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Posted at 11:55 a.m., Tuesday, February 22, 2005

Hawaiian Airlines denied China route

Bloomberg News Service

WASHINGTON — The U.S. Department of Transportation granted permission to American Airlines and Continental Airlines to begin passenger flights to China this year and in 2006, rejecting bids by a number of other carriers, including Hawaiian Airlines.

The awards, tentative until a 10-day comment period is complete, would leave Delta as the only one of the five largest U.S. passenger carriers without flights to China. The Transportation Department awarded cargo flights to FedEx Corp., United Parcel Service Inc., Northwest Airlines Corp. and Polar Air, a unit of Atlas Air Worldwide Holdings Inc.

The U.S. is adding flights to mainland China under a 25-year- old aviation agreement that the two nations updated in July. Thirteen U.S. carriers battled for the 26 new flights as demand rises for service to the world's fastest-growing major economy.

A lack of service between New York and China by U.S. carriers is a "serious deficiency," the order said in awarding the Continental a route from Newark, New Jersey to Beijing to begin this year. American "is most likely to provide the strongest competitive challenge to Northwest and United," the order said in awarding American the flight to begin next year.

Growth on routes to China may be a bright spot for U.S. airlines as they struggle to survive. The industry had $33 billion in losses between 2001, the year of the terrorist attacks, and 2004, as fuel prices rose and domestic competition forced down fares. China's air traffic probably rose 32 percent in 2004, more than double the global average, according to the Montreal-based International Air Transport Association.

Continental and AMR Corp.'s American, which wants to fly a 14 1/2-hour Chicago-Shanghai flight, each can fly seven weekly roundtrips. The cargo carriers received three weekly flights each. Delta had sought to serve Beijing from its Atlanta base.

UAL Corp.'s United Airlines and Northwest are the only U.S. carriers with service to China. United operates daily direct flights to Beijing and Shanghai from Chicago and San Francisco and Northwest flies daily from eight U.S. cities to Beijing and Shanghai and six times weekly to Guangzhou, all via Tokyo.

Continental will announce a date for its flight after final approval, the Houston-based carrier said in a statement.

Fort Worth, Texas-based American said in a statement it plans to begin service April 2, 2006. "We are especially grateful," Chief Executive Gerard Arpey said. "For more than five years we have wanted to fly to China."

American would generate an estimated $215 million in annual ticket sales, based on fares United charged Feb. 16 for Chicago- Shanghai flights departing Feb. 18 and March 9 and returning a week later. While that's a tiny share of American's $18.6 billion total 2004 revenue, long-haul international flights are more profitable than domestic routes.

The U.S. said American, with flights from Chicago, would be a more effective competitor for United's Chicago flights, and with Northwest's flights from Detroit and Minneapolis.

"Delta's proposal does not provide such head-to-head competition with the dominant incumbent carrier in the China market," Karan Bhatia, the assistant transportation secretary for aviation and international affairs, said in the order, referring to United.

Carriers that failed to win additional flights include United, which proposed to add passenger service between San Francisco and Guangzhou; Hawaiian Holdings Inc., which offered San Diego-Shanghai flights via its Honolulu base; and North American Airlines, which applied to fly from Oakland, California, to Shanghai and Guangzhou via Honolulu.

Also failing to win cargo flights were World Air Holdings Inc., Gemini Air Cargo and Evergreen International Aviation Inc.

The 26 new flights being awarded will increase the number of weekly U.S.-China flights to 133. Another 116 will be added by 2010 under the July agreement.