UAL Corp's bankruptcy may lead to tougher price competition for Asian airlines, as it may cut airfares to lure more passengers after applying for court protection from creditors, airlines and analysts said.
"Generally, carriers in their situation cut fares, so we may face a more competitive situation," said Geoff Tudor, a spokesman for Japan Airlines Co, Asia's largest carrier.
Falling demand for flights to the US is hurting earnings at Asian carriers, which face a slump in travel demand after last year's Sept. 11 terrorist attacks. UAL's United Airlines, the world's second-biggest carrier, may resort to fare cuts to attract passengers and boost profit, some investors said.
"It sounds like United is just going to be like a zombie company and fight back by reducing airfares," said Hideo Ueki, who helps manage US$10 billion at UBS Global Asset Management. "If United could reduce the oversupply of seats then the bankruptcy might be good news, but it doesn't sound like that is the case."
UAL filed the largest airline bankruptcy in history as record losses, high costs and a travel slump left the carrier unable to pay almost US$1 billion in overdue debt.
UAL shares closed unchanged in New York yesterday at US$0.93.
Shares of Japan Airlines System Corp, formed from the October merger of Japan Airlines and Japan Air System Co, rose as much as 1.2 percent. All Nippon Airways Co, a member of the Star Alliance group along with United, fell as much as 2.2 percent.
Other Asian carriers also said they were concerned about the possibility of a fare war in the region.
"United may cut fares to increase revenue," said Bruce Wang, corporate planning manager of EVA Airways, Taiwan's second-biggest airline. "It will be bad for us if they do that."
Cathay Pacific Airways Ltd, Hong Kong's largest airline, declined to say how fares may be affected by the filing.
"There has always been a lot of downward pressure on ticket prices in the market," said spokeswoman Maria Yu. "It depends on passenger needs," she said, without elaborating.
All Nippon, Asia's second-largest carrier, said it doesn't see any immediate effect from the bankruptcy filing.
"There has been no effect at this time on the relationship between ANA and United," All Nippon said in a faxed statement.
All Nippon "will continue to cooperate with United Airlines," the statement said.
All Nippon revised its full-year earnings outlook last month to an Japanese Yen 18 billion loss (US$146 million), its ninth full-year loss in a decade, from a May forecast of a Japanese Yen 2 billion profit.
Asian carriers are betting UAL will focus first on reducing overcapacity on domestic US routes before turning its attention
to international services, an analyst said.
"The transpacific routes and other international ones are the bits that generate the profit for the company," said John Casey, a transport analyst at DBS Vickers Singapore Pte.
"What United will probably do is work to preserve the profitability there and cut costs on domestic routes."
United operates 15 flights a day to Asia Pacific destination, and earlier said it filled 80 percent of its seats on its Asia Pacific flights in the first half.
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