The latest summer schedule sees growth return to the North Atlantic, but it remains an open question as to whether the market is set to fragment or consolidate
For the first time in three years, the summer season once more brings clear signs of growth for the North Atlantic. Frequencies and capacity are both showing healthy gains, led by a wave of new route additions and restorations from the US majors. Less easy to read is what the schedules say about airline strategy, with examples to support those on either side of the route fragmentation versus hub consolidation debate.
The growth, however, is clear enough. The July schedule shows a net gain of some 6% in seat capacity between Europe and the USA, the strongest that it has been for five years. Admittedly the volume is not yet quite back to its peak in summer 2000, but marks a significant recovery from the dark days of 2002 when capacity plummeted 15%. Even last year the market had still shown a further 1% fall as the struggling US majors continued to pull back.
According to the latest annual network analysis from Craig Jenks, of the Airline/Aircraft Projects Inc (AAP Inc) consultancy, the mid-summer schedule sees a net gain of 21 daily flights (see full table on page 72). In all, some 28.5 daily flights were added to the schedule, but another 7.5 services were also deleted. By contrast, last year saw a net loss of one daily service as 17.5 new daily service additions were more than cancelled out by eliminations.
Behind the upturn comes the return of the US majors. A year ago it had been the Europeans that had pushed for growth, with British Airways and Lufthansa leading the charge. At the same time the US carriers shed another 8% of capacity. That had left the Europeans with a significant market share lead over their US counterparts, an imbalance which the current season goes a little way to addressing.
OAG schedule data from BACK Aviation, shows the US carriers putting on 9% capacity growth in July, while the mid-summer growth for Europe and others is more muted at under 4%. The difference in frequency is still more marked, with the US majors netting out at 16 new daily frequencies against five for the Europeans.
The US delay in getting back onto the North Atlantic was not helped by the fallout from the Civil Reserve Air Fleet (CRAF) programme, which saw US airliner capacity harnessed for military use in support of the war in Iraq. Delta Air Lines, for example, had gone into the summer with three aircraft still tied up in CRAF. In the event, the bulk of the fleet was returned, but as Jenks points out, the real impact stemmed more from the last-minute uncertainty as the schedules were being drawn up.
Looking at where the new capacity is being added suggests that the market remains fluid. At the depth of the crisis two years ago there were, as expected, clear signs of a classic retreat to the relative safety of the hub. Last year the pattern looked distinctly less defensive, with increased activity on the point-to-point services. This season the trend is more difficult to call. The latest schedule sees a fairly even mix of defensive and aggressive plays. In terms of the fragmentation/consolidation debate, Jenks suggest that there are "strands to support both arguments".
At net level it is true that his analysis shows a stronger gain for intra-hub services after a few withdrawals from point-to-point services, such as Lufthansa's Frankfurt flight to Phoenix or United's Newark service to London Heathrow. "The ratio of hub-to-hub routes is relatively high this year," says Jenks, stressing that his classification of a hub is from the point of view of the airline serving it, rather than the airport's standing in the world or, indeed, its role for other carriers.
Certainly, much of this summer's route activity has focused on restoring routes dropped over the previous two years, which appears to support a more conservative trend among airline planners. Only one new city-pair appears on the schedule this summer in the form of the new daily Continental Airlines service from Newark to Edinburgh, backed by support from Scotland's Route Development Fund.
Perhaps the most striking theme, however, is the level of alliance connections being made across the Atlantic this summer. "For the first time it is looking as though most carriers know for sure which alliance they are in," comments Jenks. Close to two-thirds of the new service additions come with a codeshare opportunity and most of those with global alliance partners.
American, which now has partial codeshares with BA beyond the gateways, has added new UK links to London and Manchester. There is a new link too to the hub of codeshare partner SN Brussels.
Lufthansa has also added a daily service from Munich to Charlotte, linking to Star Alliance newcomer US Airways. However, Jenks suggests that Star has already completed much of the core work in forging transatlantic hub connections.
Most of the action, however, is coming from the evolving SkyTeam alliance. Air France's marriage with KLM has brought it into the fold, with Continental and Northwest Airlines due to join Delta as new US partners in September.
Delta has raised service out of New York to Paris and Milan, to link with existing alliance partners Air France and Alitalia, while also adding dailies from Cincinnati to Rome and to KLM's Amsterdam hub. Coming the other way, Alitalia flies to Boston and New York, while KLM has a third daily flight to Minneapolis, joining the two already operated by Northwest under their long-standing joint venture agreement.
In the run-up to SkyTeam membership, Continental too has restored its second daily out of Newark to Paris and raised frequency to Rome. "It seems they are influenced by the coalescing of the alliance as well as some generic catch-up after 9/11," comments Jenks.
But despite the growth in intra-hub traffic, not all of the moves support a trend towards consolidation. AAP Inc highlights the rise in Boeing 757 operations out of the USA, which are up from three to eight daily this summer. Three new 757 services from Continental and another from American are among this year's route additions.
Jenks focuses on two particular services to illustrate the point. The first is the American Airlines 757 operation from Boston to Manchester. It has already raised interest as a single-class economy service. However, Jenks tempers such enthusiasm by pointing out that since American was adding only a single 757, the investment in a new intercontinental business seat for the aircraft would have made little economic sense. In fact, the aircraft, which was pulled off domestic service, will retain the domestic first-class seat but that will now be sold as a full-fare economy upgrade. Nevertheless, the service does represent a significant move beyond Heathrow to the UK regions. In fact, early in 2003 American had announced plans to add a third daily from Boston to Heathrow last summer, even though the service failed to materialise amid the Iraq war.
The second service that Jenks highlights is another 757 daily to the UK regions in the form of Continental's second daily to Birmingham. The fact that Continental has chosen to add capacity outside London, as with the Edinburgh route, is itself interesting, but more significant, argues Jenks, is that the carrier has done so by raising frequency rather than simply increasing aircraft size. "Raising frequency is just another form of fragmentation and that is just what Continental is doing on the Birmingham route," he says, adding that in effect the service fragments the New York JFK market at one end of the route and Heathrow at the other.
The traditional problem for provincial airports such as Manchester or Birmingham, says Jenks, has been to resist the powerful pull of high-frequency service that has tended to suck local business passengers south to the major London hubs. A double-daily begins to answer that increasing sensitivity over timing. "On Birmingham-Newark Continental is now giving the business traveller that choice," he says.
As a footnote, AAP Inc also draws attention to Continental's reinstatement of its second daily service to Tel Aviv. Although not a European flight as such (and therefore not included in the analysis), he points out that Continental could just as easily have offered additional seats one-stop through the European hubs of its three soon-to-be alliance partners.
With a number of fledgling low-fare carriers now planning to try their luck on the North Atlantic, there is likely to be no less volatility ahead. That too could add another twist to the case for fragmentation.
Source: Airline Business