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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,


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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%.

Now, Delta is "anticipating that the robust growth we've seen for the last two years will start to level out as we move into the fourth quarter," said Executive Vice President Glen Hauenstein, on the carrier's second quarter earnings conference call. "As we see that softening, we will react," he said, noting the carrier could pare some international routes.

At the same time, much of Delta's summer expansion is in Africa and the Middle East, where expansion has been far slower than in trans-Atlantic markets, President Ed Bastian said. "We have a little bit of a different footprint," he said.

The big airlines' interest in international flights surged because it was viewed as less competitive than domestic flying, as low-fare carriers prefer to stay home, says aviation consultant Robert Mann. Additionally, international routes have offered currency advantages since many passengers buy tickets with euros, and it has provided benefits often associated with successful newly-added routes.

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But those advantages have faded. Flying to secondary markets in Europe "was great when


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started it and still great when Delta followed," Mann said. "Maybe now it's not such a good deal anymore."

On some routes, competition is mounting because the Open Skies agreement is enabling European carriers to fly in third-country markets. For instance, British Airways premium subsidiary OpenSkies serves Paris from Kennedy and now plans to serve Amsterdam as well, competing with U.S. carriers for high-paying business fliers.

Additionally, fare premiums at London Heathrow Airport have deteriorated, as access has been offered to




US Airways


, Continental and Delta.

Meanwhile, with the dollar potentially stabilizing, "we may be heading down the other slide of the slope" on currency benefits, Mann said.

Given the international trends, and the planned 10% cutbacks in fourth quarter domestic capacity, is it possible that domestic could become a hot spot?

"As we move into the third and fourth quarters, (with) all the capacity cuts coming out domestically, domestic is going to start outperforming because there is less capacity while there is still capacity growth internationally," said US Airways President Scott Kirby, on a second quarter earnings conference call. While the five other legacy carriers have around 40% of their capacity in international routes, US Airways has just 21%.

"Looking backward, we didn't have as much international exposure," Kirby said. "Looking forward that may be a good thing."

Ironically, low-fare carriers, while continuing to slow domestic growth, are eyeing close-in foreign markets.


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plans to code share with Canadian carrier WestJet in a cross-border, low-fare partnership.




says it will likely add Caribbean flying this year, and possibly Latin America as well. "Latin American flights -- (typically) one flight a day in a city -- I think is the kind of thing you consider when you are in a slow-growth period," said CEO Bob Fornaro, on an earnings conference call.