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Flight market up in the air

| Saturday, Feb. 3, 2001

Who's flying at
Pittsburgh International
The following table shows how many passengers flew with each air carrier at Pittsburgh International Airport in the first 11 months of 2000 and the percentage change from the first 11 months of 1999.

Airline Passengers Change
US Airways 6.8 million 7.3
Delta 271,837 17.4
United 120,631 -9.3
Trans World 109,157 2.3
Vanguard 92,865 27.5
Northwest 92,789 10.9
American 83,869 -3.0
Continental 62,267 6.1

Source: Allegheny County Airport Authority

A critical question for western Pennsylvania is whether the local dominance of US Airways Group Inc. will survive the proposed $11.6 billion merger with UAL Corp.'s United Airlines.

Or will US Airways' strong local presence in Pittsburgh be absorbed within a monolithic United, the nation's largest air carrier, as airline industry consolidation continues•

Many local officials are confident of a fortified Pittsburgh presence in the friendly skies of the new United. The airline has promised no layoffs and no fare increases for at least two years.

United has also pledged to build a $160 million aircraft maintenance facility at Pittsburgh International Airport that would save the jobs of 5,000 mechanics based there.

But some experts warn that long-term prospects for the merged airline hinge on its ability to compete with the other major airlines and with smaller competitors while it is saddled with expensive labor agreements and rising fuel costs.

'The merger is only a temporary solution. The major airlines are dominated by high-price labor and inefficiencies on the ground,' said Jake Haulk, managing director of the Allegheny Institute for Public Policy, a North Side-based research group.

US Airways posted a $269 million loss for 2000. Having recently concluded contracts with its five unions, the airline paid out $257 million more in labor costs than the previous year.

Yet, Haulk dismisses concerns of merger critics that the United-US Airways deal and another deal, AMR Corp.'s American Airlines purchase of Trans World Airlines, will touch off major industry consolidation, resulting in a handful of super airlines.

'The notion of winding up with three mega-carriers flies in the face of the way the world is going,' Haulk said. 'The reality is there are a lot of pilots and a lot of planes and entrepreneurs willing to launch start-up airlines. As long as regulators will open up gate space, competition will remain fierce.'

Consumers hope that competition will mean lower fares. Haulk said there is a trend of ticket prices going down at Pittsburgh International. A few years ago, it was one of the most expensive airports to fly from. Now, it rates in the middle of the pack, he said.

'We're seeing a number of new carriers come in or old carriers announcing new routes, which is having the effect you would hope it would - a lowering of fares at all the airlines,' he said.

Recent additions to the gates at Pittsburgh International include AirTran Airways, with daily routes between Pittsburgh and New York, Chicago and Atlanta. In December, Midway Airlines began daily service between Pittsburgh and Raleigh-Durham International Airport in North Carolina. And commuter jet carrier American Eagle, through a partnership with Trans World Airlines, launched one-stop service from Pittsburgh to 14 eastern cities.

Those airlines joined Vanguard Airlines, which had posted a 28 percent increase in passengers getting on its planes in Pittsburgh in the first 11 months of 2000 compared to the prior year.

Among the majors, Delta Airlines increased boardings in Pittsburgh by 17 percent in 2000. Northwest increased by 11 percent and Continental 6 percent, compared to a 7 percent increase by US Airways and a 9 percent drop by United.

But US Airways still dominates locally, with control of 53 of 75 jet gates and more than 500 departures daily.

Haulk sees growth in air travel coming from aging baby boomers spending their retirement savings on leisure. A slowing economy tends to cut business travel, and the growing sophistication of video conferencing on the Internet poses the threat to airlines of losing their highest-paying segment of travelers.

Leisure travelers can plan trips ahead of time and book fares on smaller, low-cost airlines.

Robert W. Mann, an airline analyst and consultant, said a recently released report by the Department of Transportation indicates that regulators will be vigilant in protecting smaller airlines.

Barriers to entry in the deregulated airline industry include limited takeoff-departure slots at airports and exclusive arrangements between big airlines and local airports to finance expansion - like US Airways' deal at Pittsburgh International.

'Southwest Airlines and new-entrant carriers are the only factor disciplining the majors' pricing. I think you will see the JetBlues, Frontiers and AirTrans of the world guarded from predatory practices (by the majors),' Mann said.

As part of the American/TWA merger, American is proposing to buy 86 US Airways planes and leases, in addition to taking a half interest in the profitable US Airways Boston-New York City-Washington D.C. shuttle. Those moves are aimed at easing federal regulatory approval of both mergers.

American also promises to provide competition on United/US Airways hub-to-hub routes, including Pittsburgh to Washington, D.C.-Dulles International. It will also pay $82 million to acquire a 49 percent stake in DC Air, a new airline that would take over US Airways' slots at Reagan International Airport.

Mann said he doesn't anticipate more service from American out of Pittsburgh other than to Washington, D.C., and existing service by TWA from Pittsburgh to St. Louis. 'These guys tend to stick to their core hub-and-spoke support role,' he said in reference to United and American.

Pittsburgh International, with a new United maintenance facility, could be a beneficiary of increased traffic should United move some of its Midwest connections here from congested O'Hare International in Chicago, Haulk said.

Lower Pittsburgh fares could bring back air travelers who now drive to Cleveland and Columbus for better prices, he said.

United has said it would fly direct or one-stop flights from Pittsburgh to 254 destinations, which is 78 more than is available now on US Airways.

Prediction

Airline consultant Robert W. Mann says the labor agreement United Airlines reached with its pilots late last year, granting raises approaching 40 percent over four years, could have far-reaching effects.

United is now negotiating with its mechanics' and flight attendants' unions. They want lucrative raises, too. And pilots at American Airlines, Delta Airlines and Continental Airlines, the No. 2, 3 and 5 carriers, are seeking contracts to put them on par with United. Northwest Airlines mechanics reportedly want raises in excess of 100 percent.

Mann said: 'If energy costs continue to be based on $30-a-barrel oil and the economy continues to stumble, and the effect of UAL's pilots' contract spreads to other employees at United and across the industry, the cost of which I estimate at more than $4 billion annually, then the industry will be hard-pressed to pass all these costs along to consumers. Something will have to give. Whether it be lower profit margins or labor-management stalemates is too early to tell.'

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