CHICAGO, Oct 21 (Reuters) – U.S. carriers including Delta Air Lines ( DAL.N ) and United Airlines ( UAL.O ) are betting big on U.S. consumers’ insatiable thirst for transatlantic travel by adding more flights to Europe.
U.S. airlines are responding to consumers emboldened by a stronger U.S. dollar and more flexible work arrangements that allow them to work from wherever they want, extending the travel season into the fall, industry officials said.
“For Americans going to Europe, it’s getting a bargain with the currencies,” Delta Chief Executive Ed Bastian told Reuters. “Europe is probably our strongest region, even stronger than our domestic demand.”
The ocean liner is the most lucrative travel market in the world. In 2019, before the COVID-19 pandemic, it accounted for between 11% and 17% of passenger revenue for the big three U.S. carriers: United, Delta and American Airlines ( AAL.O ).
United and Delta are better positioned to generate more revenue from higher demand for international travel because of their larger global presence, said Guido Petrelli, CEO of Merlin Investor, which tracks the airline sector.
Starting this month, Delta plans to operate more transatlantic flights than before the pandemic.
The Atlanta-based airline typically reduces its transatlantic schedule in September after the Labor Day holiday, which marks the unofficial end of the US summer season. But this year, instead, it is adding an undisclosed number of flights to its October and November schedule. Delta’s move comes after United increased its transatlantic capacity by 22% in the September quarter compared to the same period in 2019, becoming the largest US airline in the transatlantic market.
UNITED STATES DOLLAR INCREASING
For Ohio-based tech professional Jenna Charlton, the strong dollar made extending a business trip to Germany next month to three days a no-brainer. She noted that her spending power is at least 30% higher than her last trip to Europe in 2017.
“Last time when we went we were very, very low against the pound,” Charlton said. “This time, it will be significantly less expensive.”
The strong US dollar, which hit a 20-year high this year, is a boost. With a gain of 18% against a basket of major currencies, including the euro, Japanese yen and sterling, the greenback has increased the purchasing power of Americans and made travel abroad much more affordable.
Travel website KAYAK said searches for international travel, including to Europe, from the United States were up nearly 40% over last year.
For United, the increased capacity led to a 40% increase in European passenger revenue in the third quarter, accounting for 21% of its global passenger revenue. United said demand for transatlantic travel remained “incredible” through the fall. It plans to increase that capacity by 30% compared to pre-pandemic levels.
JetBlue ( JBLU.O ) said last month that its flights to London from the United States are full. The New York-based carrier is adding more flights across the North Atlantic, going from just one daily flight last summer to five by this fall.
Foreign airlines are experiencing increased costs for everything from fuel to aircraft due to the dollar’s rise against their local currencies. Instead, a stronger dollar lowers non-dollar costs for US airlines.
US airlines also have lower exposure to exchange rate risks as most of their revenue is usually denominated in dollars.
Bastian said the international outlet currently accounts for less than 10% of Delta’s revenue.
Airlines say hybrid working arrangements are also helping bookings.
United CEO Scott Kirby said hybrid work turned every weekend into a “vacation weekend.”
Stronger demand, however, has driven up ticket prices. Average economy fares for a round-trip flight from the US to Europe rose 17% year over year this month, according to TripActions.
Analysts have warned of a slowdown in travel spending, citing rising airfares, high inflation and rising interest rates. But consumer demand, so far, has been resilient.
Ryanair ( RYA.I ) CEO Michael O’Leary struck a note of caution. In an interview last week, he said the rising cost of living and interest rate hikes would affect customers’ disposable income.
Reporting by Rajesh Kumar Singh; Edited by Josie Kao
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