It's a vicious battle that in the end will transform the industry and its marketing tactics as most carriers compete for travelers who only want to pay low fares. Indeed, several years may pass before the focus of airline advertising shifts away from price and back to image building.
The emerging formula, perfected by Southwest Airlines, demands that carriers reduce their costs to economically provide lower fares, day in and day out. If it sounds like Procter & Gamble Co.'s value pricing plan, that's not far off.
"This is Sam's Club with wings," said James O'Donnell, chairman of Seabrook Marketing, a Houston travel marketing consultancy.
The smart money is still on Southwest, originator of this strategy among airlines. But Continental Airlines and USAir Group have recently upped the ante, indicating their serious intent to challenge the low-cost, low-fare king.
By March 9, Continental will have nearly tripled the number of its no-frills Peanuts Fares to 875 daily departures. That's more than half of the carrier's 1,599 daily flights, a dramatic increase since the low-fare service began last October.
Continental ran a three-page newspaper ad in Houston last week that began: "Big airline service. Small airline prices. (Impossible? Turn the page.)" The headline on the following spread read: "Introducing Continental's New Peanuts Flights." The Richards Group, Dallas, is the agency.
In response, USAir wasted no time cutting fares in East Coast markets that compete with Continental. Print ads from Earle Palmer Brown, Bethesda, Md., are headlined "USAir's low fares. No strings attached."
Southwest is blunting Continental's invasion on its low-price turf with newspaper ads headed "We're the low-fare leader. And we've got the numbers to prove it."
A separate page ad in Houston advised travelers to look no further than Southwest for low fares. It read: "There's no need to call anyone else. Because Southwest Airlines brought low fares to Houston over 22 years ago. And we're still doing it."
Low fares have worked so well for Southwest that it has been the only consistently profitable U.S. airline in the past three years. Southwest plans to keep low-fare leadership, using fleet and route expansion to become the first truly national low-fare carrier.
"We've had a simplified, low-fare structure for 21 years and we've kept that in place," said Keith Taylor, Southwest director of revenue management. "What's happening is that a lot of carriers are trying to emulate us from a low-fare strategy. We try to keep costs as low as we can, and when passengers decide they want to travel with low fares and quality service, they come to Southwest."
Saddled with fixed high costs, airlines admit the challenge to become an EDLP player is far from easy. American Airlines has said it won't even try.
But others will, and their success will depend on the ability to reduce costs.
United Airlines is working on U2, the code name for an airline within an airline, which will offer low fares on short-haul routes. If the employee buyout gets shareholder approval, United will have significant labor cost advantages that will enable it to offer a low-fare product.
Delta Air Lines has been working on a low-fare, short-haul concept but as yet has not revealed specific plans. Northwest Airlines is on the fence.
Until the major airlines get their low-cost, low-fare acts together, they're sitting ducks for new regional entrants like Kiwi International Airlines, Newark, N.J.; Midway Airlines, Chicago; ValuJet Airlines, Atlanta; and Reno Air, Reno, Nev.
"What all these carriers have done with price is they've found a way to break some of the bonds that major airlines have created over the years with frequent flier programs by establishing fares so low that people will say, `I will fly,"' said Bruce Mainzer, United's director of market research and development.