U Can Run, But U Can't Hide....

BoeingBoy

Veteran
Nov 9, 2003
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Arrivals
International Routes May Not Be Cure For Domestic Ills
Aviation Week & Space Technology
03/07/2005, page 46

Steve Lott


U.S. network airlines, eager to boost revenues and escape cutthroat competition with low-cost carriers on the domestic front, are pinning their hopes on new international flights this summer, but a new analysis shows the approach may not help the bottom line for long.

According to Air Transport Assn. data, domestic yields plummeted more than 20% since peaking in 2000, even though 2004 domestic capacity was 5.1% lower than in 2000. International markets, however, still respond to more traditional supply-and-demand rules. Overall, international yields have recovered to near 2000 levels despite shocks like the Sept. 11, 2001, attacks, the war in Iraq and the severe acute respiratory syndrome (SARS) crisis.

While airlines are keen to tap into relatively higher international yields, an analysis by Aviation Daily and partner Eclat Consulting shows that international yields topped out about 1997 and are currently well below those peaks despite recent evidence of recovery.

A look at specific regions shows that international yields vary widely. In transatlantic markets, they have nearly recovered to 1997 levels, while trends on Pacific flights remain 10% below 1997 highs. Latin American yields, on the other hand, have continued to fall since 1997, and are now 13% below all-time highs. One explanation for the regional disparity is the existing level of capacity.

Capacity is still tight in Atlantic and Pacific markets, compared with 2000 levels, down 8.3% and 16.4%, respectively. As a result, load factors in these regions have been strong, suggesting a more direct supply-demand link to yield recovery. In contrast, Latin American capacity was 15.3% higher in 2004 than in 2000, while yields were 6.7% lower and continue to fall. Making the situation worse, several airlines, including Delta and US Airways, have added substantial capacity over the past year. American, which has long ruled the Latin American playing field, is feeling the pressure from the capacity additions and falling yields.

Across the Atlantic, capacity is still below 2000 levels and yields are strong, yet the competitive field is relatively level and a fare war could erupt as capacity is added. On the Pacific, where United and Northwest are the dominant players, yields will likely recover, provided capacity remains below 2000 levels and no major economic or political shocks occur.

Overshadowing this relatively positive scenario is that the overcapacity which drove down domestic yields will eventually spill over to international routes, where yields are still significantly below 1997 highs, even when adjusted for inflation. While these yields have held up better than those on the domestic front, it's easy to see how the network carriers' optimistic plans could be foiled. Carriers may have slashed costs to the bone, but international yields will not bring back sustained profitability unless they make a significant upward turn.

Steve Lott is assistant managing editor of the Aviation Week Group's Aviation Daily. Eclat analyst John Donnelly contributed to this report.

Editor's note: Arrivals is a collaborative effort between Aviation Daily, a sister publication of Aviation Week & Space Technology, and partner Eclat Consulting. It is dedicated to analyzing critical airline industry issues, and appears monthly. Comments and suggestions for future topics should be sent to Aviation Daily Editor Jim Mathews at [email protected]. Readers seeking more information on Aviation Daily can contact Denise Almond at [email protected].
 
BoeingBoy said:
International markets, however, still respond to more traditional supply-and-demand rules.
It's statements like this one that damage one's credibility. The domestic markets respond to traditional supply and demand rules, too. Domestic demand has fallen more than the supply has tightened, resulting in lower yields.
 
i work in the international dept. We are busy as hell. People are paying crazy prices for summer travel to europe. many days are already sold out.
 
Stop it, This post was meant to make us feel bad, your telling us that the sky is not falling afterall defeats the purpose... :blink:

But thanks anyways from those of us that do prefer to hear good news. :D
 
Transatlantic won't be a safe haven for long. It is only a matter of time before you see LCCs flying transatlantic. Aer Lingus has already transformed itself into a pretty decent LCC with rational fares. There are plenty of startups waiting in the wings. Check out SkyLink Aviation for one.
 
mweiss' comment aside, I thought the article showed an understanding of the industry you don't find in the mass media, and had a valid point, without simply spewing forth what the airline media people told them... More of the mass media types should read this of an example of "better" aviation journalism.

Brantecelli's USA Today column (in another thread) was similar. I don't always agree with his points, but this time he had a valid one regarding how the airlines' customers feel about them.