Airlines Recognize the Growth Is in Asia

SEATTLE ( TheStreet) -- With a recovery apparently under way, air service to Asia is starting to ratchet up.

FedEx ( FDX) on Tuesday took delivery of a 777-200 from Boeing ( BA). The aircraft will have a unique mission: regularly scheduled, non-stop trans-Pacific cargo flights from Memphis. Unlike current trans-Pacific cargo flights, this one won't have to make a fuel stop. Service will begin early in 2010.

"We're going to be able to offer service that no one else can offer with much later pickup times, as those planes do not have to stop as they come back across the Pacific," said FedEx CEO Alan Graft, on an earnings conference call last week. Flights will begin in January; FedEx hasn't identified its Asian gateway.
FedEx's non-stop service to Asia from Memphis will begin early next year.

Last week, AMR's ( AMR) American said it will fly a 777-200 between Chicago and Beijing, starting in spring 2010. American won regulatory approval to begin the flight this year, but the global economic slowdown led to a delay of about a year.

In the short term, both FedEx and American are making bets on when Asian air service markets will recover. In the long term, the future seems obvious: Asian markets will grow more rapidly than others. That was a central conclusion in recently released annual forecasts by both Boeing and Airbus.

Over the next 20 years, Boeing said, the world will need 29,000 aircraft valued at $3.2 trillion, with Asia requiring 31% of the total. Growth will be most rapid in China, which is expected to "add the capacity of North America today over the next 20 years," said Drew Magill, director of marketing for Boeing Commercial Airplanes, at a recent investor conference.

On the cargo side, "Asia continues in its position as the manufacturing hub of the world and, as we get further and further into the recovery period, Asia will be one of the drivers," said Boeing spokesman Bob Saling. He added, "As we look ahead, air cargo out of Asia will be a leading indicator" of the recovery.

Saling said the 777 is poised to benefit on the passenger side as well as the cargo side. The airplane FedEx is taking Tuesday is the ninth 777 freighter Boeing has delivered. So far, Boeing has 71 orders for the aircraft, including 15 from FedEx, the only U.S. airline customer. (Some orders are from leasing and finance companies.)

FedEx's non-stop trans-Pacific flights are enabled by the airline's long range and the nature of the cargo, Saling said. Because overnight packages don't create as heavy a load as bulkier cargo, FedEx can get more nautical miles from the airplane -- 5,800 miles compared with a more standard 5,000 miles -- eliminating the need for a fuel stop in Anchorage, Alaska. That allows for a quicker flight. FedEx previously served the route with an MD11, which had to stop for fuel.

On the passenger side, American became the first carrier to say it has re-scheduled China service it was awarded in 2007, but then delayed. "Obviously China is a very large market, a growing market with a growing economy, and this flight (Chicago-Beijing) will complement our existing service (Chicago-Shanghai)," said Virash Vahidi, senior vice president of planning. "When it comes to network planning, there is a strategic value to make sure you have a large presence in the countries and cities most important to your corporate customers.

"International demand is still fairly soft, but we have a strategic commitment to China and we want to make sure we (fulfill) it," Vahidi said.

United ( UAUA) has not set a date to inaugurate the San Francisco-Guangzhou, China, flight it delayed. However, United will restart service from Washington's Dulles airport to Beijing in March, after suspending the service due to seasonality.

In its winter schedule, Delta ( DAL) will add a fifth weekly Detroit/Shanghai flight, while replacing 747s with 777s on the route. This year, Delta has added New York/Tokyo, Tokyo/Ho Chi Minh City and seasonal Salt Lake City/Tokyo service. Delta has not said when it will restart Atlanta/Shanghai service, suspended in the fall, or begin Seattle/Beijing service, which it has deferred. Meanwhile, Continental ( CAL) began Newark/Shanghai service in March.

As of September, Delta was the leading U.S. carrier to Asia, with 298 weekly flights and 87,252 seats. United was second, with 224 weekly flights and 68,482 seats. Continental had 268 flights and 56,912 flights, while American had 92 flight and 27,724 seats, according to the Official Airline Guide.

-- Written by Ted Reed in Charlotte, N.C. .

More from Stocks

One-on-One With Carnival Corporation CEO Arnold Donald (Watch)

One-on-One With Carnival Corporation CEO Arnold Donald (Watch)

Replay: Jim Cramer on the Markets, Tiffany, Micron Technology and Union Pacific

Replay: Jim Cramer on the Markets, Tiffany, Micron Technology and Union Pacific

Carnival CEO Arnold Donald: China Will Become the Largest Cruise Market

Carnival CEO Arnold Donald: China Will Become the Largest Cruise Market

Stocks Finish Higher After Release of Fed Minutes

Stocks Finish Higher After Release of Fed Minutes

Has Wall Street Completely Lost Its Mind on General Electric?

Has Wall Street Completely Lost Its Mind on General Electric?