More Overseas Flights May Mean Lower Profit
The skies over the Atlantic are getting more crowded these days, which could be bad news for U.S. airlines hoping to earn big money from international flights.
Several airlines have begun significant expansion of their overseas schedules in recent months, most notably Delta Air Lines, which is in bankruptcy.
International routes generally avoid competition from discount airlines such as Dallas-based Southwest Airlines or AirTran Airways, so those flights are often more profitable than domestic trips.
But a wave of new service, particularly to Europe, has some experts predicting the airlines will earn less than they hoped.
"It didn't take a mental giant to see that this was going to happen," said Terry Trippler, an analyst for Internet travel site Cheapseats.com. "When there are more flights and more seats, prices are going to go down and revenues follow."
Executives with Fort Worth-based American Airlines said Tuesday that they will cancel previously announced service between New York City and Newcastle, England, in part because of heightened competition.
"Our concerns related to everything from jet fuel costs to general demand to the excess international capacity being thrown at the European market by bankruptcy carriers," said Tim Smith, an American spokesman.
He said he didn't consider the cancellation a predictor of the state of overseas service.
He pointed out that American began nonstop service from Chicago to Delhi, India, last month and from Boston to Shannon, Ireland, in May.
And Smith noted that the airline continues to plan for its launch next year of nonstop service from Chicago to Shanghai, China.
But he added that "there is certainly some question going forward about what will happen to [average fares] in the Atlantic."
American has been pruning its domestic schedule in recent months because of high fuel costs, canceling dozens of flights temporarily.
It also shelved service between Chicago and Nagoya, Japan.
Delta, which filed for bankruptcy this year, announced a big shift to international service in November. The airline plans dozens of new routes to Europe, the Middle East and Latin America, and plans to increase its international capacity by 25 percent in 2006.
The airline has announced 11 new routes to Europe and recently expanded its call center in London. With 53 trans-Atlantic flights, the Atlanta-based carrier will be the world's largest airline across the Atlantic.
In addition to Delta and American, Houston-based Continental Airlines has declared its intention to fly overseas more.
And startup carriers MaxJet and Eos, which both cater to business travelers, also plan flights from New York to England.
Henry Harteveldt, a travel industry analyst with Forrester Research in San Francisco, said the high price of jet fuel and the growing competition make international service less of a slam-dunk for the major airlines.
"Look at American, with the price of fuel and the competition, it just doesn't make sense to take an airplane out of domestic service to fly it to Newcastle," he said. "Unless the price of fuel comes down, the economics just don't work."
Analysts said American may do better with its expansion into Asia, where it has operated few flights.
The competition is likely to be less fierce in those markets, and demand for flights to Asian cities is expected to boom in coming years.
"The competitive environment is generally more manageable in Asia," Harteveldt said.
Regardless, observers praised American for yanking its Newcastle service once it became clear it would lose money.
"Some airlines would have stayed in anyway just to get the market share, and I think American was wise to pull it," Trippler said. "There's no point in throwing money away."
News stories provided by third parties are not edited by "Site Publication" staff. For suggestions and comments, please click the Contact link at the bottom of this page.