July 22, 2008

Airlines Cut Longer Flights to Save Money

By Daniel Michaels

As the airline industry grapples with record fuel prices, long intercontinental flights are taking a big hit.

Several U.S. carriers are delaying the start of new flights to China and Russia, while overseas airlines are ditching even longer flights.

The shift comes despite new airplanes from Airbus and Boeing Co. that can carry hundreds of people for more than 18 hours on routes that previously required at least one stop, such as between Singapore and New York or Dubai and Los Angeles. These direct links save passengers time, and airlines charge 20 percent more for the convenience of flying nonstop.

But weakening passenger traffic is making flights of more than 12 hours or so particularly vulnerable to fuel prices.

The government in recent days has said it will allow US Airways Group Inc. to postpone by one year its planned launch of a 13-hour daily flight linking Philadelphia and Beijing - without giving up its right to the route. In May, when US Airways asked for the postponement, it told its employees that fuel increases would raise the cost of running the one daily Beijing flight to more than $90 million, from $50 million when it applied for the route a few months earlier.

The Department of Transportation last week also granted Northwest Airlines Corp. permission to suspend for a year seven weekly all- cargo flights it was operating between the U.S. and Guangzhou, China. UAL Corp.'s United Airlines last week asked the government for permission to postpone the launch of a Washington-Moscow flight by five months, until the end of March. Earlier this year, United won a year's reprieve on its planned launch of San Francisco- Guangzhou flights. These postponed flights wouldn't use the latest globe-spanning aircraft.

On marathon flights of more than 15 hours, the economics can get even more precarious.

The reason long flights are so vulnerable to the mix of high fuel prices and weak airline traffic is a combination of physics and economics.

A passenger on a 15-hour flight uses more fuel for each mile of the trip than someone on an eight-hour trip, but the airfare per mile generally doesn't rise proportionally. When fuel is cheap and traffic strong, airlines can absorb the difference.

A few years ago, airlines hyped marathon flights as the industry's next big thing. Australia's Qantas Airways Ltd. promised "hub-busting" flights that would eliminate annoying stopovers. Boeing and European Aeronautic Defence & Space Co.'s Airbus predicted that the sheer range of their new planes would open lucrative markets.

Instead, the promise remains unfulfilled and super-long flights are a tiny niche. Among the hundreds of intercontinental routes worldwide, barely two dozen are longer than 15 hours.

Thai Airways International recently said it will end its 17-hour Bangkok-New York route, launched in 2005, and reduce Bangkok-Los Angeles flights. As a result, Thai plans to sell its Airbus super- long-haul jetliners.

When fuel is expensive, "the equation doesn't work the same any more," said Montie Brewer, chief executive of ACE Aviation Holdings Inc.'s Air Canada, which flies two extra-long routes.

Raj Nangia, an aeronautical engineer who has analyzed the issue for Britain's Royal Aeronautical Society, says that flying 18 hours in one hop could double the cost of flying the same route with three stops. To fly far, a plane needs lots of fuel onboard, and to carry all that fuel, it needs even more fuel - just as a car burns more fuel when it is heavily loaded.

"With these flights, what you get is a flying tanker with a few people onboard," said Pierre-Henri Gourgeon, chief executive of Air France-KLM SA, which doesn't fly marathon routes.

Air France-KLM on Monday scaled back planned capacity growth to 2 percent on its whole network for this winter and next summer from a year earlier because of higher fuel bills, a spokeswoman said. The airline didn't say what its previous target for growth had been.

The airline business faced a similar reality check 35 years ago, when the supersonic Concorde was touted as heralding a new era of ultrafast jetliner travel. The 1973 oil crisis ended that dream and the Concorde was relegated to a niche service that ceased operations in 2003.

Among the first flights airlines dropped in the industry downturn after the Sept. 11, 2001, terror attacks were distant connections with spotty passenger demand, known as "long, thin routes." Those included routes across the Atlantic from smaller markets such as Pittsburgh and Dusseldorf, Germany.

Today, only a handful of distant city pairs generate sufficient high-paying traffic to support direct flights. Qantas shelved its "hub-busting" plan in 2005 and Chief Financial Officer Peter Gregg says that with today's fuel prices the business case is even worse. Today, airline executives say coach passengers are increasingly opting for one-stop routings, which carriers generally price below nonstops to offset the inconvenience. Without sufficient economy- class traffic, most long-haul routes become unprofitable.

"It's a misnomer that you can command a significant premium for nonstop service," said Enda Corneille, corporate affairs director at Ireland's Aer Lingus Group PLC, which just announced plans to drop its 12-hour Dublin-Los Angeles service.

The few super-long flights available illustrate the challenging mix of ingredients required for success: buoyant markets at both ends, preferably with lots of traffic fed through a big carrier's hub.

Singapore Airlines has significant premium traffic on the world's longest scheduled route - about 18 hours from Singapore to Newark Liberty airport. To make more money on each of those flights, the carrier is replacing the economy-class section with higher-paying business class seats. Even Chief Executive Chew Choon Seng says the route is exceptional. "We have to be very selective in choosing routes so we can recover our costs," he said.

Continental Airlines Inc.'s strong hub at Newark similarly generates rich enough traffic that it can offset the high cost of its 16-hour nonstops to Mumbai and Delhi, says Jim Compton, executive vice president for marketing.

State-owned Qatar Airways and Dubai's Emirates Airlines are bucking the trend and adding long routes. But Emirates President Tim Clark says he won't expand the carrier's fleet of 20 super-long- distance models, even though Emirates is adding dozens of shorter- range jetliners.

As airlines drop ultralong routes, the planes designed to fly them are losing their appeal. During a recent three-year order boom, Boeing sold almost 400 big intercontinental jetliners - only 40 of which were its new super-long-range 777 model. Airbus sold fewer of its competing A340 model.

Airbus's vice president for market research, Laurent Rouaud, said demand will continue for very long flights. But he concedes: "Some of the routes that were economical when fuel was $2.50 or $3 a gallon might not be economical at $4."

Boeing's marketing vice president, Randy Tinseth, said that despite the high price of fuel, nonstop flights are efficient. They reduce the wear on a plane that comes with each landing and time lost when it is on the ground. And since takeoffs and landings use lots of fuel, "the fundamental fuel savings of the direct service are still rather compelling," he said.

For Thai Airways, the economics didn't add up anyway. Its nonstop flights from Bangkok to New York were 80 percent full, on average. But Chief Executive Apinan Sumanaseni said fuel prices now mean the route would lose money, even with every seat sold. To cover spiraling costs, he said, the flights would need to run at an impossible 120 percent of capacity.


Susan Carey in Chicago, Phisanu Phromchanya in Bangkok and Steve McGrath in London contributed to this article.

AP-ES-07-08-08 1043EDT

Originally published by The Associated Press.

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