From the NY Times, http://www.nytimes.com
Although Possible War Looms, Airlines Step Up Flights to U.S.
By EDWARD WONG and MICHELINE MAYNARD
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.