Downfall Of Top Airlines A Boon To Smaller Operators

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Travelers found alternatives. Southwest Airlines, which didn't fly outside of Texas when the skies were deregulated, already had captured nearly 7 percent of the market by 2001. After 9/11, it expanded quickly, kept fares low, and cheekily promoted its no-frills, no-hassles, no-fees style of service. It made a habit of attacking the legacy carriers at its weakest hubs. The legacy lines usually beat a hasty retreat rather than duke it out with the disciplined interloper. The result: Southwest now commands nearly 9.5 percent of the U.S. market and this year began moving into big markets such as Boston, New York, and Minneapolis.

JetBlue, which launched in 2000 with a fusion of Southwest's operational simplicity and cool new frills like free live TV, grew rapidly too. It drove competitors out of many Northeast-Florida markets, found a niche on transcontinental flights, and successfully positioned itself as an antidote for the shoddy service offered by legacy lines. It wasn't among the nation's 30 largest airlines on 9/11, but now it's the seventh largest and controls 3.63 percent of the market.

Two other carriers, Alaska Airlines in the West and AirTran Airways in the Southeast, also dared to challenge the legacy airlines. Based in Seattle, Alaska now flies coast to coast and has grown to nearly 3 percent of the market. Ditto AirTran, which grew right under Delta's nose in Atlanta.

These four carriers represented just 9.6 percent of the market on 9/11. Today they account for 18.57 percent of the nation's traffic.

Of course, the legacy carriers won't disappear anytime soon. And they aren't quite as small as they look on paper. Although the Big Five now combine for just 71.79 percent of the market, they control 6.84 percent more through their commuter airlines, which are a mix of independent franchisees and wholly owned subsidiaries.

Still, the legacy carriers have gone from 100 percent of the market in 1978 to 85 percent on 9/11, and they've lost an additional share point each year since. Nothing in the third-quarter numbers will help reverse the trend. And should a horrific winter drive the big boys back to the edge of serial bankruptcy, there's not likely to be much sympathy for another taxpayer bailout.

That's what happens when you become too small to be too big to fail.

The Fine Print…

Only one legacy carrier, Continental, has a shot at a third-quarter profit. Analysts say it could earn a penny a share. Continental is also the only legacy line that has grown since 9/11. It controls 11.22 percent of the market compared to 9.81 in 2001. United has contracted fastest: In 2001, it was the nation's largest carrier with 18.84 percent of the market; it has shrunk to 13.75 percent. American has fallen to 15.83 percent from 17.05 percent. Including Northwest, Delta represents 23.2 percent of the market; it had a combined share of 27.46 percent in 2001. US Airways, which merged with America West in 2005, is at 7.79 percent compared to its combined market share of 10.56 percent in 2001. (Statistics are based on "revenue passenger miles," the industry's key indicator of turnover.)

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