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U.S. Airlines, After Rebuilding Home Networks, Look to Expand Overseas

The Wall Street Journal
2019-06-25 15:49

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U.S. airlines are rediscovering the rest of the world after years of ceding market share to rivals and international partners on overseas flights.
The big three network carriers are adding more than a dozen new routes and thousands of additional seats each week to destinations as far afield as South Africa, India and Croatia, reversing the trend over several years when they were outgrown by foreign airlines.
U.S. airlines are betting that three years of rebuilding their home networks by bolstering hubs and adding flights to smaller cities have given them a better foundation to expand overseas.
They are armed with new aircraft equipped with amenities that can boost margins on overseas flights, such as lie-flat seats. The strong dollar, meanwhile, is luring more Americans to far-flung locations abroad, creating a bigger pool of potential customers on new routes.
U.S. carriers will fly around two million more seats to and from Europe between May and July this year compared with the same period last year, according to published schedules, while domestic capacity will rise at less than half that pace, adding about 2.3 million seats.
That would reverse three years that saw overseas carriers claim a majority of the passengers flying into and out of the U.S.
American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc. were outgunned by the rapid expansion of carriers from the Middle East and China, and new low-cost, long-haul airlines such as Norwegian Air Shuttle A/S. Now, rivals such as Emirates Airline have slowed their expansion while U.S. carriers grow abroad again.
American leads the pack with 8.3% growth in capacity this summer, almost twice the pace of carriers in its Oneworld alliance, which includes British Airways and other members of International Consolidated Airlines Group SA. American raised the number of flights by less than 1% to Europe in the same period last year, while Oneworld expanded by 3.4%.
Delta and United are also taking on more European flying this summer than their partners in the SkyTeam and Star alliances, respectively. Growth across the Atlantic outweighs a drop in flights to Asia caused by cuts in flights to Japan and China, as well as a slowdown to Latin America because of the cooling economies in Brazil and Argentina. Middle East-based carriers such as Emirates, previously one of the biggest drivers of growth into the U.S., have dialed back because of slowing Asian economies. The recent closure of some airspace in the Gulf because of U.S.-Iran tensions has exacerbated their slowdown.
“We’re pivoting,” said Joe Esposito, Delta’s senior vice president of network planning. “We intend to be balanced with our partners.”
Delta is the biggest U.S. airline by traffic on flights to Europe, and over the past three years it has boosted annual domestic capacity by 4% and international flights by just 1%. This year it will expand its own international flying by 3%—in line with domestic growth—and more than twice that pace across the Atlantic.
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“We’ve really turbocharged the network,” said Patrick Quayle, United’s vice president of its international network, with additions focused on linking its hubs with those of Star partners such as Deutsche Lufthansa AG . It’s started flying between Denver and Frankfurt, while adding flights to secondary European cities such as Prague and Naples from its beefed-up Newark hub.
Some industry experts say new destinations like Cape Town—which United plans to start flying to in December—and Dubrovnik aren’t likely to generate enough premium traffic to make those routes profitable for U.S. carriers.
United has added 22 new routes to Europe since 2017. Here, a United plane prepares to land at London’s Heathrow Airport. PHOTO: SIMON DAWSON/BLOOMBERG NEWS
“I wonder if they’re getting into a contest to see who can fly to the most places overseas,” said Mike Boyd, president of Boyd International, a consultant who advises airports working to attract new carriers.
Vasu Raja, American’s vice president of network and schedule planning, acknowledged that U.S. carriers had in the past started some overseas routes before there were sufficient domestic travelers to sustain them. They also underinvested in long-haul aircraft to match services offered by partners and rivals.
American lacked the lie-flat beds preferred by business passengers on planes flying between JFK and Heathrow until 2016, he said. That made flying on partner British Airways’ jets more attractive on the world’s biggest premium route by revenue. BA operates 10 daily “shuttle” flights to Heathrow, but American—after adding new Boeing 777-300ER jets with lie-flat beds—now flies four as part of the alliance’s daily shuttle service.
American is adding new services to Dublin and Munich from its Dallas-Fort Worth hub, and from Philadelphia to secondary cities such as Prague, Bologna and Dubrovnik that it wouldn’t have considered two years ago. The airline last week also ordered 50 Airbus SE A321XLR jets, a single aisle plane that can link the Midwest to central Europe.
JetBlue Airways Corp. also this week ordered more long-haul Airbus jets and plans to start flights to London in 2021.
Bolstering the number of passengers they can feed through domestic hubs has also given U.S. carriers more bargaining power within the alliances. Regulators allow alliance members to market flights and set fares together, with revenue typically split according to how much flying each carrier does.
The division of sales and profits between partners has become more sophisticated and airlines are more willing to shuffle flying according to available aircraft and the relative strength of their hubs, said Jeff Arinder, Delta’s vice president of alliances.
Source: The Wall Street Journal
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