U.S. Airlines Press Hard in Fight for China Route
By John Hughes & Jonathan D. Salant, Bloomberg News | Dec. 11, 2006
Continental Airlines has handed out 5,000 fortune cookies to members of Congress, Transportation Department officials and other Washington decision makers. Among the messages inside: "Shanghai: The right route for the most people."
American Airlines boasts the backing of Wal-Mart Stores, the world's largest retailer. Northwest Airlines has the support of Michigan and Minnesota lawmakers. United Airlines does Northwest one better: It brandishes a letter signed by Nancy Pelosi, the incoming speaker of the House of Representatives.
The four U.S. carriers are all after the same prize: rights to a single new U.S.-China air route authorized under a 2004 agreement between the two countries. At stake is annual revenue of more than $100 million, along with greater access to the world's fastest-growing economy in time for the 2008 Olympic Games in Beijing.
"This is about as public a fight I've seen," said Jon Ash, president of InterVistas-GA2, a consulting firm based in Washington. "The bidding gets pretty ferocious. It's a limited resource, and everybody wants it."
The result is a competitive frenzy among the four airlines, and their supporters. Public letter-writing campaigns organized by the carriers have generated more than 400,000 messages to Transportation Secretary Mary Peters, who is to make the decision any day. At least 265 of the 535 members of Congress have already written her as well.
The four U.S. carriers, who are the only ones eligible to vie for the new route, are currently allowed only 63 weekly round trips to China; the only direct flights depart from Chicago, San Francisco and Newark, New Jersey.
The much-coveted additional non-stop route, to begin next year, was authorized under a 2004 revision to a 25-year-old treaty. Peters's role is to decide which of the carriers' proposals would accomplish the most good for the most people, her spokesman said.
Continental Airlines wants to add a flight between Newark and Shanghai; AMR's American is proposing a route between Dallas-Fort Worth and Beijing; UAL's United, between Washington and Beijing; and Northwest Airlines, between Detroit and Shanghai.
Aaron Taylor, an analyst with Eclat Consulting in Reston, Virginia, who studies airline data, said that winning the route would mean $153 million a year for United or Northwest, $113 million for Continental and $106 million for American. The carriers decline to release their own revenue estimates.
International routes are generally more lucrative than domestic ones, and "the route to be awarded should be particularly profitable because traffic between the U.S. and China is growing rapidly," said Philip Baggaley, a Standard & Poor's analyst in New York. "There are limited routes available, so there is a scarcity value as well."
The International Air Transport Association, which is based in Montreal, said the number of China air passengers would grow at an average annual rate of 9.6 percent through 2009. Only Poland will grow faster among countries with at least two million annual passengers, the group said in its 2005 forecast.
To help make their cases, the carriers have enlisted companies that might benefit from having easier access to China.
"We're always interested in moving our people as conveniently and efficiently as we can," said Greg Martin, a spokesman for General Motors, which wrote Peters to endorse Northwest's proposal. Having a direct flight from Detroit "would certainly help," he said.
Similarly, Wal-Mart is backing American's Dallas bid.
The carriers have also enlisted an array of Washington heavy-hitters. United, for instance, hired the public-relations firm that employs a former Federal Aviation Administration chief, Jane Garvey, and counts former Secretary of State Madeleine Albright among its backers.
The New Jersey congressional delegation, for instance, endorsed Continental in a Sept. 20 letter. The number of Asian-Americans in the New York-New Jersey area "is larger than the Asian-American communities of Texas, Michigan and the District of Columbia added together," the letter stated.