U.S. airlines feel low-cost pinch on overseas flights

Already under pressure from discounters at home, major U.S. 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 also recorded a sharp drop in the same yardstick. United Continental Holdings 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.

The U.S. airlines are likely to fight back by extending overseas the basic economy prices they offer at home, said Savanthi Syth, a Raymond James Financial analyst.

Those tickets typically don’t let passengers select their seats or choose an upgrade option, while limiting their carry-on items. And they’re helping American, United and Delta recover from a twoyear slump in revenue per available seat mile that was triggered by the expansion of low-cost airlines in the U.S.

Meanwhile, the European discounters are plotting expansion. In the benchmark month of August, the number of seats departing daily across the Atlantic has risen 29 percent during the past five years, and two-thirds of the growth has come from nontraditional carriers, said Samuel Engel, head of the aviation practice at consultant ICF International.

Discounters now account for a quarter of seats, almost twice the level five years ago, Engel said.

Norwegian Air, one of the most active low-cost carriers, with 46 routes between the U.S. and Europe, including four from Orlando International Airport, plans to start a dozen more. “This year will see the biggest growth of Norwegian in the U.S.” with fares on some routes as low as $99 each way, said Anders Lindstrom, a spokesman for the Fornebu, Norway-based company.

Other discounters also are increasing service. Iceland’s Wow Air Ehf, which flies between eight U.S. cities and Europe, added three U.S. destinations last year and three this summer. Primera Travel Group Hf, also from Iceland, has said it will begin flights next year between three European cities and New York and Boston with bare-bones fares as low as $99.

Business travel provides a source of insulation from discounters. Corporate fliers typically are willing to pay higher fares to get the amenities that go with them, said Alan Bender, a professor at Embry-Riddle Aeronautical University.