Five-Day Wait for Beijing Flight Lures U.S. Airlines Into Asia
By Mary Jane Credeur - Nov 16, 2010 11:37 AM
One of Peter Philipp Wingsoe’s employees at a Los Angeles marketing firm recently waited five days for a business-class ticket on a United Airlines jet home from Beijing because planes were so packed.
Those crowds are spurring United Continental Holdings Inc., Delta Air Lines Inc. and other U.S. carriers to expand flights to Asia, lured by economic growth in China that’s triple the U.S. rate and new access to an airport nearer to downtown Tokyo.
“It’s been quite difficult, particularly getting last- minute flights,” said Wingsoe, 38, who makes about a half-dozen trips to Asia each year as managing partner at Entertainment Fusion Group. “There’s nothing open. Last year we could call the day of and get on, no problem.”
Wingsoe’s travels make him part of a surge in Asia/Pacific air traffic. The region’s 10.4 percent increase through September from a year earlier outpaced a 6.7 percent gain in North America and more than doubled Europe’s 4.4 percent, according to the International Air Transport Association.
United, which leads U.S. airlines in traffic to and from China, plans to start Los Angeles-Shanghai flights in May. American Airlines plans to add service on the same route and may fly to Hong Kong and Guangzhou as well. The economy in the world’s most populous nation expanded at an annual rate of 9.6 percent last quarter, compared with 3.1 percent in the U.S.
“China continues to be on fire,” Jim Compton, chief revenue officer for Chicago-based United, said on an Oct. 21 conference call.
Delta said today it will add twice-weekly service between its largest hub in Atlanta and Shanghai in June, with five flights a week from Detroit to Beijing beginning in July. Tokyo- Guangzhou service will be introduced in April, the carrier said.
Flights from Seattle to Beijing and Detroit to Hong Kong are “ramping up very well” since their June debut, while Japan-Hawaii service is posting “especially strong results,” Delta President Ed Bastian said on an October conference call.
Hawaiian Holdings Inc.’s Hawaiian Airlines is also adding Asia flights, with service starting tomorrow between its hometown of Honolulu and Tokyo. Next up is Seoul in January, according to Hawaiian, the 11th-biggest U.S. airline by traffic.
They’re jockeying with carriers based in the region, including Singapore Airlines Ltd. and Cathay Pacific Airways Ltd., Hong Kong’s biggest airline. Singapore Airlines boosted a business-class-only flight to Los Angeles to seven days a week from five on Oct. 5, and did the same with a Singapore-Moscow- Houston flight.
Losses, Then Profit
Profit for the Asia-Pacific airline industry probably will be $5.2 billion this year, more than double an earlier forecast of $2.2 billion, IATA said in September.
China service was among the casualties for U.S. airlines as they cut seats in the recession, with service deferred to cities such as Beijing and Guangzhou. The eight largest carriers posted net losses of $15.1 billion in 2008 and $3.56 billion in 2009.
The group’s return to profit, with third-quarter net income of $2.44 billion, heralds a fresh round of expansion, said David Swierenga, president of consultant AeroEcon in Round Rock, Texas, and a former chief economist at the Air Transport Association trade group.
“When earnings start to improve, carriers look at putting another plane into service because they can make more money with it,” Swierenga said.
United said revenue from each seat flown a mile across the Pacific rose 41 percent last quarter from a year earlier, while Atlanta-based Delta had a 45 percent surge and American posted a 21 percent increase. It was the biggest gain in any region for United, Delta and Fort Worth, Texas-based American, the largest U.S. carriers.
U.S. airlines’ sales from overseas flights probably will rise about 10 percent in 2011, compared with about 1 percent for domestic service, William Greene, a Morgan Stanley analyst in New York, wrote yesterday in a note to clients. He recommends buying United, Delta and American parent AMR Corp.
The Bloomberg U.S. Airlines Index of 12 carriers climbed 29 percent this year through yesterday, topping the 7.4 percent advance for the Standard & Poor’s 500 Index.
Trans-Pacific routes don’t have competition from discount carriers, giving airlines more control over pricing, Swierenga said. “The only pressure they face on these international markets is self-induced,” he said.
Carriers also prize the flights because corporate travelers will pay a premium for first or business class on trips of 10 hours or more, such as United’s nonstops between San Francisco and Shanghai.
Wingsoe of Entertainment Fusion Group, which does marketing and brand placement, flew business class to Tokyo on Japan Airlines Corp. for $10,000 round trip last week to give a lecture at Tokyo University and meet with clients.
“These were not the prices we were paying a year ago,” Wingsoe said. “You could get that ticket for $3,500 if you planned ahead. Now it’s three times as much.”
U.S. airlines are still playing catch-up with Asian rivals on in-flight amenities. While Singapore Airlines offers private suites on Airbus SAS A380s, upgrades such as lie-flat seats and new entertainment screens are still being installed under Delta’s $1 billion plan to renovate all its transoceanic jets.
United recently installed semiprivate first-class suites on its Boeing Co. 747s and 767s on international routes, and American put semi-enclosed suites on 777s that fly to Tokyo.
A so-called open-skies treaty easing flight rules is letting U.S. airlines serve Tokyo’s Haneda airport for the first time in three decades. Japan Airlines and All Nippon Airways Co. already were able to make short-haul Asia flights there.
Delta will offer Haneda flights from Los Angeles and Detroit in February, while American flies from New York. Hawaiian’s Tokyo flights also will go to Haneda, a 13-minute train ride to Tokyo’s main loop rail line. Foreign carriers previously were restricted to Narita International Airport, 40 miles (70 kilometers) from downtown.
Wingsoe said he welcomes the Haneda service because it should save him an hour of transit time on future trips. His one concern: “Everyone else is going to want to fly to Haneda, too. There won’t be any seats.”
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