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Airlines Look to Asian Routes

Old 04-16-2005, 08:05 PM
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Default Airlines Look to Asian Routes

Airlines Look to Asian Routes
Saturday April 16, 8:08 am ET
By Jui Chakravorty

NEW YORK (Reuters) - Large U.S. airlines, hemorrhaging from competition at home, are looking at routes halfway around the world to stop the bleeding.

As the industry struggles with its worst crisis in years, U.S. carriers are focusing on Asia -- mainly China and India -- to make up for ballooning losses on the domestic front.

American Airlines (NYSE:AMR - News) and Continental Airlines (NYSE:CAL - News) earlier this year won federal approval to begin direct flights to China. They join ranks with United Airlines (OTC BB:UALAQ.OB - News) and Northwest Airlines (NasdaqNM:NWAC - News) -- the only two U.S. carriers that have served China for the last two decades.

The U.S. airline industry has lost more than $36 billion since 2001, the year of the Sept. 11 attacks on the World Trade Center, as growing domestic competition has pushed fares lower amid rising fuel prices.

U.S. carriers, which lost $10 billion in 2004 alone, are battling for new flights to China as they aim to tap rising demand for travel to the world's fastest-growing major economy.

Agreements between the United States and China that limit the number of flights between the two countries give carriers the advantage of knowing who their rivals are, while also keeping the level of competition in check, Continental Airlines spokesman Dave Messing said.

On the flip side, the tight regulations limit carriers' access to those routes.

"Whatever any U.S. airline can get of this fast-growing Asian market is great and will help substantially, but there isn't enough of it to stave off imminent bankruptcies or liquidation," Morningstar analyst Chris Lozier said. "And the regulations mean that it will be a period of years before certain carriers will benefit at all."

Lozier is one of several analysts to express concern about some large companies, particularly US Airways (OTC BB:UAIRQ.OB - News), which is in Chapter 11 protection, and Delta Air Lines (NYSEAL - News), which has been teetering on the verge of bankruptcy.

One airline analyst, who requested anonymity, said the new, profitable routes to India and China would "just not help those two carriers fast enough."

China, whose increasingly affluent populace is taking to the skies for business and leisure, is emerging as a strong travel market. As many as 100 million Chinese could be flying abroad every year by 2020, up from 20 million in 2003, according to the World Tourism Organization.

Airplane manufacturer Boeing Co. (NYSE:BA - News) predicts China will become the world's second-largest commercial aviation market, behind the United States, within 20 years.


Continental, which will begin flights to Beijing in June, plans to apply for service to Shanghai in 2007. Delta, which also asked for approval to launch service to China but was rejected, plans to apply again in 2007, a company spokesman said.

The U.S. Department of Transportation said it picked Continental because the New York-China market has "the most serious service deficiency." Delta would have flown from its hub in Atlanta.

United Airlines spokeswoman Robin Urbanski said one-fourth of the carrier's capacity serves the Asian market. "That continues to be a big focus area for us," she said.

In a speech last week, United Chief Executive Glenn Tilton predicted that the "phenomenal" economic growth in China and India will continue.

"As the middle class continues to grow, disposable income and the natural desire to travel will increase," he said. "Travel originating in Asia is the fastest growing segment in the travel and tourism industry."

India, with more than 1 billion people and a rapidly growing middle class, is also emerging as a lucrative market for U.S. airlines.

The United States and India on Thursday signed an "open-skies" agreement, which eliminates restrictions on air travel and fares between the two countries.

Northwest Airlines has applied for federal approval to fly from Minneapolis to the southern Indian city of Bangalore starting in October, and Continental plans to launch daily nonstop flights to New Delhi that month.

Delta plans to start service from New York to Chennai, India, in May.

Boeing has forecast that India will be the fastest-growing aircraft market after China.
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