Major Airlines Try to Take the Wind out of Low-Cost Carriers´ Wings

Low-cost carriers like Southwest Airlines Co. and JetBlue Airways Corp. are seeing their cost advantage slipping as major carriers slim down into leaner, meaner operations, reports Reuters.

The report, sharing opinion of experts, acknowledges that low-cost carriers still have the upper hand in the war for low-fare travelers but the cost gap between legacy carriers and low-cost rivals has narrowed. It says cost-cuts by major airlines such as AMR Corp.´s American Airlines and UAL Corp.´s United Airlines have leveled the industry playing field.

The report underlines the fact cost-cutting by major carriers represents a significant change in the industry. Nowadays, low-cost carriers have to work much harder to sell tickets cheaper than the majors.

“I don´t know who´s going to live or who´s going to die. But we do know this: it´s going to be a very nasty competitive mess,” airline consultant Michael Boyd reportedly said.

Boyd also said excess capacity in low-cost carrier markets has made it hard to raise fares and has eroded revenue to the point where it is a hazard to some carriers. He noted that Southwest, JetBlue and AirTran Holdings Inc.´s AirTran Airways are adding about 250 100- to 150-seat planes to their fleets in the next 36 months.

In February, JetBlue Airways Corp. and Southwest Airlines Co. had indicated plans to increase fares this year. The executives from the airlines said they “need to boost revenues to offset rising costs, particularly for jet fuel”.

“We need a higher average fare for our tickets,” David Neeleman, chief executive at JetBlue, which projected a loss for all of 2006, had said.

On the other hand, Laura Wright, chief financial officer at Southwest, had said it´s facing $600 million in higher fuel costs this year and will need to cover that expense.