Bloomberg News

Airlines Lift U.S.-to-Europe Fares by Paring Seats

June 28, 2012

U.S. carriers led by United Continental Holdings Inc. (UAL:US) are shielding their lucrative trans- Atlantic business from the worst of Europe’s economic slump, after shrinking the supply of seats to support higher fares.

Summer ticket prices to western Europe have risen an average of 3 percent from 2011, according to Travelocity.com. Demand for U.S.-to-Europe trips also is holding up, with ticket sales climbing 5.9 percent to 1.31 million for the peak travel months, according to data compiled by Airlines Reporting Corp.

Flights across the Atlantic are the biggest overseas market for U.S. airlines, with traffic that can roughly double in U.S. summer months from wintertime lows, data compiled by Bloomberg show. Cutting capacity helps carriers maintain pricing power, especially with European business travel at risk from the region’s economic slowdown.

“The industry is being proactive about restructuring the amount of seats that are available for sale given the European debt crisis,” Dan McKenzie, an analyst at Rodman & Renshaw in New York, said in a telephone interview.

Delta Air Lines Inc. (DAL:US), traditionally the first U.S. carrier to report operating results each month, probably will give the initial glimpse at summertime flights to Europe next week with its traffic report for June. After paring capacity, it filled 84.6 percent of seats on trans-Atlantic flights in May, up 0.9 percentage point from a year earlier, even as traffic fell.

“All indications are that Europe is holding up well, David Fintzen, an analyst at Barclays Capital in New York, said in a telephone interview. ‘‘You’ve seen underlying demand trends get a little bit stronger over the last couple of months.’’

Ticket Volume

That pattern shows up in the information from Airlines Reporting Corp., which clears transactions for flights booked on U.S. airlines. That gives the Arlington, Virginia-based company a look at future bookings instead of the backward snapshot provided by carriers.

While the number of tickets sold for each of the three summer months increased, the data also show challenges as airlines grapple with slowing economic growth. Fares for both June and July bookings declined before an August increase, Airlines Reporting Corp. data showed.

Flights from the U.S. to western Europe are averaging $1,315 for May through September, up about 3 percent from the same period in 2011, Travelocity data show.

Industry Consolidation

Ticket prices, pressured by competition in the past, are benefiting from industry consolidation and a growing number of global marketing alliances, said Courtney Scott, editor at Southlake, Texas-based Travelocity.

Delta bought Northwest Airlines in October 2008 and was the world’s largest carrier until United Airlines combined with Continental Airlines Inc. to form United Continental in 2010. Southwest Airlines Co. (LUV:US), the biggest U.S. discount carrier, acquired AirTran Holdings Inc. in May 2011.

‘‘We’re seeing a higher increase in airfares because of these mergers,” Scott said. “The prices are just going to just keep going up.”

Jet-fuel prices dropped 7 percent to $3.03 a gallon in May, paring a first-quarter surge, without relaxing availability of seats overall.

The drop, which means lower costs for airlines, has helped spur gains in their shares.

‘Disciplined’ Approach

The Bloomberg U.S. Airlines Index (BUSAIRL) of 10 carriers has climbed 23 percent this year, with Atlanta-based Delta and United Continental among the top five performers. Delta gained 38 percent to $11.16 in the period, while United Continental increased 29 percent to $24.25.

United Continental, based in Chicago, will remain “disciplined” in managing capacity and won’t be affected by short-term swings in fuel prices, Chief Executive Officer Jeff Smisek told shareholders at a meeting this month.

Rodman & Renshaw’s McKenzie said airlines have not added any new capacity for July and August. In fact, United trimmed its schedule for both months.

Competitor Delta plans to cut an additional 5 percent of its trans-Atlantic capacity in the fourth quarter because of a weakened euro and the risk of higher fuel costs, President Ed Bastian said in May.

“There’s been a rationalization of capacity in the market over the last few years especially with alliances and the joint ventures,” Helane Becker, an analyst with Dahlman Rose & Co. in New York, said in a telephone interview. “The summer is going to be very strong.”

To contact the reporter on this story: Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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Companies Mentioned

  • UAL
    (United Continental Holdings Inc)
    • $43.55 USD
    • -0.39
    • -0.9%
  • DAL
    (Delta Air Lines Inc)
    • $33.76 USD
    • 0.14
    • 0.41%
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