot of low-cost carriers were built on the Southwest model, with only one aircraft type.
"Well, there's limited growth opportunity when you look at that," he said. "If you look where a lot of these airplanes can go, they're actually going to end up competing against each other."
Marty St. George, JetBlue's vice president of planning, said the Embraer 190 may be too small during peak winter periods in Florida. "But the other nine months of the year, it is a category killer."
-- The Southwest model of flying to secondary airports and secondary cities is changing as airlines find the best routes are taken. That means they'll go into markets they previously avoided.
"They're running out of places to fly," Mr. Boyd said. "I don't mean that negatively." He said a Southwest executive swore four or five years ago that Southwest would never enter Denver. "They've got 40 flights a day there now," he said.
"Markets like Philadelphia, markets like Washington, they've got to go to these markets now to get the revenues. It's a sound strategy."
-- The low-cost carriers will increasingly stay away from smaller markets as they chase the larger cities with the larger revenue pots.
That means "no more Lubbocks, no more Jacksons. You might have small Albanys," Mr. Boyd said.
"But unless you're a big city or you're a place that can collect a lot of people via a road system, you can just wipe them out," he said. "Don't even bother to call Southwest."
So who will serve those little markets? Mr. Boyd said the conventional network carriers will because they have the hubs to collect traffic from the small cities and connect them profitably to other flights.
That becomes important as the global economy touches more small cities and boosts the number of people who need to fly for business, he said.
"Today, the traditional LCC model cannot handle where this growth is," Mr. Boyd said. "They cannot get into Shreveport. The Southwest fleet just doesn't make it. But can American Airlines? Yeah, with eight flights a day or whatever, and all of them full."
That touches on another of Mr. Boyd's peeves, the notion that hub-and-spoke carriers will lose out to low-cost, point-to-point carriers because hubs are inefficient.
Hubs allow airlines to collect much more revenue from flights because they can connect so many passengers from cities that otherwise wouldn't have airline service, he said.
"You make money when you fly airplanes with people sitting in them. The hub-and-spoke system allows that to be done," he said. "Another myth is that the low-cost carriers are all point-to-point. AirTran Airways isn't. Frontier isn't. They run some point-to-point stuff. Even Southwest is 30 percent connecting [passengers], without which they'd be bust."
Another myth is that network carriers are leaving routes when low-cost carriers enter them, Mr. Boyd said.
"In fact, there's not one major route in the United States where a major carrier has pulled out because a low-cost carrier has forced them out. Moline-to-Cincinnati is not a major market," he said.
"These comprehensive network carriers are not running from LCCs. They're very concerned about them, but they're not running."
Although major U.S. network carriers are expanding their international routes, that doesn't mean they're abandoning their domestic routes, Mr. Boyd said.
"Carriers like Delta and Continental are expanding international [routes] wildly, but it's to feed their domestic markets and make them stronger," he said.
Noting Northwest Airlines Inc.'s Detroit hub, he added: "All those passengers going from China to Detroit, do you think they want to go to Detroit? They're going elsewhere."
When it comes to ultra-small markets, Allegiant Air LLC is a contradiction. The Nevada-based carrier has found its niche flying from small cities such as Laredo, Texas, to leisure markets such as Las Vegas and Florida. Allegiant exclusively flies used McDonnell Douglas MD-80s on routes that no other carrier is serving.
"To be blunt, we can't find a hole in that strategy," Mr. Boyd said.
"I'd have to call it a bulletproof strategy."
Citing Allegiant's success in flying to small markets, he added: "There isn't another carrier in the world that wants to fight for that traffic. So it's a home run."
TAKING DIVERGING ROUTES
Began flying: 1971
Strategy: Basic service, with most passengers flying nonstop rather than connecting
Growth: Now the nation's fourth-largest carrier in capacity but the largest in the world in the number of passengers carried. Traffic was up 8.6 percent in September from the same month a year ago.
Headquarters: Forest Hills, N.Y.
Began flying: 2000
Strategy: High-quality service, including onboard television, to major markets from New York's JFK Airport
Growth: It has become the nation's eighth-largest carrier in seven years.
Began flying: 1994
Strategy: Larger airplanes are replacing some smaller regional jets and include niceties such as onboard television. Its route system is centered on Denver, but it has added Mexican destinations from several airports, including D/FW.
Growth: Traffic grew 26 percent in September compared with a year earlier, despite new competition from Southwest.
Allegiant Air LLC
Headquarters: Las Vegas
Began flying: 1997
Strategy: Focused on Las Vegas and small markets that other carriers don't serve, such as Laredo-Las Vegas; Roanoke, Va.-Daytona Beach, Fla.; and Wichita, Kan.-Sanford, Fla.
Growth: September capacity was up 41 percent over a year earlier.
SOURCES: The airlines; Dallas Morning News research
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