A Fare Shake-up Southwest's Phila.-to- Boston route is a textbook case of how competition affects prices.

Posted: February 18, 2010

Absurd and crazy might describe the ticket prices charged by US Airways Group Inc. to fly nonstop from Philadelphia to Boston. The airline's Web site yesterday had $550 one-way coach fares, or $1,100 round-trip, for current travel on its 16 weekday nonstop flights.

Why so expensive for a trip that is 280 air miles and takes five hours on Amtrak?

In a word: monopoly. No one else flies there from here.

After AirTran Airways stopped flying the route in 2007, ticket prices crept up. Then, in August, Delta Air Lines Inc. dropped the route, and fares rose again.

FOR THE RECORD - CLEARING THE RECORD, PUBLISHED FEBRUARY 19, 2010, FOLLOWS: Because of incorrect information from Bloomberg News, a photo caption yesterday with a story on air fares from Philadelphia misidentified the US Airways airplane pictured, which was an Airbus A319.

With Southwest Airlines Co's. announcement Tuesday that it will begin five daily nonstop flights to Boston on June 27 - at an introductory $59 one-way fare - air travel between the two cities is going to get a lot cheaper, and permanently. It's called competition.

"It's amazing, whenever Southwest goes into a city, the fares just plummet," said Jeffrey Erlbaum, owner of Eta Travel in West Conshohocken, who books most of his Philadelphia clients to Boston either on Amtrak or on Southwest flights to Manchester, N.H., and Providence, R.I., rather than pay the sky-high fares.

"And when Southwest pulls out of a city - like they did flying Philadelphia to Hartford, Conn. - the fares went from $100 to $200 round-trip to now up in the $700-to-$800 round-trip range," Erlbaum said. "Because no one else flies there except US Airways."

Southwest, the nation's largest low-fare carrier and Philadelphia's second-busiest airline, said that it was careful about where it flew and that the Philadelphia-Boston route was going to be a great one.

"We are known for sticking with what we try to do," said Southwest's vice president of properties, Bob Montgomery, at a ribbon-cutting for a new terminal expansion and aircraft gates at Philadelphia International Airport.

"We are dropping the fares to one-tenth of the normal fares," Montgomery said. "Typically, when we lower fares, more people are able to fly, and so it expands the marketplace."

The $59 introductory fare to Boston, which is being matched by US Airways for the period of Southwest's fare sale June 27 to Aug. 13, will absolutely go up, but nowhere near present levels.

"The fares, in round numbers, will eventually look a lot like the fares back and forth to Pittsburgh," said airline analyst Bob McAdoo, with Avondale Partners.

"The distances are about the same. Philly-Pitt was for years a monopoly by US Airways with high fares," McAdoo said. "Southwest came in with some extremely low fares and a modest number of flights." The result now: You can find US Airways one-way to Pittsburgh in March for $59 and $89.

"The Boston fares will gravitate down," McAdoo said. "It will cost you about the same to go to Boston as it now does to go to Pittsburgh."

US Airways can charge high prices for a short-haul flight to Boston because there is no easy way to connect to another carrier and get there. "It's tough to find an alternative. It's not unique to US Airways or unique to this market," McAdoo said. "You find really high fares where nobody else competes."

Analysts agree the new route is a smart move for Southwest, which began flying to Boston from Chicago and Baltimore in August.

Although US Airways' revenue will take a hit, in the context of its overall network, the new competition will not have a measurable effect on finances, analysts say.

"The assets of an airline are a portfolio of assets, so no one route is a make-or-break route," said airline analyst Dan McKenzie of Next Generation Equity Research.

Boston was the sixth-largest market for US Airways in Philadelphia in 2008, but Philadelphia's largest airline also has international revenue, and Philadelphia is its international hub. With 65 percent of the Philadelphia market, compared with Southwest's 14 percent, "Southwest is still a pretty small competitor overall in Philadelphia," McKenzie said.

Southwest is shrinking about 7 percent overall in the first and second quarters - eliminating airplane seats and capacity - in markets where it competes with US Airways and "there is direct overlap between the two carriers," McKenzie said. "Southwest is having a bigger impact in Denver and in St. Louis, where it has dislodged American Airlines from the market essentially."

"Southwest has had success competing against American and United, which historically have higher cost structures and higher fares, vs. US Airways, which has one of the lower cost structures among legacy carriers," McKenzie said. "I would argue US Airways fares, on average, are lower than some of its peers."

But not from Philadelphia to Boston.

Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

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