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Southwest Slashes Fall Fares in Showdown With JetBlue

Airlines: Price cuts for California routes are in response to upstart carrier's expansion.

July 26, 2002|JAMES F. PELTZ | TIMES STAFF WRITER

A fare battle erupted for post-Labor Day travel in the West as Southwest Airlines Co. joined new entrant JetBlue Airways Corp. and slashed prices Thursday to as low as $19 each way.

The cuts were not unexpected after JetBlue, a young airline based in New York, recently announced plans to launch service between Long Beach--its West Coast hub--and Oakland on Sept. 6 with nine daily flights. JetBlue also plans to start six daily Long Beach-Las Vegas flights Oct. 10.

A day after JetBlue put the new flights on sale with cheap fares, low-fare king Southwest responded with a sale throughout California, where it is the dominant carrier. Southwest has nearly 100 daily flights between airports in the Los Angeles Basin and the San Francisco Bay Area and 38 daily flights between the Southland and Las Vegas.

Southwest's sale, which covers flights starting Sept. 3, is in effect until Jan. 10. JetBlue's sale prices are set to end Aug. 15 for travel until Nov. 5. Both carriers are offering one-way fares as low as $19 from Southern California to Las Vegas and intra-California fares of $29 to $39 each way, excluding fees and taxes. The fares carry various restrictions.

Airlines often cut leisure fares in September because it is a slow time for travel. But this price war will be a test of JetBlue, which with Southwest is one of the few profitable airlines. Other carriers still are reeling from the post-Sept. 11 slump in air travel, and the whole industry lost $1.4 billion in the quarter ended June 30.

Like Southwest, JetBlue makes money because it has high passenger demand and low operating costs, and it already has held its own against rivals in crowded markets such as Florida. JetBlue said Thursday that its second-quarter profit jumped 37% from a year earlier, to $14.6 million, or 33 cents per diluted share, from $10.7 million, or 33 cents. The per-share figure didn't change because JetBlue, which had its initial public stock offering in April, now has more shares outstanding.

Although Southwest has more frequent service, a bigger marketing budget and a loyal following among travelers, "we're very confident that we'll get a share of that business and be successful," JetBlue Chief Executive David Neeleman told analysts Thursday.

Southwest's profit, too, might come under pressure with fares this low, but airline spokeswoman Whitney Brewer said the carrier's low cost structure, combined with its frequent flights, would be able to handle the lower prices. She acknowledged that Southwest launched the sale in part because "we have had some new entrants into the market."

James Parker, an analyst with investment firm Raymond James & Associates, said he was optimistic about the prospects for Southwest and JetBlue despite the fare sale.

JetBlue, with its leather seats, assigned seating and in-flight television, has "a product that's perceived to be better" than Southwest's by many travelers, Parker said. But "Southwest is certainly not going to give up any ground."

The biggest casualties of the fare sale could be larger airlines such as United, which can ill afford cheaper fares or a loss of market share to lower-price rivals, analysts said. The UAL Corp. unit is Southwest's main competitor in California, but United has much higher costs, is suffering huge losses and is seeking a federal bailout in the form of a loan guarantee.

United did not match the lower fares in California and had no other comment, said United spokesman Chris Brathwaite.

UAL's stock tumbled again Thursday, losing 53 cents, or 11%, to $4.17 a share on the New York Stock Exchange.

JetBlue's stock sale has been one of the few IPO hits this year, with the stock surging well above its IPO price of $27 a share. But after Southwest's announcement Thursday, JetBlue shares fell $1.20, or 2.9%, to $40.85 on Nasdaq. Southwest rose 25 cents to $12.06 a share on the NYSE.

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