Carole Shifrin / Washington
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“There is evidence both of strong demand and higher fares this year” Craig Jenks President, Airline/Aircraft Projects |
When two major us carriers plan double digit capacity increases on their transatlantic routes for the summer season, something is clearly happening.
It turns out, however, that Delta and Continental Airlines, respectively offering 25% and 19.5% more seats, are simply strengthening their European networks – albeit considerably. Overall, the average capacity increase is forecast to remain comparable to last year’s. British Airways, for example, is adding just 2-3%, while American Airlines is adding virtually nothing. Airline/Aircraft Projects president Craig Jenks, whose consultancy closely monitors annual changes in the transatlantic market, reckons nonstop capacity on Europe-USA routes in July will be about 5% higher than for July 2005.
The expected rise in 2006 mirrors last year’s, when load factors rose and carriers began enjoying increased yields on transatlantic services. “There is evidence both of strong demand and of higher fares this year,” he says. “So the question is: will the yield increases, which have been significant, continue?” He says the answer lies in whether rising fares meet increasing consumer resistance.
Carriers are already reporting heavy bookings for transatlantic flights this summer, despite considerably higher fares and increased fuel surcharges. Some flights are so heavily booked that travel agents are finding it difficult to find space for their clients.
“Average prices this summer started out higher, earlier, and have been increasing with the extra fuel surcharges,” says Heather Dolstra, vice-president of Washington-based travel agency Democracy Travel. “And yet it is very hard to find space almost anytime this summer,” she adds. Travellers seem to have a feeling of “if not now, when?” she says. “There may be more capacity, but it gets sucked up.”
Overall, US carrier growth remains stronger than that of carriers on the European side of the Atlantic, with a 6.1% increase in seat capacity compared to 7.1% last year, In contrast, European carriers are growing their capacity by only 4.7%, against 3.4% last year.
As for frequency changes, US carriers will have a net increase of 17 daily flights, introducing 22.5 and eliminating 5.5. European carriers introduced 10 daily flights and dropped two.
Greater flexibility
Again this year, the majority of new and additional transatlantic services are on hub-to-spoke or point-to-point routes, allowing passengers to travel to more destinations on nonstop services. Jenks points to France as the striking exception, however, where nonstop flights from the USA are limited to Paris and Nice, while multiple UK, Italian and German cities have nonstop transatlantic flights. With the exception of a third United Airlines Boeing 777 service between Washington Dulles and Frankfurt, other new US-carrier services are operated with smaller 757s and 767s. European carriers generally continue to add new services with larger Airbus A330s and A340s. Only British Airways has added 747-400 frequencies.
Delta plans the largest capacity increase for this summer, operating 12 more daily flights and 10 new routes to popular destinations throughout Europe. The carrier is seeking to boost revenues from international operations to 35% of total sales, up from 22%, and is adding 25% overall international capacity.
Delta’s timetable includes new flights from Atlanta to Athens, Copenhagen, Düsseldorf, Edinburgh, Nice, Venice, and a third daily roundtrip to Paris. From New York JFK, it is operating new flights to Budapest, Kiev, Manchester and separate flights to Dublin and Shannon.
Since Delta has no new aircraft, it has shifted a dozen widebody 767s from its shrinking domestic mainline operations to international services, reconfiguring them to its two-class, international layout. Some of Delta’s new services, such as Atlanta-Venice, will be operated during the summer only, but others continue through the year with sharply reduced frequencies.
Continental also continues its transatlantic expansion, with capacity expected to rise 19.5%, primarily using 172-seat 757s, operating all routes throughout the year. Houston-based Continental has been a trailblazer, building a large network of flights from its New York Newark hub to many European cities not previously served with a nonstop transatlantic service. “Our transatlantic narrowbody strategy has allowed us to tap many secondary European markets with the right amount of capacity at attractive unit costs,” says Continental chief executive Larry Kellner, “and allows us to meet the demands of those markets on a year-round, rather than seasonal basis.”
In contrast to other US carriers, Continental continues to increase domestic capacity, partly to provide the feed and schedule utility appropriate to its continuing international expansion. “Unlike some of our Johnny-come-lately competitors and imitators, we’ve been committed to international expansion for over a decade,” says Continental president Jeff Smisek. He acknowledges that transatlantic capacity increases will put pressure on yields. “But we still expect to see moderate year-over-year yield improvements and a one-point gain in transatlantic load factor”, he says.
American’s transatlantic capacity will be comparable with last year, as it resumes seasonal flights on five routes. It abandoned a planned service from New York to the UK’s Newcastle Airport because of poor economics. “We have been very conservative,” American says. “The route made sense before…but with the rise in fuel costs, we just couldn’t make the numbers work.”
BA is also increasing transatlantic capacity, but only by 2-3%, says commercial director Martin George. “Capacity increases this year are not that great,” he says. “We put capacity into gateways that are doing well, such as Boston, Chicago, Seattle and Washington.”
BA has increased nonstop flights between London and Seattle from seven to 10 a week this summer using 747-400s and also added seat capacity by substituting 747s for 777s on a number of routes previously operated with all 777s or a mix of aircraft. BA also is increasing frequencies on routes between London and three Canadian cities, Montreal, Toronto and Vancouver, by almost 30% this summer.
Advance bookings are strong. Whether BA would have raised capacity further is moot. Aircraft that could have been used to fly to the USA have been soaked up by new routes to China and India. BA has 41 weekly flights to India, George notes, up from 19 last year.
Business travellers
New this year are two US carriers operating premium services to London, at fares below those of legacy carriers. EOS, which began flying late last year between New York JFK and London Stansted, uses 757s equipped with 48 lie-flat beds.
Operating six days a week, EOS is seeking to attract business travellers with first-class amenities at business-class fares lower than those of its competitors. The carrier has begun to greet passengers kerbside and personally escort them through check-in and fast-track security. “Business travellers value time and productivity,” says EOS founder and chief executive Dave Spurlock. “We’re committed to creating an entirely new level of service on the ground and in the air.”
MAXjet, which calls itself a “low-fare, all-business-class” airline, operates 767s configured with 102 “deep-reclining” seats at fares below those of EOS. It also started flying between JFK and Stansted six times a week late last year. In April, MAXjet began flights between Washington Dulles and Stansted four times a week and will operate five roundtrips, beginning in late June. MAXjet chief executive Gary Rogliano says loads are building on both routes, with future bookings looking sufficiently good for the carrier to be negotiating for two more aircraft. Bookings are surpassing projections, says the carrier.
The entry of EOS and MAXjet into the market is not being ignored by others. “We take these guys very seriously,” BA’s George says. Noting they are run by “smart people” with funding and a strategy, he insists BA will not repeat the mistake it made before when new competition appeared on its home turf. “We were not quick enough to respond to the low-cost carriers in Europe,” he says. “I think we probably gave them five years of unfettered growth.”
Later this summer BA will unveil details of its planned Club World upgrade – including new seating and inflight entertainment options – keeping its business class service at the forefront of the industry. The carrier started the trend of lie-flat bed-seats in business in 2000 and other carriers have followed suit.
Another new entrant is Scottish carrier Flyglobespan, which is beginning daily nonstops between Glasgow and Orlando Sanford, continuing the service with a reduced schedule this winter. Another unusual transatlantic entrant is Air Tahiti Nui, which operates an Airbus A340 one day a week between New York and Paris.
Jenks of Airline/Aircraft Projects notes a potential trend to segmentation, with some carriers, such as EOS, KLM and MAXjet, gearing flights to the premium traveller and others aiming at the summer leisure traveller. These would include Eurofly’s new Rome-New York services and summer-only frequencies begun by Delta and US Airways.
The summer timetables show conservative overall growth by European carriers. Lufthansa says capacity to North America is growing by only 0.4%. Besides a second Frankfurt-Newark daily, it is adding six weekly flights in July and August to double dailies on Chicago-Frankfurt. Air France is adding a second daily service between Paris and Houston but is dropping its second daily flight between Paris and Atlanta. Virgin Atlantic is adding a fourth daily flight to New York from London and is boosting services to Las Vegas service from five to seven a week.
Source: Airline Business
