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Old 10-03-2003, 04:13 PM   #1
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Join Date: Aug 2003
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Analyst: Low-Cost Carriers a Growing Threat to Big Airlines

[ The Atlanta Journal-Constitution: 10/5/03 ]

Analyst: Low-cost carriers a growing threat to big airlines

Staff report

The challenge posed to Delta and other big airlines by low-cost discounters is accelerating, an analyst says.

Low-cost carriers will have at least 1,030 aircraft by 2006, up from 776 today, JP Morgan airline analyst Jamie Baker said in a report Friday. He predicts discounters such as AirTran, Southwest, Frontier and JetBlue will account for 40 percent of domestic operations.

"These are alarming statistics for (hub-and-spoke carriers') shareholders, in our view," he wrote.

Baker said big airlines cannot take too much comfort from experience. While big carriers fended off some upstart discounters and rebounded smartly from a slump in the early '90s, today's low-cost rivals are bigger and stronger, he noted.

"Remember Markair and Kiwi? These weren't exactly the JetBlues of their time," he wrote. The rise of Internet booking and corporate travel cutbacks have aided discounters' recent growth, making them "many consumers' first choice when it comes to air travel." He said this has "decimated" the pricing power of big airlines, which must match lower fares on more and more routes.

Baker initiated coverage of three discounters' stocks, including AirTran. He predicts an intensifying dogfight between Delta and AirTran as the latter adds new longer-range planes, although he notes that AirTran is branching out from its Atlanta hub and now derives less than half its revenue from Atlanta nonstops.
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