New no-frills airlines grab a large share of the deregulated skies
New no-frills airlines are taking off in the open skies of a deregulated airline industry. And they're posing a threat to the major airlines. The new air carriers are booking their planes to capacity, luring business away from major airlines with cheaper fares.
The new competition was sparked by 1978 deregulation of the industry which has opened the market to new competitors and allows complete pricing freedom.
One of the new carriers, New York Air, which initiated service from New York's LaGuardia Airport four months ago, already has captured 28 percent of the New York-Washington and New York-Boston markets by challenging the Eastern Airlines shuttle, according to industry sources.
The regular weekday fare to Washington on New York Air is $49; on Eastern, it's $59. The fare to Boston on New York Air is $39; it's $49 on Eastern.
New York Air, a subsidiary of Texas Air Corporation, last month carried 97, 000 passengers on the two routes. During that same period, Eastern's ridership was down 8 percent over year-ago levels to 245,000 passengers.
Mike Derchin, an airline analyst at Oppenheimer & Co. in New York, says "Deregulation has created a new breed of airline. And the larger carriers are beginning to take it very seriously because it represents a threat to their market positions. They're reacting in a way we've never seen before."
For instance, when New York Air moved into the Washington shuttle market, Eastern was forced to pull down fares. Eastern also took out full-page ads in the Wall Street Journal to try to keep its old customers.
In addition, the major airlines, including American, Eastern, and United, have moved to renegotiate costly union contracts, Mr. Derchin says.
"The trunks [major airlines] have realized that the new entrants, which have nonunion employees, are holding down costs and keeping productivity up without restrictive union rules. The only way that the large airlines can survive and not become dinosaurs is to change the work rules and the productivity of their work force."
People Express Airlines, a nonunion carrier, is setting a precedent by training their pilots to work at other airline jobs when they're not scheduled to fly.
People Express, which flies out of Newark, N.J., offers flights to Buffalo, N.Y., and Norfolk, and $186 to Columbus.
No-frills passenger service is also key to the low-cost structure of the new airlines. The service on People Express includes:
* No ticket counters. Tickets can be purchased on board or in advance from ticket agents or by phone.
* No meals. Beverages and snacks can be purchased.
* A $3 fee for each piece of checked luggage.
Says Roy Pulsifer, a Civil Aeronautics Board spokesman, "The new, efficient airlines have only 3 percent of the total business at this time. H owever, as the new airlines expand, the older airlines will be forced to meet the competition."