Dislike the Election Results? Then Jet Off to Europe as Airfares Sink

Don't like the election results?

A trip to Europe could provide welcome distraction, coming at a time when fares are potentially, going lower, thanks to a profusion of new flights.

In recent weeks, British Airways announced new service to Fort Lauderdale, Fla., New Orleans and Oakland, Calif., all starting in 2017. Icelandic-discounter Wow Air, known for $99 one-way fares to Europe, said it will begin Pittsburgh-Reykjavik flights in June. Air Lingus began Hartford-Dublin service on Sept. 29; it already serves Dublin from New York Kennedy, Boston Logan and Newark.

Looking farther ahead, last week AirFrance-KLM said it will roll out a new budget airline in the winter of 2017, initially to serve Asia but with the possibility that trans-Atlantic service will be added. The subsidized Middle East carriers, Emirates, Etihad and Qatar, continue to add trans-Atlantic service to their hubs. Also, Canadian carrier WestJet (WJAFF) , which serves London Gatwick from six cities, as well as Glasgow and Dublin, is eyeing international expansion.

Additionally, Norwegian Air Shuttle already operates 37 U.S.-Europe routes and now plans a Fort Lauderdale pilot base. It has flight attendant bases in Fort Lauderdale and New York. And JetBlue plans to purchase longer-range Airbus A321 jets, which would enable it to serve Europe.

In the third quarter, each of the three global U.S. carriers said the trans-Atlantic produced the worst revenue per available seat mile of any global region. Third quarter trans-Atlantic PRASM was down 11.2% at American (AAL) , 10.7% at United (UAL) and 9.6% at Delta (DAL) .

In a recent column titled, "Flooding the Zone of International Travel," travel writer Joe Brancatelli asked, "Why are international carriers adding dots to the map? It's a flood-the-zone strategy aimed at stealing connecting customers from other airlines."

"Low energy prices make this all kind of doable," Brancatelli said, in an interview. "And the strength of the dollar against the pound and euro make it a good time for US-originating traffic. But Europe-originating traffic is problematic because the US is suddenly a high-priced destination for Europeans."

Brancatelli said joint venture operations, which involve the big three U.S. carriers and their European partners, control more than 75% of the traffic. "That, too, explains why Norwegian, Wow and Icelandair expand," he said. "People do want options."

Patrick Surry, chief data scientist for Hopper, an app that monitors fares and sells tickets, said trans-Atlantic fares have been relatively low since the June 23 Brexit vote, which came during a period when the specter of terrorism in Europe was discouraging some potential travelers from visiting.

"Following Brexit, demand for long-haul international from Europe and the U.S. is down," Surry said. "There's been a {string} of bad news for Europe -- all the uncertainty about Brexit, the refugee crisis, the big attacks {in France and Belgium}. People are less inclined to travel there {and} are looking to stay close to home."

Surry said airlines began discounting Europe fares even during the historically strong travel months of July and August, and "demand continues to be weak."

Nevertheless, fuel prices remain low and airlines continue to be profitable on the trans-Atlantic, which "encourages people to come into the marketplace.

"Major carriers have been announcing capacity cuts to try to stabilize prices but our opinion is that fares will stay low," he said. "Continued strong profits suggest there's still wiggle room on pricing due to low fuel prices, and that will only encourage aggressive competition from new entrants with their lower cost base."

On the big three U.S. carriers' earnings calls last month, executives fretted about the trans-Atlantic.

On the Delta earnings call, President Glen Hauenstein said trans-Atlantic was profitable largely because of low fuel costs, but Delta faced challenges due to terrorism fears, sluggish economies, Brexit and increasing capacity, largely provided by low-cost carriers and the big three Mideast carriers.

Delta responded by cutting trans-Atlantic capacity by three to four points starting this month.

On United's call, President Scott Kirby said that in the Atlantic region "overall capacity continues to grow at high rates. At the same time, demand is growing more slowly, putting pressure on unit revenues.

"We expect the Atlantic to remain the weakest region of the world," Kirby said.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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