Europe’s discount airlines put pressure on American’s overseas fares

American Airlines says European discounters are pushing down fares on its lucrative trans-Atlantic flights.
American Airlines says European discounters are pushing down fares on its lucrative trans-Atlantic 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 Fort Worth-based American Airlines, 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 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, while Delta blamed discounted leisure fares for its 7.1 percent decline.

“Atlantic is challenging. The fundamentals are challenging,” Don Casey, American’s head of revenue management, said in a conference call last month to discuss earnings. “There is excess capacity in the marketplace. The capacity is being driven by low-price carriers.”

The U.S. airlines are likely to fight back by extending their so-called basic economy prices on overseas routes, said Savanthi Syth, a Raymond James Financial analyst.

Delta already offers basic-economy pricing in Canada and is rolling it out to other international markets. American is expanding the category across the U.S. and hasn’t said if it will be offered elsewhere. United has said it will offer the option in Latin America by year-end and is evaluating its use on long-distance international flights.

American and Delta declined to comment about the trans-Atlantic market for this story, while United said it was happy with its performance there.

Meanwhile, the European discounters are plotting their expansion.

Norwegian Air, one of the most active low-cost carriers with 46 routes between the U.S. and Europe, 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 spokesman Anders Lindstrom. Norwegian has announced plans for service out of Austin next year.

Iceland’s Wow Air Ehf, which flies between eight U.S. cities and Europe with stops in Reykjavik, added three U.S. destinations last year and three this summer. Primera Travel Group, 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.