Airline Profits Dry Up for Overseas Routes

CHARLOTTE, N.C. -- It may be time for airlines to pay the price for months of pouring capacity into now-softening international markets.

In June, international passenger demand growth slipped to 3.8%, the lowest level since 2003, the International Air Transport Association said Monday. Even Middle Eastern carriers saw a slowdown, with traffic growth of 9.6%, compared with 18.1% growth in June 2007.

"This is the slowest growth that we have seen since the industry was hit by the SARS crisis," said IATA CEO Giovanni Bisignani. "With consumer and business confidence falling and sky-high oil prices, the situation will get a lot worse."

Last week, British Airways, a largely international airline that is the principal trans-Atlantic carrier, reported its first-quarter profit fell by 88%. Meanwhile, the industry's June capacity for trans-Atlantic routes was up 12% from the same month a year earlier, Credit Sights analyst Roger King said in a recent report.

The report, titled Atlantic Bubble Bursting, said growth in trans-Atlantic passenger revenue per available seat mile has "ground to a halt." That is no surprise, given that in every month since January 2007, U.S. carriers' capacity in the Atlantic has grown between 7% and 17%. Meanwhile, load factors have decreased every month this year.

Among U.S. carriers, Delta(DAL) has led the charge to international. It moved from 20% international capacity in 2005 to 40% this summer. In the second half of this year, Delta expects international capacity to rise by 14% as domestic capacity falls by 13%.