US-Soviet Air Travel Expands, Despite Troubles
Several carriers compete for new routes; cargo business grows. OPENING SKIES
CHICAGO — PLANS are proceeding to expand air travel between the Soviet Union and the United States, despite political turmoil there, recession here, and hard times in the industry. Under a two-year bilateral agreement that takes effect April 1, the US Department of Transportation (DOT) selected Seattle-based Alaska Airlines to open passenger service to the Soviet Union via a Pacific route.
DOT is now considering which airlines will win three remaining routes. Initially, ``quite a few carriers were interested,'' says DOT spokesman William Mosley. United, Delta, and Continental withdrew applications, leaving the competition to American, American Trans Air, Baltia, and Trans World Airlines. Pan Am Corporation, which has been flying to the Soviet Union since 1985 under an earlier agreement, is seeking additional routes.
DOT also has awarded two all-cargo routes. Federal Express Corporation of Memphis, Tenn., which began serving the Soviet Union last spring, received an additional route via the Atlantic. Anchorage-based Northwest Air Cargo Inc. landed the Pacific service.
Since the signing of the bilateral agreement last summer, the recession in the US and steep fuel price increases have hit airlines so hard that Pan Am sought the protection of Chapter 11 bankruptcy.
And last week, the chairman of UAL Corporation, the parent of United, told employees that the company will have its largest loss ever in the just-ended fourth quarter. Projections for 1991 ``are even more troubling.''
Although that's not a good climate for opening routes to the Soviet Union that likely will lose money, American Airlines Inc. intends to proceed with plans to open a Chicago-Moscow route on April 1, 1992. With the much smaller field of competition, the likelihood that DOT will award the route to American is ``extremely good,'' says Barry Clark, manager of route strategy. While acknowledging the likelihood of initial losses, he says it will do ``extremely well'' in the long run.
A Pan Am spokeswoman, Elizabeth Hlinko, says that bankruptcy is actually making it easier for the airline to expedite its long-term strategy of increasing service to the Soviet Union and East Europe.
Pan Am hopes to be awarded additional routes to Moscow and Leningrad, as well as to Kiev via Frankfurt, Ms. Hlinko says. But it is dropping its request to fly to the Latvian capital of Riga via London's Heathrow airport, now that Pan Am has agreed to sell its US-Heathrow service to United.
Hlinko sees Soviet political turmoil as partly to blame for the lower-than-expected growth in the number of passengers Pan Am carried on its Soviet routes. Last year's total reached 75,000, compared to 56,000 in 1989. The average load factor was 50 percent for the year. Mr. Clark of American notes that the airline flies to lots of troubled places. ``Some may be rockier than the Soviet Union,'' where troops clashed with independence minded Lithuanians this week. Turmoil is bad for business, but the long-term opportunity is ``well worth taking a risk on the front end,'' Clark says.
Alaska Airlines will fly three times a week from Anchorage to the eastern Soviet cities of Magadan and Khabarovsk. Service will begin June 17 and end in August for the year. ``We don't envision a huge market for travel to the Soviet Far East in the winter time,'' spokesman Greg Witter says.
Although the airline has yet to advertise, it is receiving 150 calls per day about the impending service, and a ``handful'' of advance bookings as well. Round-trip airfare is $1,100 to Magadan and $1,500 to Khabarovsk.
Adventure travelers will be the main initial market, Mr. Witter says, while the business segment will grow gradually. The ``fairly cautious level'' of initial service isn't a ``huge monetary commitment, but it gets us in there,'' he says. He thinks the routes might break even this year.
Northern Air Cargo, which will fly the same route as Alaska Airlines, will initially haul ``any kind of material used in trading,'' says marketing manager Scott Thorson. He expects this to be food, clothing, and light machinery. Later, as the market develops and business progresses, cargo could include spare parts for big machines used to exploit the reportedly vast mineral wealth of the Soviet far east.
These resources are attracting interest from US companies that would like to assist in their development. ``Hard, solid marketing data'' for the new cargo service has been impossible to obtain, Mr. Thorson says. ``What you have to go on are conversations with business people who have been in exploratory talks with the Soviets.'' From what he hears, ``it's going to be a year or two before you see anything real substantial.''
In addition, the inconvertibility of the Soviet currency to dollars ``is a pretty large problem,'' Thorson says. He notes that Northern Air Cargo was surprised at how quickly DOT announced that the company was chosen for the Pacific route. Northern Air Cargo had not expected to find out until next month, and now is ``scrambling to deal with some of those issues'' like currency, he says.