In announcing a long-held desire to establish a hub at Philadelphia, Southwest Airlines will face up to USAirways and also low-fare counterpart AirTran Airways.

Not content with stealing US Airways' lunch for a decade now, Southwest is moving deeper into the network carrier's home territory with service to Philadelphia, one of the strongholds of its East Coast heartland. It starts with 14 daily flights there in May, when Southwest will also go head to head with other low-fare players.

Southwest will begin with four gates at Philadelphia, where the airport will renovate and expand its space and double the number of security lanes. It will share a terminal with Northwest and Delta Air Lines. American Trans Air, which now uses two of the gates that will be given to Southwest, will relocate. Southwest could grow to eight gates, enough to support 80 daily flights. It will announce routes and fares this month.

At another former US Airways hub, Baltimore/Washington International (BWI), where Dallas-based Southwest began flights a decade ago, the discounter now operates 144 daily flights and carries more than 5 million passengers annually. It is now the largest airline at BWI, where AirTran Airways has joined the low-fares competition.

Southwest chairman Herb Kelleher, who made the Philadelphia announcement, pledged that his carrier is "not going to cannibalise Baltimore".

Kelleher, a native of the Philadelphia suburbs, says Southwest has been considering Philadelphia for 15 years. The airport, a source of as much as one fourth of US Airways revenues, "historically has been overpriced and underserved", he says.

US Airways chief executive David Siegel says the carrier will defend itself "aggressively and fairly" against the "major assault" by Southwest, and has told employees that the move is evidence that further cost cuts are needed. Consultant Mort Beyer warns the Southwest move "could kill" US Airways.

With more than half the traffic and revenues, US Airways has built Philadelphia into its third largest hub and its main international gateway, ahead of Charlotte and Pittsburgh. Around 555km (345 miles) west at Pittsburgh, the Philadelphia move may have a ripple effect - US Airways had threatened to pull out of Pittsburgh, but may decide to retrench there.

Southwest's Philadelphia entrance, which caught most observers by surprise, is its first new market since it started service at Norfolk a month after the September 2001 attacks. It is the first primary airport that Southwest has entered in years and is nearly as large as Los Angeles International, Las Vegas McCarran, or Phoenix Sky Harbor, three of the largest of Southwest's 59 airports.

In the "City of Brotherly Love", as Philadelphia is nicknamed, Southwest has set itself up for a two-for-one showdown. When Southwest starts, AirTran will have 19 daily flights at Philadelphia, including flights starting in February 2004, to some of the Florida markets Southwest is likely to serve.

The Southwest move at the city is the first in which the two discounters will overlap. For jetBlue, 130km to the north at New York City, the Southwest entry may well be a deterrent to moving into Philadelphia itself, say analysts.

Southwest officials suggest that they will be fairly cautious in growth at Philadelphia, and that they will gauge their growth by response from the New York City market as well as from the local market.

US Airways draws about 46% of its Philadelphia traffic from the origin and destination market. Southwest is likely to boost that, while also attracting passengers from as far north as the Newark area. That may give US Airways breathing room, says CSFB analyst Jim Higgins. He says the Southwest attack is not necessarily a death sentence for US Airways.

Source: Airline Business