Big Airlines Find Profitable Skies Internationally

For the six largest U.S. carriers, international markets are proving less turbulent and more promising.


They're not the friendliest skies U.S. carriers have ever seen. And they've discovered that war, disease or some other calamity can darken them quickly.

But for the six largest U.S. carriers, international markets are proving less turbulent and more promising -- for now -- than their own backyard.

Simply put, they're losing money by the billions on flights within the United States. But when their planes leave U.S. airspace, the picture turns profitable.

"The big network carriers are increasingly focused on international opportunities," said Karan Bhatia, assistant secretary for aviation and international affairs at the Federal Aviation Administration. "They're expanding services abroad. International services... represent a continuing area of opportunity for them."

At least for now. Some of the same dynamics that have turned their domestic operations into huge money losers could play out internationally as well.

The big airlines complain that too many seats are chasing too few passengers in the United States. Fares don't cover the costs of providing the service. Add to that the rising power of low-cost airlines such as Southwest and JetBlue, and you have a potent money-losing combination.

It all changes beyond U.S. borders. There, airlines enjoy some pricing power partly because of limits on competition and significant barriers to the entry of new players. Low-fare carriers aren't on the radar screen.

The outlook for international business and leisure travel is good, carriers say. It's fueled in large part by the increasing globalization of business, the rise of a middle class in nations such as India and still-strong leisure travel.

International traffic, measured in miles flown by paying passengers, rose 14 percent in the 12 months that ended Sept. 30. That's nearly double the domestic growth.

At United Airlines, where losses landed what was once the world's largest carrier in bankruptcy court, it's a straightforward analysis:

"There is more profit potential in the current environment internationally than domestically," said Graham Atkinson, senior vice president of worldwide sales and alliances at United Airlines.

Only about a third of United's passenger revenue comes from international operations. It's about the same at Northwest, American and Continental. At Delta, it's only 19 percent.

But the major airlines are putting all their growth into international flying this year while domestic flying remains flat.

The United States is keen to negotiate "open skies" pacts with other nations. They eliminate restrictions on how often carriers can fly between nations, the kind of aircraft they can use and the prices they can charge.

Under open skies pacts, a carrier from either country can fly from any city in either country to any city in the other country.

The United States has open sky agreements with 67 nations, including one struck in January with India, the world's second-most-populous nation. Some 2 million travelers fly between the U.S. and India annually.

In Europe, the United States is trying to negotiate an open skies deal that would include all members of the European Union. The nation has such deals with 15 of the 25 E.U. countries.

In the domestic market, bankrupt and otherwise struggling carriers are reluctant to raise fares, fearing it'll cost them passengers. But internationally, it's a different story.

"Competitors in the international market typically have the same motivation we have in terms of recovering some of the increase in fuel costs," Casey said.

Airlines also find more travelers on marathon flights are inclined to spring for higher-fare tickets that get them perks such as seats that essentially turn into beds.

"The longer the trip, the more critical it is to be comfortable throughout your entire trip," Northwest's Laura Liu said.

Comfort comes at a price: Booking a business class seat on a flight to Amsterdam, the Netherlands, from the Twin Cities a month in advance costs more than $7,400; it's about $800 back in coach.

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