International Service Embraced as Best Bet for U.S. carriers

May 7--American Airlines spent more than a decade lobbying for the right to serve China, an effort that paid off this year when the carrier began flights between Chicago and Shanghai. The move came just months after American added service to Delhi, India...


May 7--American Airlines spent more than a decade lobbying for the right to serve China, an effort that paid off this year when the carrier began flights between Chicago and Shanghai. The move came just months after American added service to Delhi, India.

And United Airlines, long the dominant U.S. carrier in Asia, recently expanded its international lineup, including more service between Chicago and Mexico, resuming a daily flight to Amsterdam and adding service between South Korea and San Francisco.

For each it was about much more than adding pins on their route maps.

Expanding international service is a crucial component of the carriers' strategies to return to profitability in the wake of major airline bankruptcies and heightened bottom-line pressure.

All of the large U.S. international carriers are deriving more of their revenue from international flights. For example, $27 of every $100 in operating revenue for American Airlines in 2003 came from worldwide operations. Last year, such flights accounted for $36 of every $100.

"Simply, we are following the growth model," said Athar Khan, director of American's Asia/Pacific operations. "The world's largest growth is in India and China. That's where the growth is; that's where business is moving."

Airlines are trying to leverage their hubs and route networks and find the right lineup of international destinations that will help drive traffic across their systems. Success means they will make more money than the price wars associated with intense domestic competition currently allow.

As prized corporate customers move their business to carriers that can get them to Asia, Europe and Latin America, airlines that can't offer the flight mix of global destinations get marginalized. Travelers will turn to another U.S. airline or their foreign competitors, such as Air France-KLM, British Airways or Asian carrier Cathay Pacific.

An international reach is also the single greatest advantage large carriers have over rival discounters like Southwest Airlines and AirTran Airways. Southwest may have the lowest fare to Phoenix, but it is not an option for the business person who needs to make a sales call in Hong Kong.

For the moment, international service can be a lucrative port in that storm.

Consider United Airlines. Last year, domestic passenger revenue fell 2 percent, to $8 billion, partly because of the carrier's efforts to reduce capacity in a bid to sustain higher fares. Revenue from international service during the same period grew to $4.9 billion, up 12 percent from the previous year.

Other airlines also are pursuing international strategies, each attempting to leverage strengths. Delta Air Lines, which lacks a large Asian presence, has been beefing up its European service. Northwest Airlines, known for much of its history as Northwest Orient, has attempted to capitalize on its strong presence in Asia, particularly its Tokyo hub. Continental Airlines is drawing on the strength of its Newark, N.J., hub, with flights from there to Asia and Europe.

Simply having international routes is no guarantee of profits. American, for example, lost nearly $279 million on its service over the Atlantic during the first nine months of 2005, according to federal transportation data. During the same period, Continental lost $333 million on its service over the Atlantic. But United had net income of almost $517 million on its European routes.

The opportunity for additional growth is one of the reasons Elk Grove Township-based United has placed so much emphasis on expanding internationally, particularly in Asia. Service to Asian-Pacific countries accounts for 25 percent of United's capacity.

They are routes that fetch a premium from travelers. A coach ticket on a United flight between Chicago and Beijing costs about $1,900 round trip. However, a seat in the business section of that flight is about $7,700. First class will fetch nearly $11,600.

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