Domestic Traffic Shrinking, But What About International?

We've seen US airlines begin to severely shrink domestic capacity, but what about international? Sure there have been a couple of small changes: American will drop Chicago-Buenos Aires, United will drop LA to Hong Kong, and Delta will drop Budapest, for example. But internationally, we haven't seen anything like the cuts we've seen domestically. Is that going to change?

Well, according to the International Air Transport Association (IATA), international traffic growth is beginning to slow. Last year, we were seeing growth rates in the 6-7 percent range, but now we're down to four percent. So, traffic is still growing, but it's not keeping pace.

If we look at the international traffic estimate from North American carriers in particular, the numbers are alarming. In April, there was a 3.8 percent year-over-year increase in traffic for North American carriers. That doesn't sound too bad until you realize that capacity jumped 6.2 percent. It doesn't take a math whiz to see that we may be putting too many seats into the international arena. And the news is the same all over the world, with the exception of the fast-growing, oil-rich Middle East.

So what does this mean? Well, American carriers will start shifting their capacity toward the Middle East if they can. We've already seen United announce Dubai flights and Delta decide to go to Kuwait. But there are limited opportunities there for US airlines. The pain we've seen in the US domestically is only going to expand. While airlines have spent the last few years fleeing domestic markets in favor of international, that option may not look so good any more.