"Northwest, Delta Eye Overseas for Profits"

Friday October 7, 2005

Northwest, Delta Eye Overseas for Profits
By JOSHUA FREED
The Associated Press
 
 
MINNEAPOLIS - Northwest Airlines' daily Amsterdam-to-Bombay run fetches
$1,400 a ticket, the airplane flies nearly full, and JetBlue doesn't go
there.

Which is why international flying is a moneymaker for most U.S. carriers _
and why Northwest and Delta Air Lines Inc. are both making international
flying a big part of their bankruptcy makeovers.

Delta says it will increase international flying by 25 percent while cutting
domestic flying as much as 20 percent, and this week it announced new
nonstop service from Atlanta to Tel Aviv beginning in March. Northwest
increased international capacity 5.1 percent last month while domestic
capacity stayed flat, and it says it will cut domestic capacity at least 10
percent. It's adding nonstop service from Amsterdam to Bangalore, India.

In Northwest Airlines Corp.'s bankruptcy filing, Chief Financial Officer
Neal Cohen went so far as to call the carrier's Pacific routes one of its
"most valuable assets," adding, "I believe that (Northwest's) viability as a
going concern is dependent upon the maintenance of these foreign
operations."

Northwest and Delta are following the lead of UAL Corp.'s United Airlines.
Before bankruptcy, United got a third of its passenger revenue from overseas
flying. Now it's half. 

 
Overseas routes "are the brightest spot for the U.S. airlines at the
moment," said Morgan Stanley airline analyst Douglas Runte. "International
has been the place for (legacy) U.S. carriers to hide from low-cost
competition."

Adding flights to Europe, where Delta has a strong presence, is easiest
because of relatively relaxed rules about who can fly there. Not so in much
of Asia.

Agreements between the U.S. and China limit the number of flights there.
Northwest and United are the only American carriers with the right to pick
up passengers in Japan for flights further into Asia, a huge advantage over
other U.S. carriers trying to do business in that booming region. The
now-defunct Pan Am and Northwest _ which used to call itself Northwest
Orient _ won that valuable privilege in a 1952 aviation treaty between the
U.S. and Japan, and United bought Pan Am's rights under the treaty in 1985.
Northwest is now the largest carrier between the U.S. and Japan.

"Low-cost carriers are reluctant to jump into the international arena. It
requires long planning horizons, sometimes years of diplomacy," said Joseph
Schwieterman, a transportation expert and economics professor at DePaul
University in Chicago.

He also said the international routes require larger planes than most
discounters fly.
 
Relatively small 737s are "a dime a dozen, long-range 767s are not,"
Schwieterman said. "The barriers to entry can be enormous, ranging from gate
space at key airports, to landing rights in certain countries."

Carriers will soon have more opportunity to fly to China. An aviation
agreement with the U.S. signed in July 2004 will increase weekly flights
between those two countries from 54 to 249 over six years. Under the
agreement, AMR Corp.'s American Airlines won permission to fly from Chicago
to Shanghai beginning April 3, 2006. It's also adding a nonstop
Chicago-to-New Delhi flight Nov. 15.

American, which has historically had a large Latin American network, has
increased its international capacity 9.5 percent this year, including a 29
percent jump in flying across the Pacific. Domestic capacity is down 1.8
percent.

Rising fuel prices play havoc with the profitability of those routes,
though. Even as Northwest adds its new flight to Bangalore, it recently cut
its New York-Tokyo nonstop, blaming fuel prices. American is dropping its
flight between Chicago and Nagoya, Japan for the same reason, spokesman Tim
Wagner said.

Airlines are studying the profitability of their routes like never before,
said Stuart Klaskin, a partner at KKC Aviation Consulting in Miami.

Airlines are saying, "'If it turns out we can't make money from London to
Minneapolis, or Tokyo to New York, we're out of there,'" Klaskin said.

Eagan-based Northwest and Atlanta-based Delta face overseas competition from
Continental Airlines Inc., which claims to fly to more international
destinations than any other U.S. carrier.

"Quietly, Continental has become this incredibly organized, well-run
globe-spanning carrier that's got a real brand," Klaskin said.

And by keeping amenities like hot meals for domestic coach passengers,
Continental has retained a reputation for service that has suffered at other
airlines.

Klaskin said that appeals "to the guy who's sitting back in 64F who used to
be able to go nonstop from Minny to London and now is on his way to
Amsterdam for his connection, who got cold cuts and a flat Coke for dinner."
 
And just because discount carriers aren't flying from the U.S. to India yet,
they might someday. The Caribbean and Mexico are seen as likely destinations
for discounters in coming years. Jetblue Airways is already flying to Puerto
Rico and the Dominican Republic from New York.

Low-cost carriers already exist in Asia and Europe. EasyJet, a British
airline, and RyanAir, an Irish budget carrier, have expanded throughout
Europe and are drawing competition, and budget airlines such as Malaysia's
AirAsia are growing fast in the Pacific Rim.

They're not crossing oceans yet, said Doug Abbey, a partner at the
Washington-based aviation consulting firm The Velocity Group.

But you can bet there's a demand for them, he said: "Somebody will try to
fill that vacuum."

On the Net:

Delta Air Lines Inc. http://www.delta.com

Northwest Airlines corp. http://www.nwa.com


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