Word: valujet
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Dates: during 1990-1999
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Discount airlines are still the most potent force in challenging the high fares in the majors' "fortress hubs." Before ValuJet resumed service between Atlanta and Dallas-Fort Worth in April, a round-trip ticket cost $490; subsequently, the price dropped to $138. Flying into an "alternative city" served by many discount carriers can also shave dollars. A round trip between San Diego, Calif., and Washington costs $564, but flying into Baltimore, Md., instead, a route now covered by Southwest, costs $268. "The low-cost carriers are driving the big guys crazy in cities where there was no competition," says Parsons...
Given the airline industry's fundamentals--rising prices and full planes--low-priced airlines should be in first-class condition. They're not. In the aftermath of the ValuJet disaster last year, air travelers began to redefine "no frills" airlines as "no safety" airlines. In the six-month period after the crash, their bookings went into free fall, taking their stock prices along for the ride...
...ValuJet has a new competitive problem too. When ValuJet launched its low-cost service in Atlanta, incumbent Delta didn't pay much attention. But Delta's service level crumbled as it tried to cut costs, and ValuJet proceeded to inhale market share...
...also because, despite the full planes and record profits, the industry is still burdened with a large amount of debt and faces big capital outlays for new equipment. The U.S. has the oldest fleet in the developed world. Nor is the threat from discount carriers over. Although the ValuJet crash took with it the public's confidence in upstart airlines, the barrier to entry is still relatively low. Capital, pilots, planes and entire outsourced airline service industries are readily available...
...spoke system was created in the late 1970s and early '80s to create "fortress hubs" and full planes. For passengers, this means fewer nonstop flights, reduced meals and higher fares. The strategy faltered when low-fare carriers landed in the hubs and ticket prices dropped exponentially. But the ValuJet tragedy has devastated the low-cost carriers. When ValuJet recently announced plans to end service between Mobile, Alabama, and Atlanta (a Delta fortress hub), the lowest available fare on Delta shot up overnight from...