Airlines Eye International Expansion

By | October 12, 2006

Today, Northwest and Delta both announced expansion plans. As the Associated Press notes in regards to Northwest, airline consultant Alan Sbarra said that expansion fits with a policy now popular amoung US carriers of “avoiding competition by going to Europe.”

The push to offer more international service could possibly increase competiton and thus lower fares on these routes as well. Some of the routes the US carriers are eyeing are routes or at least destinations dominated by foreign carriers. US carriers can no longer count on brand loyalty, as they once did. So they are offering service from their hubs to new destinations where they can dominate both nonstop and connecting traffic.
Delta, for example, has made several attempts to serve Tel Aviv, a market long dominated by El Al. The only successful US carrier to take them on for any length of time was Tower Air, which ultimately declared bankruptcy. Delta flew from New York to Tel Aviv from 1991 to 1995, and again in 2001. Delta ultimately inaugurated service from its Atlanta hub to Tel Aviv, where El Al does not compete.

Emirates, whom we have spoken of as due to their order for the A380, operates service from Dubai to Houston, JFK, and Newark. Delta has also been unsuccessful in the past with New York to Dubai service. It cannot compete with the service level of Emirates. So it is inaugurating service from its Atlanta hub to Dubai.

The list of such things goes on. Many foreign airlines are not in as dire straits financially as US airlines and thus can afford in-flight service amenities and more state of the art aircraft. Two good examples are Emirates and Singapore Airlines.

The A380, despite its delays, which would allow airlines to carry more passengers on a flight, which would reduce the per passenger operating cost to the carrier as well as allow for a higher level of service that passengers are demanding on international flights, has been ordered by foreign airlines and will likely be used on highly lucrative US service. Emirates has 43 on order, and Singapore has 15, no doubt several intended for such service. Qantas and Air France, for example, have already announced their plans to use the aircraft on Paris to New York & Montreal, and Los Angeles to Sydney & Melbourne.

The waves of international service, as predicted, will most likely lead to increased competition, both foreign and domestic carriers, until that frontier is no longer the lucrative boost to their bottom lines that US carriers are hoping. Foreign airlines have already proved they can compete, and often from a position of strength beyond what financially suffering carriers are capable of.

The biggest boost US carriers can offer is their connecting service to the interior of the US from their major gateways. Discounting codeshares and through fares, which still give domestic carriers their share of the pie on transatlantic service from other carriers, the strength of being able to offer one airline, if not one-stop service from places like Paris to Columbus, Ohio enhances their positioning power.