With high fuel prices forcing US carriers to drastically slash their domestic capacity, some are now looking towards the higher-yield routes linking the USA with destinations in the Caribbean
Facing high fuel prices and with little cash in the bank, now may not seem like the right time to launch new routes. But for US carriers, the Caribbean is providing an oasis, offering several growing markets that can offer significantly higher yields than domestic flying plus incentives to help cover start-up costs. Smart US carriers are responding to the opportunities by aggressively redeploying transcontinental capacity south, to medium-haul markets in the Caribbean and Latin America.
"It's about taking an airplane and getting the same fare for 300 to 400 fewer miles," says JetBlue Airways manager of network planning Jim Fuoco. In December the Caribbean will account for 16.5% of JetBlue's total capacity, up from 13.5% in December 2007 and 10% in December 2006. Fuoco says the rise in fuel prices over the last year has accelerated JetBlue's Caribbean expansion because it is easier to pass on higher fares in US-Caribbean markets than the competitive transcontinental market.
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Fuoco adds that "generally speaking domestic incentives aren't as strong" while "islands and hotel associations have a lot of stake and are more likely to share risk". JetBlue now serves 11 points in the Caribbean and is adding a handful of new city pairs this winter. Santo Domingo-San Juan is the most interesting as it will be the carrier's first intra-Caribbean service, but Fuoco says it is a one-off and "we don't have a strategy yet to go after the intra-Caribbean market".
Instead JetBlue is looking at adding service connecting its 11 existing gateways with new points in the mainland USA as well opening new gateways. "There are still a handful of destinations in the Caribbean, Central America and the northern rim of South America where we see opportunities over the next one to one-and-a-half years," Fuoco says. JetBlue is already planning to launch service to its first South American destination, Bogota, in early 2009, and is studying other destinations within the range of its Airbus A320 fleet.
Redeploying narrowbodies to Caribbean Latin markets is not completely new in the US low-cost industry as Spirit Airlines has been doing it since 2001. Spirit now serves more than 20 destinations in the Caribbean and Latin America from its Fort Lauderdale base.
"We were Latin before it was cool," says Spirit chief marketing officer Barry Biffle. "For us this isn't a one-off strategy of moving planes from domestic and transcon. This is our business. More than half our network is now designed around the Caribbean and Latin America."
Spirit has, however, slashed capacity to several of its Caribbean markets, in particular for the low season which runs from September to November. But Biffle says this is in response to high fares impacting demand in the visiting family and friends market, a market Spirit with its ultra low fares and less than daily frequencies caters to more than other US carriers.
Biffle emphasises that Spirit remains committed to the region and is still looking to launch new markets. It has already applied for rights to serve Armenia and Medellin in Colombia, to complement new Bogota and Cartagena services, as well as Manaus in Brazil. New island markets are also a possibility.
Of the network carriers, Continental and Delta Air Lines have been most aggressive in recent years at adding new gateways in the Caribbean and Latin America. As their networks are now well established, with Continental serving 69 destinations in the region and Delta 55, they are not as actively looking for new gateways as the low-cost players. But both are still looking to add more capacity in the region and open new city pairs as they cut domestic capacity.
Delta's general manager of international network planning for Latin America and the Caribbean, Christine Floistad, says the carrier is adding second frequencies on many existing routes and is introducing 19 new city pairs this year. Attracted by the higher yields, Delta is upping capacity to the region by 14% year-on-year.
"Delta was very domestic focused when I took the job 10 years ago. I had to arm wrestle to get aircraft. That's not the case now," Floistad says.
While Continental has dropped four destinations this year in Latin America and one in the Caribbean, the carrier is adding frequencies in many of its remaining markets. "On a year-over-year basis we're actually up in capacity," says Continental general manager for Latin American John Slater. "We're not retreating." He adds that in the Caribbean Continental is adding capacity in some relatively new markets that were launched in recent years with less than daily service, but for now it is not interested in new Caribbean gateways: "We're probably fine where we are at now. We certainly have islands interested in services but we think now we have a route structure that is sustainable in tough economic times."
Delta is in a similar position. "There are very few places left for us that are new in the Caribbean," Floistad says. "If fuel goes down, more places will become attractive. At today's fuel price the places where there is enough demand I'm already there."
American, by far the largest US carrier in Latin America and the Caribbean, attracted headlines from across region in May when it revealed plans to drop its San Juan hub. But American senior vice-president for Mexico, Caribbean and Latin America Peter Dolara says that although the carrier is now only operating 18 flights per day to San Juan, down from 38, it is reinstating several services for the peak winter season and will operate 63 flights to San Juan during peak weekend days in December.
Dolara says American is also launching new flights to some Caribbean islands from the US mainland, including Miami-Antigua, Miami-Grenada and Chicago-Montego Bay, to fill the void left by the discontinued intra-Caribbean services passengers were previously able to connect to at San Juan. American Eagle, which has dropped 22 of its 55 daily flights at San Juan, operated most of these intra-Caribbean services. "Of course we will continue to explore opportunities for growth into this important market," Dolora says.
American's reduction in San Juan has created an opportunity for low-cost carriers. JetBlue, in addition to launching San Juan-Santo Domingo, is boosting capacity for the peak season from New York and Orlando to San Juan and studying other potential routes. "There are a number of opportunities to backfill Eagle capacity at San Juan or to overfly San Juan altogether," Fuoco says.
Meanwhile, AirTran Airways is adding a second daily flight to San Juan from both Atlanta and Orlando and is launching a new service from Baltimore. Puerto Rico is now AirTran's only Caribbean destination but the low-cost carrier is actively speaking to several other islands with the aim of launching new Caribbean routes next year.
Slater says Continental is not concerned about the new low-cost competition and claims "they don't have a big fare advantage, especially in the Caribbean". He adds: "We see a lot of competitors jump in and out of markets there. We intend to stay with the formula that makes us successful. We're not focused on how many destinations we have on our route map but what can be sustained profitably."
For more on American's reduction in San Juan and the impact it had in the Caribbean, visit: flightglobal.com/caribbean
Network Latin America is the annual Airline Business route planning event.
7-9 December
Aruba
Event organisers: Airline Business
Tel +44 20 8652 3659
jane.cartwright@flightglobal.com
www.networklatinamerica.com
Source: Airline Business
