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US legacy carriers losing domestic playing field to low-cost airlines

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NEW YORK – U.S. legacy carriers said international air travel boosted sales in March but that they are losing ground at home to low-cost airlines, a trend that is pushing them into the role of what the industry calls trunk carriers.

“Domestic is recovering more slowly for legacy carriers because low-cost carriers have become entrenched in the local markets,” said Terry Trippler, an airline analyst with Rules to Know, a travel advisory. “Legacy has cut back on domestic capacity, low-cost carriers have too, but not to the degree the legacy carriers have.”

Low-cost carriers operate on a reduced-cost model, typically with a single jet model and simplified routes and fare structures. In the U.S. their routes are often confined to the domestic market, Mexico and the Caribbean.

According to data released last month from AirFinancials.com, domestic carrying capacity for the nation’s legacy carriers declined by 85 billion available seat miles between 2003 and 2009, or by 21% on average.

Over the same period, domestic capacity among low-cost carriers Southwest Airlines, JetBlue Airways, AirTran and four other small carriers rose by more than 84 billion available seat miles.

That’s not necessarily a bad thing. Most of those domestic routes the legacy carriers gave up had slim profit margins that the budget carriers were able to widen through their lower-cost model. The real money for the legacy carriers is in the international routes, particularly as it relates to premium-paying business travel.

Delta Air Lines, Trippler notes, appears to be concentrating exclusively on international, while airlines such as Southwest and AirTran have become feeders into the major airport hubs.

“So over the next five years the legacies will become more like trunk carriers with smaller airlines feeding people into the hubs,” he said.

Indeed, American Airlines parent company AMR Corp. said last month it would partner with JetBlue to expand its number of domestic destinations, using the budget carrier as a way to pull in more customers for its international routes.

“Our domestic customers out of New York and Boston will gain access to JetBlue service to cities we don’t serve,” said AMR Chairman and Chief Executive Gerard Arpey, in a letter to employees.

Recovery in international traffic

For March, data from US Airways and Continental Airlines each showed strong recovery in the transatlantic market compared with a year ago when business people stopped traveling in the wake of the global recession.

But domestic demand fizzled, coming in flat for Continental and dipping about 3% for US Airways. For the first quarter, international demand at US Airways is up 8% while domestic traffic was down 4.5%. Continental international traffic surged 11%, but rose just 0.7% in the U.S.

American Airlines posted similar numbers and United parent UAL Corp. reports later this week.

The world’s largest airline, Delta Air Lines, reported Wednesday its year-to-date international traffic was down 2.3%, and off by 0.9% domestically. The company has been consolidating its operations with Northwest since last year.

The numbers among low-cost carriers tell a different tale, with first-quarter domestic traffic growth at Orlando, Fla.-based AirTran up 7.5%, and Alaska Air posting growth of 7%.

Some insiders say it’s too early to say whether the domestic capacity cuts last year among legacies won’t recovery. The high unemployment rate and low GDP growth could be hobbling domestic growth, while the growth in global trade — coming off such miserable year-ago lows – is helping spark international business travel.

“When you look deeper into the question, the picture becomes a little more cloudy,” according to Hotwire, an online booking agent. “International traffic, just like pricing, fell further than domestic traffic during the economic downturn, which means it has more room to rebound.”

Additionally, most airlines are being conservative about adding capacity to U.S. routes, which could be stifling traffic growth. Airlines have been positing record load factors, which reflect the number of seats filled on an average flight.

But according to the Air Transportation Association, a smaller portion of U.S. spending is going toward domestic flights, underscoring the impact of budget flying. Through 1991 to 2000, U.S. customers spent about 0.73% of the economy on average on domestic flying, but that fell to 0.56% in 2008 and declined to 0.48% by the third quarter.

More recently, airfare has been climbing across the board. Average ticket prices for international routes are up 16% in March from a year ago, while domestic airfare is up 13%, according to Hotwire.

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Editor in chief is Linda Hohnholz.