Southwest's Breaks Pattern in Choosing Denver Airport

Jan. 3--DENVER -- Little about Southwest Airlines Co.'s service launch here today is typical.

The sprawling airport isn't anything like the secondary facilities that the Dallas-based discounter prefers to fly from.

Southwest's 10-week blitz from announcement to launch isn't standard, either.

But most different of all: the competition.

In May 2003, when Southwest entered Philadelphia, a big airport where few thought the carrier would ever tread, it faced financially feeble US Airways Group as its primary foe.

Now, in what many feel will be the most intriguing airline battle of the next few years, Southwest is bringing its low-fare, no-frills service into the second-largest hub of global carrier United Airlines Inc.

United and its regional affiliates control 57 percent of the traffic at 10-year-old Denver International Airport, and it's poised to come out of bankruptcy protection soon with much leaner costs.

"We're always going to be competitive on price with Southwest because we compete with them around the country," said Robin Urbanski, a United spokeswoman.

Denver is also home to Frontier Airlines Inc., which has 18 percent of the market.

Frontier boasts an all-new Airbus fleet featuring cute animals painted on the planes' tails.

Although it's considered a low-cost carrier, Frontier offers passengers amenities including satellite television.

"We're perhaps still an unknown to a lot of people out there," said Jeff Potter, Frontier's chief executive, "but we've got a tremendous amount of loyalty here."

Southwest, of course, didn't get to be the nation's largest domestic carrier in terms of passengers without some bravado.

"We would put our product up against anybody's," said Southwest spokeswoman Paula Berg. "We're not afraid of anyone."

Challenges and changes

Southwest's announcement on Oct. 20 that it would launch service from the Mile High City after a 20-year absence surprised many in the airline industry. The carrier has historically shied away from taking on the big network carriers at their hubs, preferring instead to fly from smaller airports where it can be dominant.

That's the main reason Southwest says it prefers serving North Texas from its home airport, Dallas Love Field, rather than flying from Dallas/Fort Worth International Airport, where the world's largest carrier, American Airlines Inc., has 800 daily departures at its biggest hub.

United's Denver operation is about half that size, though, making it a less risky proposition to become the "LUV" airline's 62nd city, said Gary Kelly, Southwest's chief executive.

The biggest barrier for Southwest at Denver International has always been costs. Airlines paid as much as $17 per passenger to fly them through the airport in its early days, more than Southwest paid at any of its airports. Today, Frontier pays about $9 per head in expenses, and Southwest looks to get a similar deal.

Frontier takes credit for helping lower overall costs in Denver by bringing more passengers through the airport, generating fees and concession dollars. But the airport also has refinanced a lot of its debt in recent years, and it has held off on new construction and hiring, said Sally Covington, its deputy manager of aviation.

At more than 50 square miles in size, Denver International will challenge Southwest's ability to turn planes around quickly, a key factor in why Southwest is profitable even as many of its rivals lose money. Airport officials said with none of the six runways intersecting, Southwest planes should spend little time on the ground.

Also, because of frequent snowstorms in Colorado, Southwest will also be highly dependent on Denver's de-icing systems working well, said Dave LaPorte, Southwest's Denver station manager. De-icing systems have been improved, according to the airport.

Southwest is legendary for being deliberate about launching service to new cities, taking from six to nine months between announcing a destination and beginning flights. But the carrier has been in a rush in Denver because it wants to deploy planes that were idled when Hurricane Katrina knocked out most air service to New Orleans.

"That's the fastest we've done it since I've been here," said Mr. LaPorte, a 13-year veteran who moved from Southwest's Manchester, N.H., location to run the Denver site.

Frontier and United

Both Frontier and United have matched Southwest's low fares for its nonstop flights between Denver and Phoenix, Las Vegas and Chicago. If fares are comparable, that will leave passengers to choose between Southwest's no-frills service and Frontier's, with its TV and pay-per-view movie channels, and United's, which has all the trappings of a big traditional carrier.

"They're not going to have any advantage on price, on schedule, and our in-flight product is clearly better," said John Happ, Frontier's senior vice president of marketing. "We have unmatched brand equity in this market that they don't."

"We feel our global network, premium seating products and superior frequent flier programs are going to keep us competitive," said Ms. Urbanski, a spokeswoman for United, based in Elk Grove Village, Ill.

All those perks aren't any cause for concern at Southwest, officials said, and the airline remains committed to not assigning seats or complicating its operations.

Frontier is no stranger to challenges to its home base, as when United launched its low-fare "Ted" brand in November 2003 at Denver International. Mr. Potter said he thinks Frontier's employees are ready for head-to-head battle with Southwest, an airline that competitors generally shudder to see come to town.

"We never underestimate our competitors," Mr. Potter said. "But we do a lot of things very well here."

Denver International's Ms. Covington said she's not concerned that attracting Southwest could spell long-term financial trouble for either of the airport's bigger tenants.

"I think both of these guys are really good competitors," she said. "But everyone has always asked us, 'When is Southwest coming?' "

Analysts appear to be split on Frontier's fate, particularly if Southwest dramatically expands its Denver schedule beyond the initial three cities it will serve nonstop.

Though Frontier's stock price fell nearly 30 percent on the day Southwest announced its Denver service, the shares have crept back. Some analysts like the chances of Frontier, which flies six times a day to D/FW. Ray Neidl of Calyon Securities Inc. upgraded the stock in December.

But concerns remain about Frontier's cash on hand, which in September stood at $144 million in unrestricted cash. Southwest's cash hoard is nearly $2 billion. Frontier warned investors in late November that it faced potential cash flow problems.

Mr. Potter said Frontier has enough cash to get by. The carrier's recent moves to raise more cash and cut debt "are more like an insurance policy" in volatile times, he said. Plus, Southwest's 13 daily flights from Denver aren't a huge threat for a carrier that has 250 departures and is increasing its Mexico flying, a market Southwest isn't interested in.

Southwest officials said the carrier's modest Denver schedule will grow. The carrier plans some short-term additions this spring, flying on Saturdays to San Diego and Oakland, Calif., Mr. LaPorte said. "We're going to test some markets, which is something that's not our typical MO," he said. "But the demand is there."


SOURCES: Denver International Airport; Dallas Morning News research