'Legacy' Airlines May Out-fly Discount Rivals

As the airline industry finally starts to gain altitude, investors in the still-risky sector should be especially wary of the carriers that specialize in cheap seats, the Wall Street Journal reports. Not only are discount carriers increasingly competing against each other, but they are up against some reinvigorated adversaries: big, older airlines. These so-called legacy carriers now have the best of both worlds—some of the lower costs that discounters enjoy and the premium overseas traffic that they don't. All that is raising questions about the discounter model: low fares and rapid, mostly domestic growth. Last week, discounter darling JetBlue Airways swung to a third-quarter net loss from a modest year-earlier profit and said it will further slow its growth rate by reducing the size of its planned fleet. The parent of low-cost carrier AirTran Airways likewise swung to a quarterly loss and is postponing aircraft deliveries. Meanwhile, Frontier Airlines reported a sharply lower profit for its fiscal second quarter, which ended Sept. 30. Even the typically unflappable Southwest Airlines is having a bumpy ride. It turned in a respectable third-quarter profit two weeks ago but fell short of expectations. The bigger airlines, by contrast, are in better shape than they've been in years, thanks to aggressive cost-cutting and streamlining—changes inspired by their discount rivals. If demand turns down, these carriers have older aircraft they can take out of service, and the ability to shed feeder flights operated by regional affiliates. The discounters have newer planes, which are too costly to simply retire. The discounters need to grow rapidly to keep costs down, spreading overhead over more capacity. They are constantly looking for new places to fly. AirTran is adding winter flights from Detroit and White Plains, N.Y., to three Florida cities. JetBlue started flights to more than a dozen new destinations this year.


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