Big Six network carriers continued to increase traffic and capacity on international routes in the first half of 2005 as the domestic market offered little in the way of profitable growth. Several airlines are adding markets, increasing frequencies or deploying larger planes to handle demand, including overseas corporate travel, which remains the most lucrative aspect of many carriers' global operations. Foreign carriers also are aggressively pursuing business from North American companies now that domestic airfare reform has altered the negotiating dynamic for international services.
Meanwhile, six members of SkyTeam alliance, including Delta and Northwest, have made their case for antitrust immunity to the U.S. Department of Transportation. Should their application be granted, the SkyTeam airlines would have more flexibility in crafting joint corporate programs.
For now, whether or not in an alliance context, airlines continue courting higher-yielding corporate business for growing international operations. During the month of June, "U.S. legacy carriers on average increased international capacity by 9.4 percent, while taking down domestic capacity by 1.2 percent," according to Calyon Securities analysts. During the first six months of the year, traffic and capacity growth by several carriers to multiple geographic regions reached double-digit percentages.
Portions of those increases are seasonal ahead of the busy leisure travel summer months, which this year again will be characterized by many foreign visitors coming to the United States to take advantage of favorable currency exchange rates, but "overseas traffic from large corporate accounts is one of the drivers behind us allocating more capacity internationally and shifting from domestic," said Scott Brandt, United Airlines managing director of worldwide sales strategy.
Corporate travel patterns have been a factor behind many international route launches and announcements this year, including services to major destinations in Asia and secondary business markets in Europe.
Northwest, for example, on Oct. 30 will introduce flights between Minneapolis and Bangalore, India, via Amsterdam. "So many of our corporate customers have call centers there, so we were sure to call out to different companies before we announced service," said Fay Beauchine, recently retired Northwest vice president of sales and customer care. "There is lots of potential for corporate travel to India."
American Airlines evidently agrees. The carrier last week announced plans for daily nonstop flights between Chicago and Delhi, effective Nov. 15. If approved by the government, the route would be AA's longest. Partner British Airways also is expanding services to India. Both recently announced plans to share codes with Air Sahara, a domestic Indian carrier.
BA said overall traffic levels in the April-June quarter rose 2.7 percent, with premium traffic in particular jumping 8.6 percent. "The corporate travel market in the last year or so and looking forward is reasonably buoyant," said Robin Hayes, executive vice president of sales and marketing for the Americas. "We are seeing growth around the world and the transatlantic is particularly strong."
Hayes added that negotiations with corporate accounts recently have been characterized by buyer requests to involve procurement techniques and professional consulting firms, strike global deals and secure more "front-end" contracts consisting of fixed fares upfront and year-end rebates rather than discounts off published fares. Oneworld alliance deals, he said, still are viewed by BA corporate sales as secondary.
BA rival Virgin Atlantic Airways said business class traffic during its last fiscal year rose 26 percent, partially a result of general recovery in the business travel market. The passenger load factor in the carrier's Upper Class was 56 percent, the highest in five years.
"Everybody is experiencing cautious increases in confidence and we are seeing steady growth," said Simon Newton-Smith, Virgin assistant vice president of sales in North America. "Our base of customers has grown across all business segments."
That may be driven by domestic airfare reform, which has caused many buyers to place greater emphasis on international deals that generate an even larger proportion of overall airline program savings. "Because there are lower discounts being applied to lower published fares in the domestic market, there is not as much for a corporation to lose on the international side by dealing outside U.S. network carriers," Newton-Smith said.
Air France-KLM said traffic and capacity to the Americas during the past three months each grew roughly 10 percent. Meanwhile, citing "unprecedented success" of its initial nonstop service between New York and Dubai
(BTN, Sept. 8, 2003), Emirates on Nov. 7 will add a second daily frequency.
"If all this new international capacity still is there into the fall, there will be buying opportunities for corporate travel managers," predicted John Heilner, vice president of consulting firm Management Alternatives.
Noting such new services as Continental Airlines' nonstop flights to secondary U.K. business markets and Eos' planned launch of an all-premium service from New York to London
(BTN, June 20), BA's Hayes said the transatlantic market remains hotly contested. "These airlines are sensing the tide of change. They are sensing a structural, long-time revival of the corporate travel market and they want a piece of the action."
SkyTeam Eyes ATIMeanwhile, six SkyTeam alliance airlines—Air France, Alitalia, CSA Czech, Delta, KLM and Northwest—await a DOT decision on their request for antitrust immunity. "Alliances that have ATI are the ones that are more beneficial for consumer and supplier," said Kevin Iwamoto, global airline,car and groundcommodity manager for Hewlett-Packard Co. "It puts contracting on a whole different level because you can talk about harmonized pricing."
HP was among the first companies to secure consistent contractual terms with SkyTeam carriers as a group, following reconstruction of a global Star Alliance contract
(BTN, July 4).In recent weeks, several other travel managers whose companies make use of SkyTeam member services sent letters to DOT supporting the alliance's application. They represented Alticor, Chemonics International, Federal Express, Ford Motor Co., General Motors, Johnson Controls, Medtronic, Textron, Thomson and TRW Automotive. According to their comments, SkyTeam antitrust immunity would lead to reduced travel times made possible by new nonstop flights and more low-fare choices.
The Business Travel Coalition also threw its support behind SkyTeam, suggesting its proposal would add more competitive and convenient services and "increase the likelihood of U.S.-European Union open skies."
American Airlines, snubbed in repeated attempts to secure antitrust immunity with BA, voiced objection to the SkyTeam application. "[SkyTeam's corporate] customers are supporting the proposed alliance because they believe it would result in lower fares for their travel," American said in a DOT filing. "American's own analysis showed that immunized alliances at Amsterdam, Paris, Frankfurt and Munich are collecting higher fares than the industry average for traffic to and through those hub airports. Simply stated, SkyTeam's customers should think twice about asking for approval."
American's argument centered on the domestic market and suggested the likes of Delta and Northwest "cannot effectively compartmentalize" domestic and international networks. "By excluding from its scope only those activities that involve 'solely' domestic transportation, Delta and Northwest would eliminate competition between themselves for 'global' alliance contracts with corporate travelers, contracts that usually encompass a combination of U.S. domestic and international travel," American said. "Similarly, when an airline's salesforce is bidding on a corporate account, it must set its discounts taking both domestic and international traffic into consideration."
US Airways, a member of the Star Alliance, did not object to the SkyTeam application, but said DOT's decision would "create a significant precedent" for future airline requests for antitrust immunity. US Airways is aligned with United and also is progressing on plans to merge with America West.