OAG Travel News

CHICAGO, Sept 22 (Reuters) - Struggling U.S. airlines that had pinned their fortunes in part to sustained growth in travel to Asia, are seeing their outlooks clouded as worldwide economic unease takes a toll on trans-Pacific travel demand.
Carriers such as UAL Corp's United Airlines and Northwest Airlines have the highest exposure among U.S. airlines to Asian markets.

The travel decline comes as carriers try to regain financial footing with fuel prices in retreat from July's record highs.

A more than doubling of fuel expenses this year prompted struggling major airlines to accelerate the shift from domestic markets to lucrative international routes. Asia, the scene of several economic booms, has featured prominently in long-term plans. "There was an assumption that there was a tremendous amount of depth in the U.S.-Asia market that has not materialized to the extent that was originally forecasted," said Bill Warlick, an analyst at Fitch Ratings.
"Over the years, a lot of capacity has been added," he said. "We're clearly in a softer trans-Pacific demand environment right now." Warlick said weaker traffic crossing the Pacific Ocean could depress unit revenue for domestic airlines that operate there.
A monthly report from UAL, which has the largest U.S. airline presence in China, showed traffic on Pacific routes was down 11.6 percent in August and 11.9 percent in July. This follows four months of smaller declines on the routes. Meanwhile, UAL also cut capacity in June, July and August. Northwest, which has a hub in Tokyo, saw its traffic dip 1.8 percent on Pacific routes in August and 1.5 percent in July. The carrier has seen modest dips in Pacific traffic in 10 out of the last 13 months.
ECONOMICS, POLITICS, FUEL
Experts agree that economic weakness is behind the slipping demand for Asian travel.
"The diminished Pacific traffic reflects the general weakening economies around the globe, and the high cost of fuel certainly plays a major role in that," a Northwest spokesman said.
Steven Lott, spokesman for the International Air Transport Association, said tightened travel budgets at U.S. companies would continue to hamper business travel. The Wall Street meltdown that claimed Lehman Brothers and Merrill Lynch also claimed their travel budgets.
"There's no question that we're going to see a bit of slowdown because of the weaker global economy," Lott said. "If companies are worried about their bottom lines, they're going to cut back on business travel."
Another big factor in the summer's trans-Pacific travel decline was a tighter visa restriction imposed by China near the start of the Beijing Olympics. The restrictions surely depressed ticket sales on those routes, experts said.
"In the Pacific, we are the largest carrier to China, while the Olympics was a terrific event, it wasn't actually a terrific event in terms of the business traffic over this past quarter," Kathryn Mikells, UAL vice president of investor relations, said at a Calyon Securities conference on Thursday. Mikells, however, maintained enthusiasm for Chinese markets. "It's obviously a fast-growing area, and we think it's going to have very good results on a go-forward basis," she added.
UAL, which has been increasing its business in the Pacific for years, cut capacity on the routes 5.7 percent in August and 5.4 percent in July, and has delayed the start of new service on a U.S.-China route it was awarded last year.

United, US Airways Group, Delta Air Lines and American Airlines, a unit of AMR Corp, were among carriers that have deferred new service to China.

Carriers cited high fuel prices. (Editing by Maureen Bavdek)

Source: By Kyle Peterson www.guardian.co.uk