ANALYSIS: Expansion by Chinese carriers hits United

Washington DC
Source:
This story is sourced from Pro
See more Pro news »

United Airlines is hurting on routes between the USA and mainland China, as Chinese carriers beef up service in the market.

The Chicago-based carrier says that “additional competitive capacity in China resulted in lower than expected yields in the Pacific” is partially the reason for an at least one percentage point decrease in passenger unit revenue guidance for the third quarter, in an investor update today.

Passenger revenue per available seat mile (PRASM) is expected to grow by 2.5% to 3.5% compared to a year earlier. United anticipated a 3% to 5% increase in July.

Capacity increased more than 23% between China and the USA during the third quarter versus the same period in 2012, Flightglobal/Innovata data shows. While Air China, China Eastern Airlines, Delta Air Lines and Hainan Airlines have all added new routes, Chinese carriers dominated the growth with a more than 44% increase in available seat kilometres (ASK).

United was the only airline to shrink in the market with a 1.8% decrease in ASK during the third quarter, according to Flightglobal/Innovata.

US-China capacity, third quarter 2012 versus third quarter 2013

asset image

Flightglobal/Innovata

New nonstop routes include Air China between Beijing and Houston Intercontinental on 11 July, China Eastern between San Francisco and Shanghai Pudong on 26 April, Delta between Seattle and Shanghai Pudong on 17 June and Hainan between Beijing and Chicago O’Hare on 3 September, Innovata’s FlightMaps Analytics shows.

US-China routes, September 2013

asset image

Innovata FlightMaps Analytics

In addition, China Southern upgauged its flights between Guangzhou and Los Angeles to a 506-seat Airbus A380 from a 284- to 374-seat Boeing 777-200 in October 2012.

United may not be the only carrier experiencing downward yield pressure between China and the USA. Other airlines have yet to provide guidance for their third quarter earnings but seldom does only one carrier bear the brunt of new competition.

Delta has already warned of lacklustre earnings from its Pacific operations, but has previously attributed this to a weakening Japanese yen.

United anticipates Pacific traffic to be down 0.9% to up 0.1%, on a 1.8% decrease in capacity in the third quarter, according to its investor update.

China excluding Hong Kong represents about a third of the airline’s capacity between Asia and the USA in September, FlightMaps shows.