Over the past five years, transpacific traffic to and from the US has risen by 33 per cent - nearly 10 percentage points more than the transatlantic market - according to new International Onboard data released by the US government. The Asia-Pacific carriers have made significant gains, and US airlines now account for less than half of total US-Pacific traffic.
The thriving economies of South Korea and Taiwan have provided fertile homes for Korean Air, EVA Air and Asiana. Only regulatory barriers and scattered poor economic performance have restrained growth; Japan remains stymied by congestion and an unresolved US bilateral, while weaker economies help to explain poorer performances by Thai Airways International and Philippine Airlines.
The introduction of long-range Boeing 747-400s has led to the emergence of new nonstop transpacific markets and allowed more rapid expansion. New technology has made nonstop routes out of such city-pairs as Atlanta-Tokyo, Detroit-Beijing, New York-Seoul, and San Francisco-Sydney. Carriers like EVA Air and Asiana are making maximum use of the latest technology to back up aggressive growth plans. The number of B747-400s in Asian carriers' fleets has increased by 35 per cent over the past three years.
Different regulatory attitudes mean that Asian markets remain fragmented. For example, carrier mixes on Japanese routes are generally very static because of Japan's stringent bilateral arrangements. In general, Asian gateways do not have the diversity of carriers that their American counterparts have. Market forces in the Pacific are tightly focused.
The most dynamic market force at work across the Pacific is the presence of an aggressive, entrepreneurial ethic in Asia. This is most evident in the rise to prominence of EVA Air and Asiana. Other countries may be fertile grounds for replication, particularly China, Malaysia, and eventually Thailand and the Philippines. An airline focused on China may be the most likely to follow in other upstarts' footsteps, if Beijing's new willingness to encourage a more capitalist economy is genuine.
LA lore
Los Angeles is now firmly entrenched as the number one US gateway to the Pacific, having overtaken Honolulu in 1994 (Table 1). LAX is among the fastest growing US transpacific gateways, while Honolulu is among the slowest. During the last five years Honolulu has lost over 8 percentage points of its transpacific market share, while Los Angeles has gained over 6 points.
LAX offers a great diversity of transpacific service options, reflecting its status as probably the most open major international hub in the world. The market leader, United, carries less than 18 per cent of the transpacific passengers at LAX, and eight carriers, only one of them from the US, each have 5-10 per cent of the market (Table 2).
Long-range aircraft have eliminated the need for a transit stop in mid-Pacific, but Honolulu has become a major destination for Japanese tourists, leading to JAL's rise from just over 25 per cent of the gateway's transpacific traffic five years ago to over 36 per cent in 1996. The positions of Northwest and United at Honolulu have remained relatively static.
United still leads at San Francisco, with 55 per cent of the market, but EVA Air, Asiana, and Korean Air have damaged the incumbent on the Taipei and Seoul routes. United's new service to Sydney and Philippine Airlines' service to Manila are performing well.
Six transpacific carriers at New York/JFK now have about equivalent market shares, as opposed to the Northwest, JAL and United oligopoly that existed five years ago. Korean Air has doubled its 9 per cent market share here in five years to become the market leader, while Northwest has seen its share of transpacific traffic at JFK halved to 16 per cent. Asiana now handles 13 per cent of JFK's transpacific traffic.
In Seattle, Northwest has 52 per cent of the market. It has developed new service to Osaka and Hong Kong and is battling American on the lacklustre route to Tokyo /Narita. Seattle also plays host to rapidly growing EVA Air and Asiana.
In Chicago Korean Air has the Seoul market all to itself while Northwest, JAL and United battle it out over the route to Narita. Despite Chicago being its home turf, United has fallen just behind JAL.
Most other US gateways to the Pacific are dependent on a single route or carrier. Atlanta is the strongest newcomer; JAL has made quite a success out of its new route to Narita, developing it to account for 80,000 passengers a year.
Detroit is the fastest-growing established US gateway to Asia. Strong feeder traffic has helped Northwest's robust services to Narita and Osaka. Northwest has also made a Pacific gateway out of Minneapolis with its service to Narita. Delta has made Portland into a solid transpacific hub with service to Narita, Nagoya and Seoul.
Washington/Dulles is suffering as a Pacific gateway, due to the poor performance of All Nippon Airways' daily service to Narita. The number of passengers on Washington's only nonstop service to Asia has dropped by 40.2 per cent over the past five years. One problem for ANA is the requirement for US government employees to fly on US flag carriers.
American has been unable to make Dallas-Fort Worth and San Jose into popular transpacific gateways, and San Jose lacks feed since American cut back its operations there. Anchorage has suffered because many transpacific fuel stops are no longer required and, unlike Honolulu, Anchorage generates very little local traffic. It is now turning its attention to developing the trans-Pacific cargo market instead.
Narita crush
Narita remains entrenched as the number one Asian gateway, although it has lost market share to Osaka and Taipei and is the only one of the top six transpacific gateways in Asia to have below average growth (Table 3). However, it still has nearly three times the volume of its nearest competitor, Seoul. Narita handles nearly 38 per cent of transpacific traffic compared to Los Angeles' 32 per cent. By comparison, London/Heathrow only handles 22 per cent of US-Europe traffic (Airline Business, August).
Narita's dominance as an Asian transpacific gateway does not benefit the Japanese carriers much. JAL and ANA have only 31.5 per cent of Narita's transpacific traffic between them; Northwest has 27.9 per cent and United 22.1 per cent (Table 4). No wonder Japanese negotiators are reluctant to concede to US demands for open skies.
Other airports in Japan, as well as Taipei and Hong Kong, have benefited from Narita's congestion. At the new Osaka airport, Northwest has started flying to Detroit and Seattle, while JAL and United began flying to Los Angeles and Northwest's established service to LAX has grown considerably. Northwest is the dominant transpacific carrier here, with 40.7 per cent of the market, but JAL and United also have sizeable market shares.
Taipei handles twice as much transatlantic traffic as it did five years ago. EVA Air overtook China Airlines two years ago and is the dominant transpacific carrier at Taipei, handling 40.8 per cent of traffic.
Seoul offers a stark contrast, with the incumbent Korean Air still holding on to double the transpacific market share of upstart Asiana. The US carriers barely get a look-in at Seoul.
As well as having its own attractions, Hong Kong benefits from being a stopping point on the way to Singapore. United dominates, handling over 50 per cent of transpacific traffic there. Delta stopped trying to compete on Hong Kong-LAX in 1996, but Northwest has built up solid traffic on its new route to Seattle.
Fukuoka, Chitose and Sendai have benefited largely from the Hawaii vacation market. Air China and China Eastern split transpacific traffic at Shanghai equally, while Northwest handles nearly 90 per cent of transpacific traffic at Beijing.
United's new Sydney-San Francisco market has grown quickly, and Qantas has seen traffic nearly double on its Sydney-LAX route. But Auckland is struggling to maintain its Pacific traffic.
Market surges
In the biggest transpacific market, Honolulu-Tokyo, JAL added 4 percentage points to its market share at the expense of United (Table 5). However, on LAX-Tokyo United is outpacing JAL, and Korean Air and Delta are taking market share away from United and SIA.
Honolulu-Osaka is growing faster than its bigger counterparts. Here United has grabbed 5 per cent of the market away from JAL, while Northwest remains steady at 33 per cent.
Los Angeles-Taipei symbolises the major trends in the Pacific. This market has 140 per cent more passengers than in 1992, while the only US competitor on the route, Northwest, has withdrawn. Upstart EVA Air has become the number one carrier on the route with a 35.8 per cent market share in just five years, not only taking up the 14.7 per cent Northwest gave up, but also whittling China Airlines' 56 per cent market share down to 34.1 per cent.
Similarly, Northwest's bailout from its 25 per cent stake in the Los Angeles-Taipei market has boosted Asiana, Thai and, most of all, Korean Air.
US carriers have lost out to their Australian and New Zealand competitors on Los Angeles-Sydney. Again, Northwest gave up its 16 per cent share of this market, which has shown above-average growth. At the same time, new Air New Zealand service and established Qantas service have deflated market leader United's 44 per cent share down to 26 per cent, while American has withdrawn from Australia.
United has fared much better out of its San Francisco stronghold to Hong Kong, grabbing 6 per cent of the market away from stalwart SIA. Los Angeles-Osaka has gone from a Northwest monopoly to a tripartite Northwest-United-JAL route in five years, and has leapt from 29th place to 10th. It continues to enjoy the most outstanding growth among the top transpacific routes.
United and Qantas have been the beneficiaries of strong growth on LAX-Auckland. Although still the leading carrier on this route, Air New Zealand has lost over 20 percentage points of its market share.
United's influence has declined between San Francisco and both Seoul and Taipei. While still dominant on San Francisco-Seoul, United has given up over half of its monopoly to Korean Air and SIA, and even Asiana has lost ground. On San Francisco-Taipei, EVA Air has taken market share away from both United and China Airlines.
Los Angeles-Hong Kong was a growth market until last year, when it lost nearly 20 per cent of its transpacific traffic and Delta dropped out, strengthening Cathay Pacific and United.
New York-Seoul is the fastest growing established transpacific route, with nearly four times the traffic of five years ago. Korean's direct service four times a week and Asiana's daily service over Anchorage have both enjoyed great gains. Korean codeshares with Delta but Asiana and Northwest are abandoning their codeshare agreement.
United made a smart move by starting San Francisco-Sydney service. The market has grown from the 51st to the 28th largest transpacific market, and United still has a monopoly. The only new market that has grown faster is 44th-ranked Seattle-Osaka, solely championed by Northwest.
Philippine Airlines has enjoyed developing its monopoly in the direct San Francisco-Manila market, on which traffic has multiplied eight-fold over five years.
US airline woe
A small number of aggressive carriers continue to skim off the majority of US-Pacific traffic: four carriers, led by United and Northwest, share over 60 per cent of the market (Table 6). However the US leaders have not been very effective in finding new markets and aggressively taking on and beating the competition. Instead, US carriers' successes are limited to holding their own and building from their own domestic hubs. US carriers' transpacific traffic has grown by only 12.8 per cent over five years, compared with 52.7 per cent growth for Asia-Pacific airlines. As a result, the US carriers' share of this fast-growing market has declined from 51.3 per cent in 1992 to only 43.7 per cent last year (see chart).
EVA Air, Asiana and, to some extent, Korean Air are the movers and shakers, developing new markets and taking advantage of openings where others have left. Asiana has been a swift riser, with growth of 380 per cent over the past five years. Only its Los Angeles-Seoul route was well travelled in 1992, but Asiana now carries passengers between Seoul and six US cities. EVA Air has become the sixth largest transpacific carrier in just five years, carrying over 800,000 passengers in 1996 compared with fewer than 10,000 in 1992.
The strength of the South Korean and Taiwanese economies has been a key factor in these carriers' ascendance, but that is not the only reason: both EVA Air and Asiana have followed an aggressively expansive recipe. On the other hand, Korean Air has used its flag carrier status to take advantage of the growth of Seoul as a transpacific destination. It has concentrated on building up existing routes, adding only San Francisco-Seoul to its transpacific repertoire. Incumbent China Airlines has followed a similar strategy, adding only Honolulu-Taipei.
It is the US carriers which have been leaving markets and creating opportunities for others. No US carrier has grown consistently above the market average and the big two have pulled out or lost market share on several routes.
Despite its superior access to many markets, United's successes in markets like Los Angeles to Osaka, Hong Kong and Auckland, and on San Francisco-Sydney, have been cancelled out by losses or stagnancy elsewhere. United's five-year growth rate of 26 per cent looks brisk and puts it ahead of the other US carriers, but it remains below the market growth rate of 33 per cent.
Northwest has withdrawn from three major markets and its five-year growth is about half of the market average. Northwest still has some strong markets and it has new successes out of Seattle and Detroit, but the Minneapolis-based carrier's Pacific routes tend to be in the middle tier in terms of passenger numbers.
American's transpacific markets have been flat. Its Dallas-Fort Worth hub has not generated significant transpacific growth and a lack of traffic rights has prevented expansion. Delta has put Portland on the map as a transpacific gateway but has not grown well overall. Hawaiian Air's decline points to Hawaii's lower importance and the preference of Japanese tourists for Japanese carriers.
The lack of success of Delta and American in the Pacific is a measure of the real value of what Pan Am passed on to United. In buying Pan Am's entire Pacific operations, United acquired access to traffic rights and a distribution system which had been in place for over 30 years, giving it immediate critical mass.
JAL is the only one of the big three Pacific carriers to have above-average growth over the past five years. By contrast, ANA unfortunately belongs to the small club of transpacific carriers whose traffic has shrunk over the past several years. Its Washington/Dulles-Tokyo service has been struggling, and it has pulled out of the Honolulu-Nagoya market.
Philippine Airlines' performance has been promising, despite economic troubles at home. The carrier has shifted its transpacific efforts from Manila-Honolulu to focus on developing Los Angeles and San Francisco.
Despite its reputation for good service, Singapore Airlines has merely grown with the market, partly because of the dilemma posed by its inability to fly non stop to the US. Its bright spots are its LAX-Taipei buildup and new San Francisco-Seoul route. SIA has placed less emphasis on San Francisco-Hong Kong and Los Angeles-Tokyo, and dropped its Honolulu-Taipei service altogether.
The US has been a terrible market for Thai Airways International, whose US traffic has declined substantially since 1992. Thai has dropped all US markets except Los Angeles, which it serves via Seoul.
Open skies to Japan?
A new bilateral agreement between the US and Japan may provide new opportunities for Japanese and US carriers. This is certain to impact traffic flows on 'beyond and behind' segments between Japan and other Asian cities. Some of the success enjoyed by carriers focused on the gateways at Seoul, Taipei, and Hong Kong may be tempered as Japan's airports gain traffic from the open skies initiative. Subject to the eternal problem of airport congestion, open skies should give Japan the opportunity to further consolidate its position as the gateway to Asia.
Source: Airline Business
