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Airlines Adding Flights To The US Despite War

Wed Jan 29, 2003 6:52 am

From the NY Times,

Although Possible War Looms, Airlines Step Up Flights to U.S.

Despite the prospect of a war sure to cut sharply into international travel, airlines around the world are increasing service to and from the United States — especially over the Atlantic — as the battered industry presses its desperate hunt for profits.

Large airlines face little competition from low-cost carriers on overseas routes and so have not had to cut fares there as much as in domestic markets, notwithstanding the traditional winter-season sales on leisure travel.

Last-minute, unrestricted fares paid by business travelers remain an important source of profitable business.

As a result, many airlines that continue to cut back their schedules and capacity within their home countries or regions are ratcheting up international service to American cities to levels approaching those in 2000, considered a boom time for the industry.

"We've got to go where the demand is," said John Lampl, a spokesman for British Airways, which is operating slightly more flights to and from the United States now than it did at the end of 2000. Mr. Lampl said the airline's seat capacity this summer will be 8 percent higher than last summer. Its trans-Atlantic service is by far its most profitable business segment, according to company reports.

But a war with Iraq could bring the industry's ambitions down to earth. The Air Transport Association, the domestic airlines' main trade group, is predicting that international traffic will drop by at least 10 percent over the same time last year if war breaks out. Trans-Atlantic traffic will drop by at least 20 percent, the group said

In February 1991, right after the start of the Persian Gulf War, trans-Atlantic traffic fell by 44 percent year-over-year, and travel across the Pacific by 21 percent, the group said. Executives expect the drop will be less this time because the slow economy has already been hobbling travel for more than two years, and because travelers are more inured to the risks of flying since the Sept. 11, 2001, attacks.

Still, executives say that the anticipation of an American attack on Iraq has already led to a drop in advance international bookings. And the airlines acknowledge that their contingency plans in the event of a war will depend heavily on how events actually unfold.

"As a planner, there's no issue that's more in a category of waking you up in the middle of the night," said Henry Joiner, executive vice president for strategic planning at American Airlines.

There are already signs that aggressive capacity additions could backfire in this unpredictable climate. Early this month, KLM, the Dutch carrier that has a code-sharing agreement with Northwest Airlines, surprised the industry when it said it would not make an operating profit this fiscal year and would have to scale back operations partly because of the threat of war. KLM had been adding capacity quickly last year, including to its American schedule, which in December had capacity levels that were down only 4.3 percent from the end of 2000, according to Back Aviation Solutions, an airline consulting company.

Other airlines remain undeterred by the uncertainties.

American Airlines, the world's largest carrier, will increase its international capacity by 7 percent this quarter over the same period a year ago, even as domestic capacity remains flat, said Jeffrey C. Campbell, American's chief financial officer.

Similarly, Lufthansa's trans-Atlantic schedule this summer is likely to reflect a 7 percent increase in capacity over the same period in 2000, said Thomas Winkelmann, the German carrier's vice president for the Americas. Meanwhile, Lufthansa is taking nine aircraft out of service in Europe because of weak demand.

"We are pretty optimistic for 2003, but of course we're also careful business people," Mr. Winkelmann said.

Trans-Atlantic business accounts for a significant portion of overall revenue at European carriers, because domestic flights are so short and because low-cost carriers like Ryanair have eaten away at the older airlines' market share. Trans-Atlantic passengers produce 22 percent of Lufthansa's revenue and 19 percent of revenue at British Airways.

For carriers based in the United States, international flights account for about a fifth of passenger revenue, according to John Heimlich, an economist at the Air Transport Association. Northwest relies on such flights for 35 percent of its passenger revenue, and United Airlines for nearly the same amount of its total revenue.

Eastern Air lines flt # 701, EWR-MCO Boeing 757
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RE: Airlines Adding Flights To The US Despite War

Wed Jan 29, 2003 6:53 am

Although Possible War Looms, Airlines Step Up Flights to U.S.
(Page 2 of 2)

Most important for the airlines, international routes are where they squeeze out bigger profits, or at least narrow their losses. The longer the flight, the lower the cost to fly one seat one mile. A lack of competition from low-cost carriers gives the large airlines more pricing power on these routes. There is less overcapacity right now in overseas markets, say industry experts, so planes there fly with fuller passenger loads.

In the first three quarters of last year, major airlines in the United States together had an operating loss of $5.9 billion on domestic flights versus a loss of $905 million on international flights, according to Back Aviation. Those airlines collectively eked out a profit on trans-Atlantic routes in the second and third quarters — $5.7 million and $75.4 million respectively.

Ticket yield for those airlines — a measure of how much revenue each passenger generates per mile — dropped 15.5 percent on domestic routes in the third quarter of last year versus the same period in 2000, but fell only 5.1 percent on international routes.

In the same months, revenue per available seat mile — a standard industry measure — fell 18.8 percent on domestic routes versus a mere 6.6 percent on international routes.

All this has contributed to a scramble among the world's airlines to grab market share on routes to and from the United States. "Almost every European and Asian carrier has an eye on the U.S. market," said Daniel Solon, a senior airline consultant at Avmark International in London.

Though airlines flying over the Pacific generally have been slower to add back capacity, Singapore Airlines plans to increase its trans-Pacific service by adding a nonstop flight from Los Angeles next year, said James Boyd, a company spokesman. It opened a one-stop route from Las Vegas last year, and hopes eventually to increase the frequency of its three-times-a-week trans-Atlantic flights from Chicago.

Singapore has been one of the most aggressive carriers in adding trans-Pacific capacity — its seat count on those routes was up nearly 12 percent last month over December 2000, while its United States departures were up nearly 11 percent, according to Back Aviation.

Northwest is also betting heavily on its Asian routes. It is opening a new terminal at Tokyo Narita International Airport in April even as it expands its Asia service. By the end of last year, its trans-Pacific seat capacity was down only 9.3 percent from December 2002, a sharp change from last September, when it was down twice that year-over-year. In those three months, it also halved its drop in trans-Pacific departures from the United States.

US Airways, operating under bankruptcy protection, has added new flights to Caribbean cities from its hub in Charlotte, N.C., and will add service this spring to two cities in Ireland from its hub in Philadelphia, which it is using as its main base for trans-Atlantic flights. In the second and third quarters last year, US Airways had an operating profit of $72.7 million on its trans-Atlantic flights, one of three major American carriers to make money in that region.

American Airlines will add trans-Atlantic flights to Barcelona and Rome during the peak summer season, when Northwest will add service from Detroit to Madrid. Those are routes that the carriers had not flown before. Northwest, though, does not plan to increase its overall trans-Atlantic capacity this year over 2002, while its trans-Pacific capacity will grow by 1 percent.

Though airline executives are quick to boast of their expansion plans, they have been vague about what their companies will do in the event of war. Many say they have contingency plans for a drop in passenger traffic, but need to see what unfolds before taking specific steps. Ben Baldanza, executive vice president of marketing at US Airways, said the carrier might initially respond to a drop in trans-Atlantic service by canceling one or two flights to London each week while it watches to see how much demand actually falls.

"We won't know until we know," agreed Philip C. Haan, Northwest's executive vice president for international operations. "We're prepared to react, but you have to have real-time information to react. We've lived through recessions and oil prices spiking and the gulf war. I don't mean to diminish the impact, but we've been through this many, many times."

Mr. Heimlich said that the large jets used on many international routes will be tougher to re-deploy in current market conditions. When trans-Pacific air travel dropped off in the late 1990's because of the crashing economies in Asia, United was able to move some of its Boeing 747's to other routes. That option does not really exist now, he said, because the demand for air travel has fallen so much.

Jamie Baker, an analyst at J. P. Morgan Chase, observed that "airlines have been loathe to discuss details regarding contingencies because it's likely few contingencies exist currently."

He added, "It's exceedingly difficult to plan for the unknown."

Eastern Air lines flt # 701, EWR-MCO Boeing 757
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RE: Airlines Adding Flights To The US Despite War

Wed Jan 29, 2003 7:19 am

After 9/11 I actually flew a little bit more, taking shorter trips on planes that I would normally do by car (ones that require 12 hours of driving or less) as a way of being patriotic. If I can do that again I will, but unfortunatly, I , along with a lot of other people, have a less certain future right now then I had a year and a half ago.

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