Some New Routes Would Connect Second-Tier Cities in Both Countries
Air China's inaugural flight from Beijing to Washington received a water-cannon salute on its arrival Tuesday at Dulles International in Virginia. Reuters
HONG KONG—Airlines in the U.S. and China are adding a flurry of new connections between the two countries, emboldened by signs of economic recovery in the U.S. and rising travel demand in China, but persistently high fuel prices and intensifying competition might undercut their profitability.
American Airlines Group Inc., the largest U.S. airline by traffic, will launch new routes this week to Shanghai and Hong Kong and from its hub at Dallas/Fort Worth International Airport. Delta Air Lines Inc. plans to launch a nonstop flight between Hong Kong and Seattle next week. Meanwhile, United Continental Holdings Inc. on Monday added a route from San Francisco to the central Chinese city of Chengdu.
In China, flag carrier Air China Ltd. on Tuesday launched nonstop flights between Beijing and Washington, D.C. A smaller competitor, Haikou-basedHainan Airlines Co. , which flies to Seattle and Chicago, plans to launch a service between Beijing and Boston this month, followed by a route from Beijing to New Jersey's Newark Liberty International Airport later this year.
The moves reflect the consistent growth in the number of Chinese leisure travelers venturing abroad, despite China's economic slowdown. Gross-domestic-product growth in the world's second-largest economy slowed to 7.4% in the first quarter, its lowest level in 18 months.
American Airlines Group Inc. is among several airlines launching new routes between the U.S. and China. Karen Bleier/Agence France-Presse/Getty Images
American Airlines Vice President Erwan Perhirin said that forward-booking demand for the carrier's two new Dallas routes for the summer peak travel season is "very solid," with load factor—or the proportion of seats filled on each flight—staying above 80%.
The Hong Kong service is American Airlines' third new Asian route in the past 13 months, signaling the carrier's growing optimism toward air-travel demand there.
"We're investing heavily in the region," Mr. Perhirin said. He added that the airline will continue to seek growth opportunities, though he didn't elaborate.
However, analysts warned that a string of service launches could lead to overcapacity in the U.S. and China aviation markets, hurting airlines' profitability. "The growth in the long-haul-routes industry has come through chasing volume at the expense of yields, with airlines trying to gain market shares by offering discount tickets to travelers," said Eric Lin, an aviation analyst at UBS Securities.
Cathay Pacific Airways Ltd. in late May warned investors that its January-April revenue was weaker than it had expected because of high fuel prices and poor yields—a measurement of an airline's profitability—partly because of promotional fares in March for new routes including Hong Kong-Newark and Hong Kong-Doha.
The airline, based in Hong Kong, also plans to boost frequencies to Los Angeles and Chicago in the coming months.
Mr. Lin expects yields to remain under pressure, as capacity between China and the U.S. has risen 20% so far this year.
Instead of traditional gateways such as New York or Los Angeles, some of the new routes planned by U.S. and Chinese airlines would connect second-tier cities in both countries, with a primary focus on leisure travel, suggesting weaker ticket-pricing power amid intensifying competition, he added.
Even so, American Airlines Senior Vice President Suzanne Boda shrugged off concerns about possible overcapacity between the U.S. and China markets.
"With the continuous expansion in China and continued growth of travel in China, it's really just keeping up with the demand," she said. "Therefore, I would say the pricing pressure is just not in there because we need the capacity."
Representatives at Delta and United didn't immediately reply to requests for comment.
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