Categorized | Airlines

U.S. airlines look to Asia for growth…

Posted on 09 March 2010

HONG KONG — Beleaguered U.S. airlines are increasingly looking to Asia to bolster their fortunes.They’re forging alliances with Asian airlines, increasing flights to major cities and competing to launch service in fast-growing markets in the region. The moves come as the Asia-Pacific region has edged past North America to be the largest aviation market in the world. In 2009, 647 million passengers flew within Asia-Pacific — which includes Asia, South Asia, Australia and New Zealand— compared with 638 million in North America, according to the International Air Transport Association.


“There’s no looking back,” says Derek Sadubin, chief operating officer for the Centre for Asia Pacific Aviation. “Asia’s leadership role in the global aviation scene won’t be challenged again.”


By 2013, 868 million travelers are expected to fly within Asia-Pacific, compared with 734 million in North America. China, one of the world’s fastest-growing economies, will lead the boom, analysts say, as its economy is expected to expand by nearly 10% annually for the next few years. To accommodate this growth, airlines will buy nearly 9,000 new aircraft for service in the Asia-Pacific market over the next 20 years, U.S. planemaker Boeing estimates. “Asia has a lot of people, and recently, the economy in places like China has grown very rapidly,” says Mark Kiefer, a principal in the aerospace division of Charles River Associates. “Where you have people with (rising) income, they’re disproportionately likely to travel.”


The global economic downturn took its toll on air travel in Asia, as in the U.S. But travel in the region is rebounding quicker than in many parts of the world, a development analysts attribute to a relatively healthy economy and rising incomes that make it affordable for people to fly.


“We are not out of the woods with the problems facing the global financial markets, but there are encouraging signs” in Asia, which make people more confident about flying, says Dale Lawrence, spokesman for the Pacific Asia Travel Association.


Where the growth is


For U.S. carriers, Asia represents a way to diversify overseas as their domestic market share continues to be whittled away by low-cost carriers such as Southwest. U.S. airlines are also betting that thriving Asian economies will bring more business travelers, who often buy premium seats at higher prices.


“From our standpoint, it makes sense to focus on Asia,” says Walter Dias, managing director of Greater China and Southeast Asia for Continental Airlines. “We want to go where the growth is.”


Part of this growth will come from people such as Bruce Behnke, a nature photographer from Honolulu who flies to Asia up to seven times a year.


Behnke says he tries to fly within the same air network — he prefers Star Alliance, which counts Continental, United and Air China among its members — to build up miles and get better service.


“That’s how you maintain your status with the airlines,” he says. “Maintaining your status is very important in how you get treated.”


Alliances are also vital to airlines. Such partnerships allow them to compete cost-efficiently in fast-growing markets without having to make the major investments in aircraft, crew, operations and marketing that would be required to serve such markets on their own. The promise of greater access to Asia was a key reason behind American’s and Delta’s battle to partner with bankrupt JAL, Asia’s largest carrier. American won and has applied for antitrust immunity along with JAL so the carriers can better coordinate flights and pricing. “If we’re able to grow this relationship, it’s going to be a big step,” says Tom Horton, American’s chief financial officer.


Rivals Continental, United and All Nippon Airways have also applied for antitrust immunity following an “open skies” agreement negotiated by the U.S. and Japan last year. The agreement eases flight restrictions between the U.S. and Japan and allows both countries’ carriers to form close partnerships to share costs and revenue on certain routes.


In the fourth quarter of 2009, American’s passenger revenue from the Pacific region, which includes parts of Asia, Australia and New Zealand, totaled only 4% of its overall passenger revenue. By comparison, more than 8% of Continental’s, nearly 9% of Delta’s and more than 15% of United’s passenger revenue came from the region.


Adding flights


U.S. carriers’ revenue in Asia is only expected to grow as they add new flights — either on their own or in conjunction with their partners. Already, compared with a decade ago, “There are many more routes, some of them seven days a week,” says Doug Smith, an Austin business traveler who flies more than 200,000 miles a year, often to Asia.


In Japan, five U.S. airlines — American, Continental, United, Delta and Hawaiian Airlines— are vying for landing rights at Haneda airport near downtown Tokyo that are available as a result of the new U.S.-Japan open skies agreement reached in December. U.S. airlines already fly to Tokyo’s Narita airport. But they see Haneda — Japan’s busiest airport, but one that has been closed to U.S. carriers since Narita opened in the late 1970s — as an important foothold.


American is hoping its application to Haneda will be approved, Horton says, because it’s “pro-competitive and pro-consumer.”


Even so, Horton admits, it’s not always smart for airlines to expand quickly, even in a promising market: “It’s about making sure that a market is sufficiently developed before you begin to serve it.”

Source: USA Today

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