For Airlines, World Keeps Shrinking

International expansion will likely continue to reshape the industry this year.
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CHARLOTTE, N.C. -- International expansion will continue to reshape the airline industry this year, as U.S. carriers, led by


(DAL) - Get Report

, move to keep pace with rapid globalization.

By this summer, all six domestic legacy carriers will fly to Heathrow -- four for the first time. Five of them will fly to China. Additionally, every major low-cost carrier, such as


(LUV) - Get Report

, is pursuing opportunities to carry overseas traffic or link up with international carriers.

Yet the year's key event may be the start-up of new

British Airways

service between an East Coast gateway and the European Union that bypasses the United Kingdom.

British Airways says it will announce destinations and a beginning date Wednesday. The move was enabled by the "open skies" agreement between the U.S. and the E.U., which allows any European airline to fly between any European airport and the U.S. beginning March 30.

The announcement suggests that ultimately, European carriers may be better positioned than their U.S. counterparts to benefit from globalization, says Bill Swelbar, a research engineer in MIT's International Center for Air Transportation and an airline industry consultant.

"In general, European carriers are healthy because their home markets are healthy, and so the most significant changes are going to occur on the European side," Swelbar says. "The biggest exception to that is Delta, which changed its business approach in bankruptcy."

In March, Delta will begin service to Shanghai from the world's busiest airport in Atlanta. This spring, it will start Heathrow service from Atlanta and New York's Kennedy airport. This summer, it will add 14 new routes from Kennedy to four continents, flying to cities such as Amman, Tel Aviv and Cairo.

Delta's international capacity will reach about 40% of its total in 2008, up from around 20% in 2005 and 34% in 2006. With the exception of

US Airways


, every legacy carrier devotes more than 35% of capacity to international flying.

Other key additions this year by U.S. carriers will include a San Francisco to Guangzhou flight on



United and a Chicago to Moscow flight on




Low-cost carriers are also increasingly in the mix for international traffic. The biggest one, Southwest, says it is adding the technological capability to offer international code-sharing starting in 2009.

Meanwhile, Lufthansa says its proposed agreement to buy 19% of


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will offer an opportunity to partner with the carrier, which handles 50% of Kennedy's domestic traffic. Despite the logistical obstacles that come with Kennedy's separate terminals, JetBlue is already working out a plan to code-share with Ireland's Aer Lingus. Lufthansa is likely to follow.

On the same day that Lufthansa and JetBlue announced their deal last month,


(ALK) - Get Report

announced a code-share agreement with

Air France KLM


, which began Paris to Seattle service in June.

"Quite a few airlines have recognized that there's value in aligning long-haul international routes with carriers that are preeminent in their markets," says Don Garvett, Alaska's vice president for strategy.

Alaska has 11 code-share partners, including one-way agreements allowing its four international partners to sell Alaska tickets even though Alaska does not sell their tickets. "Open skies makes it feasible for more carriers to not only fly to Seattle, but also to put their code on other destinations that we serve," Garvett says.

Meanwhile, British Airways says it will launch its new U.S. to Europe airline, operating Boeing 757s, in the summer or fall of 2008.

Airline officials are grappling with the selection of a U.S. destination, with either Newark or Kennedy as a likely choice, says British Airways spokesman John Lampl.

"Obviously Kennedy is a possibility, but we have a congestion situation there," he says. Brussels, Frankfurt, Milan, Paris and Rome are all possible European gateways. The new operation would start with a single aircraft and gradually expand, Lampl says.