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Airlines Finding Relief in International Flights

Posted on: Wednesday, 6 July 2005, 12:00 CDT

Battered by brutal fare competition and ever-higher oil prices, major airlines have found a valuable antidote: carrying passengers overseas. International flights are in record demand as the summer travel season kicks off, and airfares, always high at this time of year, seem even more so, especially compared with low domestic fares in many markets.

In the United States, the biggest push is to Europe, as American passengers take advantage of the euro's recent weakening. But getting there will not be cheap for procrastinators. Consumers who waited until now to book their international tickets can expect to pay a minimum of $1,000 to fly from New York to London, Paris or Rome.

That, however, is music to the ears of the big airlines, which have been expanding international flights at a rapid clip over the past year. "Demand is very, very strong," said John Tague, executive vice president for marketing at United Airlines.

All the major American carriers, and some other ones as well, have added destinations and flights this summer, especially across the Atlantic, hoping to capitalize on the brief but lucrative season for international vacation travel. On Thursday, Air France inaugurated service between Paris and Detroit, a route it has never flown before; Northwest, which uses Detroit as a hub, had long had the route to itself. Airlines plan to inaugurate even more international flights this autumn. Delta Air Lines alone has announced plans for a dozen new international flights this year, and rivals like American, Northwest, Continental and United are adding routes and flights, too.

Demand for international flights fell in 2001 and 2002, after the attacks of Sept. 11, 2001, in the United States. But it began to bounce back in 2003 as business improved and the weakening of the dollar made the United States an attractive destination. Demand grew again in 2004, and analysts say that international travel this year could reach levels last seen in 2000, the peak year so far for air travel.

Tague and other industry executives credit a recent weakening in the euro for the increase in travel by Americans to Europe this summer, as well as the wider choice of destinations. For the airlines, the biggest attraction is the ability to recover their costs.

In contrast to conditions in the U.S. domestic market, where a raft of low-fare airlines make it tough for big airlines to raise prices, international treaties spell out who can fly where, limiting the supply of seats. In turn, airlines can charge what the market will bear, as long as demand outstrips the supply of seats.

In the first six months of 2005, ticket revenue per seat mile on international flights jumped an average of 3.6 percent, compared with 1.1 percent on flights within the United States. Trans- Atlantic revenue is up 6.6 percent, according to an estimate by the consultancy Back Aviation Solutions.

The demand for international flights is especially good for United, which has been operating under bankruptcy-court protection since 2002. While it continues to post losses, including a $93 million net loss for May, it is collecting record revenue on nearly all its international routes.

"We're very pleased," Tague said.

But passengers may not be, when it comes time to pull out their credit cards. Travelers used to booking trips within the United States at the last minute and paying bargain prices may be downright shocked at what international flights cost this summer.

Late last week, a search for a Fourth of July weekend jaunt to Paris from John F. Kennedy Airport in New York turned up just two choices on Travelocity.com: a $2,086 fare on Delta and a ticket for $4,380 on Lufthansa. Meanwhile, a flight between JFK and London for travel two weeks ahead found fares starting at just over $1,000 on United and ranging above $3,000 on Swiss if passengers can get a ticket at all.

Even before the summer season started, flights were packed. In May, the big airlines' international flights flew 80.2 percent full, up nearly two percentage points from last year, and above the 78.7 percent occupancy rate for domestic flights, which was a record for any May. (Airlines consider their routes essentially full at 80 percent, given that there are expected to be empty seats on planes flying at off-peak hours, like "red-eye" overnight domestic flights.) Now, advance bookings indicate that international flights will be even more packed. American, the biggest U.S. airline and the one with the most international service, says its flights overseas are averaging 88 percent to 93 percent booked.

All of this is a welcome relief in an industry that is barely making money on domestic flights. "If we could just find a way to pack five or six more Julys and Augusts into the year, we could solve all our problems," said Don Casey, managing director for international planning at American. Like United, Delta is making money on its international service, even though the airline has faced a severe financial crisis the past 18 months, prompting it to cut $5 billion in costs and as many as 7,000 jobs. James Whitehurst, chief network and planning officer at Delta, said the financial crisis had helped Delta expand overseas. This year, the airline drastically reorganized its schedules and cut the time it needs to process each flight. That freed up aircraft, like big Boeing 767s and smaller Boeing 737s, that Delta has deployed on its overseas routes.

While Delta's growth has been recent, American has been on a drive to expand its international service throughout this decade. Its international service has climbed 30 percent since 2000, Casey said, with the growth spread among flights serving the Caribbean, Latin America, Asia and Europe. American's new flights this summer include service linking Boston to both Shannon and Dublin in Ireland, as well as service between Chicago and Nagoya, Japan. Non- U.S. airlines also have expanded service in hopes of taking advantage of strong summer demand. Along with Air France, British Airways has expanded its summertime service to the United States, with three flights a day connecting Los Angeles and London, up from its usual two a day throughout the year, and it will likewise offer three flights a day between Miami and London later in the year.

British Airways' flights also are more crowded than in the past. In the year that ended on March 31, its planes across the Atlantic flew 74.8 percent full, up from 71.9 percent a year earlier and 70.4 percent in 2002.

As fuel prices have climbed this year, BA, Air France and other non-U.S. carriers also have consistently raised ticket surcharges, giving the big American airlines room to raise prices on their overseas flights. That might not have been the case if low-fare airlines were flying on trans-Atlantic routes.

Source: International Herald Tribune

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