ANALYSIS: US airlines expand in Asia despite competition

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United Airlines launched its new flight between San Francisco and Chengdu today, just one of the numerous new trans-Pacific routes being added by US carriers in June.

American Airlines will begin new daily nonstop flights from its Dallas/Fort Worth hub to both Hong Kong and Shanghai Pudong International on 11 June, while Delta Air Lines launched daily flights between Seattle/Tacoma and Seoul Incheon on 2 June and will begin new daily flights between Seattle/Tacoma and Hong Kong on 16 June.

The additions come as both Delta and United – the two largest carriers in the trans-Pacific market – continue to report yield pressure in the region. The former cites depreciation of the Japanese yen and the latter both yen depreciation and competitive capacity to China.

“China was positive and obviously our Japanese flying was the main source of the negative unit revenue driven by the yen devaluation,” said Richard Anderson, chief executive of Atlanta-based Delta, in April. Unit revenues fell five percentage points in the first quarter compared to a year earlier.

The SkyTeam alliance carrier is responding by restructuring its Pacific network away from a large connecting hub at Tokyo Narita and towards a primary gateway at Seattle/Tacoma airport.

Capacity on Delta will be down 1.4% to 1.09 billion available seat miles (ASMs) between Asia and the USA in July compared to a year earlier, Innovata FlightMaps Analytics shows. Service was discontinued on the Seattle-Osaka route in November 2013 and San Francisco-Tokyo route in March 2014.

Delta trans-Pacific routes, July 2013 vs July 2014

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Innovata FlightMaps Analytics

“There are some near-term challenges… in terms of the capacity, particularly to China where we're seeing 20% growth [in the second quarter],” said James Compton, chief revenue officer at Chicago-based United, in April. Pacific passenger unit revenues fell 6.3% year-over-year on a 1.4% increase in capacity in the first quarter.

“We have adapted,” he continues. “The [Boeing] 787 is the terrific aircraft for us to kind of manage some of the competitiveness given its fuel efficiency and its gauge and so forth. I think for us what we'll always do is continue to kind of watch demand and make sure that capacity is in line with demand.”

The Star Alliance carrier calls its new service to Chengdu an area of “new opportunity” as the first ever nonstop to a second-tier city in China by a US carrier. It is also one made possible by the Boeing 787-8 that will ply the market three-times per week.

Other changes include focusing on areas of strength, for example discontinuing its Tokyo Narita-Bangkok flight in favour of transferring passengers to partner All Nippon Airways (ANA) on the route and adding a second daily Houston Intercontinental-Tokyo Narita flight.

United trans-Pacific routes, July 2013 vs July 2014

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Innovata FlightMaps Analytics

Capacity on United will be up 7.8% to 1.6 billion ASMs between Asia and the USA in July compared to a year earlier, according to Innovata.

American remains a small player in the market. With just 519 million ASMs in July, it is less than half of the size of Delta and a third of the size of United across the Pacific, according to Innovata.

The Fort Worth, Texas-based Oneworld alliance carrier has yet to report a material impact from the yen depreciation or increased competitive capacity in the market. Instead, it is contributing to that competition with its new Hong Kong and Shanghai flights.

“Figuring out how to make Los Angeles successful and a gateway to Asia is a strategic issue for us,” said Scott Kirby, president of American, in April. Executives are focused on closing the gap with Delta and United in the market.

American trans-Pacific routes, July 2013 vs July 2014

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Innovata FlightMaps Analytics

Capacity on American will be up nearly 15% on trans-Pacific routes in July compared to a year earlier, according to Innovata.

Of course, US carriers are not the only ones growing on trans-Pacific routes. Air China launches Beijing-Washington Dulles flights on 10 June, Hainan Airlines Beijing-Boston on 20 June and China Southern Airlines Guangzhou-New York JFK on 6 August, to name a few upcoming launches.

Capacity between Asia and the USA will be up 8.9% to 8.94 billion ASMs in July compared to a year earlier, Innovata data shows.

US carriers remain the leaders in the market by a long shot despite the increasing competition. The number one carrier by capacity, United, flies 507 million more ASMs into Asia than its closest competitor Delta, and 714 million more ASMs than its closest Asian competitor Korean Air, which is third in the market.

Jeff Smisek, chairman, president and chief executive of United, said in January that its growth strategy in Asia would focus on second-tier cities going forward. When asked whether this meant less service to the first tier cities it already serves, he said unequivocally: "No."