Northwest gets tentative approval for route to China
Eagan-based Northwest Airlines has won tentative approval to launch non-stop service service between Detroit and Shanghai, China.
Northwest has been trying for more than a year to win federal approval to offer service on the route. Now, it's poised to start flying between the two cities in 2009. That's as long as the carrier wins final approval for the flights. A decision by the U.S. Department of Transportation is expected in about 10 days. Industry observers say they can't recall the department ever backing off tentative route approvals.
Like other airlines, Northwest covets the China market. The airline has estimated it could carry about 140,000 passengers annually between Detroit and Shanghai. That's using new fuel-efficient Boeing 787 Dreamliner jets that Northwest will add to its fleet.
Northwest and other airlines expect they can charge China travelers hefty fares, owing to the lack of low-fare competition on international routes.
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"I doubt if there's very much discounting going on in the Chinese-U.S. market right now," says Ray Neidl, an airline industry analyst with Calyon Securities.
A round-trip Northwest flight between the Twin Cites and Shanghai next June, for instance, would cost about $1,500. That's for an economy-class ticket booked on the airline's Web site. Some airlines charge more than $10,000 for first-class tickets to China and back.
Morningstar airline analyst Brian Nelson says Northwest's new China service should give a big boost to the airline's business in the Pacific. "Getting a Detroit-to-Shanghai route is definitely going to further propel that part of their business to the tune of about a $100 million to $150 million on an annual basis," he says. "And I think the profits will be quite lucrative."
Overall, Pacific routes produced about $2 billion in passenger revenue for Northwest last year. That was about a fifth of the carrier's overall passenger revenue.
Neidl notes Northwest isn't the only airline winning rights to serve China. The U.S. Department of Transportation has been steadily granting new routes to U.S. carriers. I
In this latest round of awards, announced Tuesday, the department dished out routes not just to Northwest but also U.S. Airways, and Delta, American, Continental and United airlines.
But Neidl believes there's plenty of passengers for all the airlines. "Right now, the Chinese market is so tight I think it can afford to take a lot of new competition, a lot of new entrants," he says.
In 2005 , 1.3 million Americans traveled to China. That was up about 20 percent from 2004. And passenger traffic is expected to rise at a robust rate. China continues to grow as a trading partner and the 2008 Olympics should boost the tourist trade.
The air cargo business is booming, too. But it is easier to fill planes headed to the U.S. than the ones bound for China.
Northwest already provides 72 flights to China from seven U.S. markets, including the Twin Cities. But to get to China on Northwest, you have to stop in Tokyo.
Neidl indicated he doesn't think the Detroit-Shanghai service will affect traffic at Northwest's Tokyo hub.
"Shanghai is such a big city and Detroit is such a big hub for them," he says. "That merits direct flying. Northwest will be doing that in certain really big markets, overflying their Tokyo hub. They don't think it will disrupt the Tokyo hub."
Northwest won't be the first airline to offer nonstop service between the Midwest and China. Both United and American airlines offer service between Chicago and Shanghai. Northwest expects the Detroit-Shanghai service will draw travelers living east of the Mississippi, especially from Midwest "heartland" states such as Indiana and Ohio and, of course, Michigan.
