American, Delta get the pinch as cheap airfares to Europe rise

Bloomberg

Already under pressure from discounters at home, major US airlines are facing a tighter squeeze abroad as low-cost rivals ramp up service across the Atlantic.
At American Airlines Group Inc., a measure of trans-Atlantic fares just plunged 9.1 percent, the most since right after the recession ended in 2009, as European budget carriers such as Norwegian Air Shuttle ASA added more flights. Delta Air Lines Inc. also recorded a sharp drop in the same yardstick. United Continental Holdings Inc. eked out a tiny gain.
While that’s great news for bargain-hunting travelers, it’s a blow for traditional airlines. The increased seat supply is dragging down fares in a lucrative overseas market just as a rebound in domestic pricing is starting to look shaky. American and United rattled investors last month when they forecast tepid revenue growth and signaled that an already tenuous grip on ticket prices was slipping.
European discounters can hurt revenue at big U.S. airlines “by taking incremental bookings and forcing them to lower their own fares,” said Michael Bentley of consulting firm Revenue Analytics. “I don’t see any reason why they can’t cause trouble with the major carriers.”
American cited the low-cost competitors as it reported a second-quarter drop in the average fare per mile for Atlantic flights.
“Atlantic is challenging. The fundamentals are challenging,” Don Casey, American’s head of revenue management, said in a conference call last month to discuss earnings. “There is excess capacity in the marketplace. The capacity is being driven by low-price carriers.”
The US airlines are likely to fight back by extending overseas the so-called basic economy prices they are offering at home, said Savanthi Syth, a Raymond James Financial Inc. analyst.
Those tickets typically don’t allow passengers to select
their seats or choose an upgrade option, while limiting their carry-on items.