Last week, a round-trip airfare on Northwest Airlines to San Francisco could be booked for $118, about one-third of its usual cost, as Northwest responded to a special, $49 each-way promotion by low-fare carrier Sun Country.
That type of dogfight is becoming more common at large U.S. airports as more of them see low-fare carriers establish a significant presence.
"The airline industry is likely the most competitive it has ever been," concludes an analysis by former senior U.S. Department of Transportation officials. More passengers "are benefiting from increased numbers of competitors, increased presence of low cost airlines and lower fares."
While the trend is affecting Minneapolis-St. Paul, it is proving slower to take hold than in most major cities.
Travelers beginning their trips at Minneapolis-St. Paul International Airport on average pay 21 percent more than travelers starting at other hub airports because of the relative lack of low-fare carriers here, according to the former Transportation Department officials' report.
With increased service from low-fare carriers, the so-called "hub premium" isn't as steep as it used to be in the Twin Cities. Twelve years ago, the premium was 38 percent.
Minneapolis-St. Paul "now ranks fourth-highest," said Patrick Murphy, co-author of the competitive analysis and a former deputy assistant secretary for aviation at the Transportation Department. "It's not in the ranks of the worst, but there is still a premium."
Murphy said the strength of Northwest Airlines in this market contributes to the fare premium by keeping smaller carriers out of the market. In 2006, Northwest flights accounted for 76.5 percent of takeoffs and landings at the airport.
Northwest takes issue with the concept, arguing that the premium is the sum of other factors that affect fare levels.
"There's no question that the average air fare in Minneapolis is higher than the average fare nationally," said Ben Hirst, Northwest's senior vice president of corporate affairs and administration. "But to attribute that to the fact that Minneapolis is a hub implies this is caused by some form of market power that Northwest has. That is not accurate. The reason fares are higher is because Minneapolis has a higher concentration of businesses and headquarters and that drives business travel, which is often last-minute and a higher fare."
Murphy called that explanation a self-fulfilling prophecy. "I've been hearing that for 10 years," he said. "There's more business travel because leisure travelers are discouraged from traveling. If you had lower fares, you'd have more leisure travel."
But the Metropolitan Airports Commission (MAC) thinks that competition eventually will become keener at the airport. Commission officials say they are in regular discussions with several national low-fare brands, including Southwest Airlines, the gold standard for low-fare service.
"They will be here. I can't give you a time, but they will be here," said William Wren, the MAC's point man in the search for more competition at the airport. "Southwest is looking at locations now they never would have looked at in the past."
Asked if Twin Cities travelers pay a premium, Wren said, "I wouldn't argue with that at all."
Terry Trippler, a Minneapolis-based passenger advocate, isn't so sure that Southwest or even a JetBlue would enter this market as long as Northwest remains the "800-pound gorilla."
Trippler said Southwest's best option for breaking into the Twin Cities market on high-traffic routes would be with service to Chicago Midway, but that route is already saturated by Air Tran and Northwest. Trippler said Southwest could serve Minneapolis-St. Paul from its mini-hub in Kansas City, but he considers that unlikely.
"When they come into a market, they come in with six-seven-eight flights a day, not just one," he said.
Merger a game-changer?
Trippler said the landscape could change if Northwest was acquired in a merger and flight operations no longer were centered in Minneapolis.
"If there was a merger and Northwest was not the survivor, you can bet the rent that the MSP hub would not get any bigger and then you may see Southwest jump in," Trippler said.
The analysis by the former Department of Transportation officials said competition between network carriers and low-fare airlines will heighten for the foreseeable future.
"Low-cost airlines provide service to large numbers of price-sensitive passengers who would not otherwise have the opportunity to travel by air," the report said. "Where both [network and low-fare] serve, competition is intense and this competition will continue to benefit increased numbers of passengers and markets."
Hirst noted that competition from low-fare carriers was a contributing factor in the recent bankruptcies of most major carriers, including Northwest. "Network airlines were facing competition from low-fare carriers and you either lost traffic or matched fares that didn't cover your costs," he said.
However, an area where competition likely will not intensify is along routes to small and medium-size cities that the low-fare carriers avoid because of insufficient ticket demand. Those destinations remain attractive to larger carriers because they can use regional jets and partners to feed those passengers to their hubs.
Network carriers also are adding international flights, which have yet to see major competition from low-fare airlines except on crowded routes such as New York-London, in order to generate more revenue. Northwest, for instance, recently announced it would begin non-stop service between Minneapolis-St. Paul and Paris in April.
Hirst said the large U.S. airlines need to think more globally to thrive.
"International markets are growing," Hirst said. "The Asian economy outside of Japan is booming. Economies such as Russia that are resource-based are seeing a lot of travel. The international market is becoming increasingly important to the U.S. as the economy becomes more global."
David Phelps • 612-673-7269
