US majors such as Continental and United Airlines are increasingly looking overseas for growth as low-fare competitors limit their domestic opportunities.
United, for one, is pinning its post-bankruptcy expansion on international flying, while Continental has stressed secondary European cities in its most recent expansion.
By the end of 2005, United plans to devote 41% of its capacity to overseas flying - up from the current 35% - and hopes to derive more of its revenue from flying between the USA and Asia, Europe and Latin America than from domestic flights. United says its international activities now account for 46% of revenue, but by the end of 2005 it hopes overseas markets will provide 55% of sales. The airline plans to double capacity to China, add more services to Japan and begin flights to Vietnam. United will also expand its services to Mexico and the Caribbean, mostly with its low-cost unit Ted.
Airline consultant John Pincavage says: "The majors really are looking for areas where competition is limited. Low-fare international service is not an immediate factor. United's greatest strength is its Pacific network and its Narita routes, and it can support that with its domestic feed."
United has already cut its domestic presence by 14% since 2000, and will again trim domestic capacity, excluding Hawaii, another 14% by the end of 2005. It intends to increase its capacity in Hawaii by 9%. It also plans to trim its mainline fleet to 455 jetliners by March from the 523 it operated in August. Standard & Poor analyst Phil Baggaley says the increasing reliance on regional jets and on increasing international feed through its hubs are positive signs.
Continental's new routes cover Belfast, Berlin and Hamburg, all from its Newark Liberty hub with Boeing 757s, starting next spring. Expansion of Newark routes to the UK this summer include a service to Edinburgh and a second daily flight to Birmingham. A service to Bristol is planned for summer 2005. Continental has sought Newark-Moscow rights too. The airline has also won US rights for nonstops between Newark and Nigeria.
Pincavage says: "With the right size aircraft and if they have sufficient feed on the American side of the Atlantic, the routes may well work." It will face little competition, although Delta too plans Berlin flights next spring, from New York JFK. The Berlin service will be the first ever from a US city.
A healthy rise in international traffic has given the carriers the confidence to expand their overseas schedules. Continental's August transatlantic traffic grew by more than 25% year-on-year. In September, United's Pacific traffic increased 9% from the same period last year. Traffic to Europe was up 6.5% over the same period. Other airlines have been enjoying similar increases. American Airlines, for example, saw its traffic over the Atlantic increase 17% during the same period. Its traffic to the Pacific rose 42%.
DAVID FIELD WASHINGTON
Source: Airline Business