Air War in Pacific : Transportation: As transpacific traffic increased in the ‘80s, some airlines expanded service; others joined the fray. But the Gulf War and the recession have driven off passengers, leaving empty seats. A fare war has ensued--hurting airlines, but benefiting passengers.
On a lengthy flight across the Pacific, Charles D. McKee Jr. looked around the airplane cabin and was surprised by what he saw: row after row of empty seats.
Only 60 paying passengers, including McKee, had boarded the 300-seat jumbo jet for the flight from Hong Kong to Chicago early last year.
“It was eerie,” said McKee, an aviation industry analyst. “The crew was very concerned” about the lack of business.
The normally calm and profitable skies across the Pacific turned turbulent last year for the airline industry. The Gulf War and U.S. recession drove off passengers while several airlines expanded service, leading to a glut of seats and deeply discounted fares and vacation packages.
“There are still a lot of seats that are not filled because of the increase in capacity,” said Choon-Ho Hui, Asia-Pacific airline analyst for Merrill Lynch Research. “It will be another six months or so before (airlines) can think of increasing fares.”
The transpacific routes fell victim to a worldwide slump in aviation. In 1991, airlines worldwide carried 1.125 billion passengers, 3% fewer than the previous year. The number of international passengers fell by an even steeper 6%, to 262 million, according to the International Civil Aviation Organization.
Despite the downturn, transpacific travel began to recover during the middle of last year and is expected to remain a fast-growing market in the long run, said Hui and other industry analysts. That explains in part why several carriers launched or expanded existing service across the Pacific last year with a new generation of long-range jumbo jets.
But the anticipated comeback in Pacific travel has not arrived soon enough for some carriers. American Airlines, for example, dropped service to Australia in 1991 and will stop flying to New Zealand this year after the routes failed to turn a profit.
United Airlines saw no growth in the Pacific region in 1991 after expanding operations by 30% during the two previous years, said Cyril Murphy, vice president of international operations at United, which is the largest U.S. carrier in the region.
Expanding Asian carriers are having a tough time too. “We ought be able to charge more than we do,” said Jake Olver, vice president of the U.S and Latin America operations for Hong Kong-based Cathay Pacific Airways. “But we don’t think the market can stand it. The market is not strong.”
The weak market, however, did not stop several carriers, including Olver’s Cathay Pacific, from expanding. At Los Angeles International Airport, for example, the departure and arrival signs added several new transpacific flights and carriers:
* Asiana Airlines of Korea began nonstop service to Seoul.
* Cathay Pacific Airways launched daily direct flights to Hong Kong.
* Northwest Airlines started nonstop service to Australia.
* Thai Airways International inaugurated flights to Bangkok.
The parade of jets across the Pacific will continue to grow this year. EVA Airways of Taiwan plans to start service to the United States--including Los Angeles--and Delta Air Lines will begin building a Southeast Asian hub at Chiang Kai-Shek International Airport in Taipei. Delta has also asked for government authority to fly to Indonesia and Malaysia, which are not served by U.S. carriers.
The additional flights and sluggish demand mean bargains for passengers.
“They (the new carriers) are going to offer promotions on a short-term basis that will raise a few eyebrows among the incumbent carriers,” said McKee, an analyst with Avmark, a Washington-based aviation industry consulting firm.
Eyebrows have definitely been raised. In his Wilshire Boulevard office, Singapore Airlines Vice President T. A. Hwang looked in disbelief at an ad from last fall offering a weeklong tour of Hong Kong that included hotel and round-trip air fare for $699.
“I don’t think they can make money at $699--that would be very crazy,” said Hwang, whose airline is renowned for its service and profitability.
“It will be a very tough market for the next 12 to 18 months,” Hwang said. “We will all have to be more aggressive.”
“We always remain competitive,” said Murphy at United. “We are not going to surrender market share because of some short-term circumstances.”
Murphy and Hwang have every reason to be highly protective of their Pacific routes, which remain some of the most lucrative in the world. United’s Chicago-Tokyo route alone generates $255 million a year in revenue, according to industry estimates.
Flying across the Pacific requires airlines to invest in large and costly jumbo jets--a long-range 747-400 costs at least $150 million--that generate tremendous revenues and profits when flown packed with passengers. But the jets can prove a costly headache when passenger traffic falls off.
“You have to be getting fantastically high yields (profits) to pay off a jumbo,” said Olver at Cathay Pacific, which paid $300 million for the two 747-400s that fly the Los Angeles-Hong Kong route.
Olver, like most other airline analysts and executives, expects investment in the Pacific to pay off in the long run. Airlines are counting on the growing business ties between the United States and the Pacific Rim to spur travel, while Asians are expected to spend more time and money on leisure trips.
Already, United reports that its Pacific business has recovered at a much faster rate than its other international routes. Some industry analysts, banking on a stronger U.S. economy, expect passenger traffic across the Pacific to jump sharply by mid-year.
“From all the indications we have seen, no other area of the world is growing faster (for airlines) than the Pacific Rim,” said Jim Jackson, vice president of transportation practice at Cresap, a management consulting firm.
Parade Across the Pacific
Passenger traffic across the Pacific has boomed in recent years.
