United still holds advantage in Pacific

By Dirk Beveridge
Associated Press

HONG KONG — Despite its bankruptcy filing this week, United Airlines is not expected to lose its position as the dominant air carrier across the Pacific unless the situation gets far worse than expected.

Some worried travelers might switch brands in the short run but, beyond that, United dwarfs most of its trans-Pacific rivals and would be likely to lose the advantage only if it gets mired in Chapter 11 bankruptcy for an extended period and can't cut costs, analysts said.

United bought the Pacific operations of Pan American World Airways in the mid-1980s, taking over the jet-age version of routes that Pan Am pioneered decades earlier with the old flying boats that took days to make it across the ocean.

United's biggest U.S. competitor in the region is Northwest Airlines, with American, Delta and Continental trailing far behind.

"Asia is one of the strongest markets since Sept. 11, so I'm sure it's been profitable for them," said Philip Wickham, who tracks the airline industry for investment bank ING Barings in Hong Kong.

United might see a drop in ticket sales immediately after its bankruptcy filing Monday in Chicago, which could benefit Asian competitors and perhaps prompt some fare-cutting, but the effects are expected to be minimal, said Peter Harbison, managing director at the Center for Asia Pacific Aviation, a consultancy in Sydney, Australia.

United does not publicly break down its bottom line by region, a spokeswoman said Tuesday, but industry observers believe it's doing well in Asia-Pacific.

With a hub in Tokyo that offers flights to most key regional business centers and daily nonstop services between 17 Asia-Pacific cities and the United States, United would have to stumble badly to create enough of an opening for any competitors to threaten its top position, experts said.

United previously cut back a few Asian services and is now flying across the Pacific with most seats full.

"In a lot of ways they're probably a lot stronger now than they were last week," Harbison said. "They at last now have the opportunity to reduce their costs substantially, which they will have to do."

In a worst-case scenario of United's being knocked out of the Pacific market, one of its big U.S. competitors would likely step in and buy up lucrative route authorities in the region.

That's how United got into the market, as Pan Am struggled in the years following the 1978 deregulation of the U.S. airline industry.

The United spokeswoman in Hong Kong said Tuesday that the carrier expects no impact on Asia-Pacific operations.

Not that United is immune from competition.

Continental Airlines began offering nonstop services last year from Hong Kong to its hub in Newark, N.J., and United abandoned nonstop Hong Kong-New York services.

American Airlines is hoping for a foothold in Hong Kong through a code-share deal with its alliance partner, the Hong Kong carrier Cathay Pacific Airways, that was made possible by a more liberal aviation deal signed recently by Washington and Hong Kong.

American has said it might eventually launch its own Chicago-Hong Kong services in direct competition with United.

But United is not worried and "will have an appropriate response to any competition," the carrier's spokeswoman said.

United is part of the Star Alliance, with four Asian-Pacific partners: Singapore Airlines, Thai Airways, All Nippon Airways and Air New Zealand, which share passengers and frequent-flier benefits with United and other alliance members in Europe and the Americas.

"It does weaken and create some strains within the Star Alliance," Harbison said. "Each of them will be placed a little under pressure in their planning. It's not an easy world for anybody."

Meanwhile, Japan Airlines System Corp. President Isao Kaneko said United may reduce fares on Pacific routes. "They don't have to pay their debts," said Kaneko speaking to reporters. "One possibility is that they can make competition tougher by lowering airfares."

If United now drops fares to attract passengers, it will hurt earnings at Japan Airlines, which said passenger traffic remains below 2000 levels.

"In December, passenger numbers will still probably be 2 percent below the same period in 2000," said company spokesman Toshiro Moriya. "There is a trend for recovery compared with last year," he said.

The number of passengers on the carrier's overseas services last month was 5 percent less than in November 2000.

International passenger numbers in October for the Japan Airlines System group, including both Japan Airlines Co. and Japan Air System Co., rose 40 percent from the previous year, the company said. International passenger numbers for Japan Airlines alone increased by 50 percent in October, the company said.

Bloomberg News Service contributed to this report.