Why US Airlines Are Betting Big on Europe in 2027

0:00Gordon Smith: Hello and welcome to the Airline Weekly Lounge. My name is Jay Shabat. Gordon is off today, but we have with us Meghna Maharishi. And we're going to talk about the transatlantic market, specifically some of the latest developments from U.S. airlines. And then in part two, we'll talk a little bit in more depth about the Airbus A321XLR.

0:43Gordon Smith: Hi, Meghna. How are you? I'm good. How are you? All right. All right. Everything's kind of transitioning from summer to fall. You can sort of feel it in the weather and everybody's schedules. Yeah, definitely. Things are restarting. Yeah, everyone's taking those last minute summer vacations right now, too. Right, right. Well, this year's nice because we got the extra week here in the U.S. Labor Day falls later this year. Labor Day is kind of here in the U.S. for those listening abroad, kind of traditional end of summer. So usually it comes out a little bit earlier. We got a little bit of an extension, little gift to this year from the calendar gods.

1:23So yeah, here we are.

1:25Gordon Smith: So kind of pushing into the fall, not quite there yet, but we're even thinking we're going to be talking at least up front here about we're going to go even further into the distant future. Talk about next summer, next spring-ish summer, fall season, or spring-summer season. United and American specifically, two of the three big U.S. carriers, there's Delta also, but United and American specifically announced some very meaningful new expansions to Europe for next spring and summer. So, Meghna, you want to tell us about what their plans are? Yeah. So I guess just to start off with United, United announced 10 new international routes.

2:11And some of those routes include service to Okinawa from its San Francisco hub. It's going to Toulouse from Washington, Dulles. And then Newark had the biggest expansion. And some of those routes include Leblana, Slovenia, Ibiza, Spain, Tercera, Portugal, and the Azores. And then what else do we have? just pulling up our list. And then we also have Marseille as well from Newark. And then also United is adding a new route to Sicily from Catania. And they're also going to Sardinia. And those are the two routes where I guess United will be competing with Delta because Delta also announced, I think earlier this year, that it will start flying to Sardinia.

2:55And it launched a Sicily service, I believe, two years ago.

2:58Gordon Smith: Yeah, great. So a lot of exciting new service. And kind of the one common theme there is that a lot of that stuff is more leisure oriented, I would say. Very much so. I think pretty much all of these routes, for the most part, are leisure oriented. United is also flying to Luxembourg, which they have built as something that would maybe connect the tech and finance industries more to Europe as well. So there's some business there. Maybe Toulouse as well with Airbus is there. So there could be some business too. But for the most part, these are leisure focused routes. and a lot of them are still kind of going on with that trend with going to some of these more unique destinations or some of these smaller cities in Europe, which I think has become a really big part of United's strategy to differentiate itself from its competitors, American and Delta.

3:48I think especially as Transatlantic has seemingly become very, very competitive over the past couple of years coming out of the pandemic.

3:56Gordon Smith: Right, right. And correct me if I'm wrong, But the only one you mentioned, other than the Asia-Okonawha stuff, the only one you mentioned that's not from Newark is the Toulouse flight is from Washington, right? Is that? Yeah, okay. So the rest is from Newark. And the Toulouse-Washington, that is very much, I believe, an Airbus. This can be an Airbus-heavy demand there because Airbus has its North American headquarters in Washington. So sure, there's a lot of back-and-forth traffic. And, yeah, so the other stuff is in Newark. Having that Newark hub is just such a big advantage when you're trying to expand transatlantically.

4:34Gordon Smith: There's just so much transatlantic demand. Geographically, it works well. And then you tap into the New York City airline market, which is the second largest airline market in the entire world after London. So you can sort of see why they're doing that. American, you want to tell us more about that? Yes. Yes. I meant to say that earlier. American is also making an expansion in Europe next summer. but American is focusing a little bit more on its Philly hub when it comes to that expansion. The new route that they're going to launch, the completely new one, is Philly to Vienna. And I think that will be the longest route on an Airbus A321XLR.

5:13And I think American will also be the only airline flying nonstop to Vienna from the United States. And then the rest are other pretty popular European tourist destinations. I think American's porto flights are going to go on sale. American is also expanding service to London and Amsterdam out of its JFK hub. It's adding service to Reykjavik and Iceland. And it is also going to add a service to Nice from JFK, which has also become, I think, a very popular tourist destination maybe in recent years as well. I think at this point, all the major airlines in the U.S. serve southern France. So that's pretty much Americans' expansion.

5:57It's not as splashy, I guess, as United's in terms of going to all these really quirky destinations and all these smaller European cities. but both carriers are really making a big bet on the A321 XLR, which is maybe the common thread between the two announcements that we heard last week.

6:19Gordon Smith: Yeah, that XLR, we'll talk a little bit in more detail in part two, but yeah, that's definitely an enabler of a lot of these new routes, just being smaller gauge aircraft. I just wanted to say a few words about the American's Philadelphia hub. I mentioned how having Newark is such a fantastic asset for United in terms of their ability to support so much transatlantic flying. Philadelphia is, it's clearly not Newark when it comes to that sort of muscle there. It doesn't have that sort of strength. um it's in many ways you know philadelphia is a very wealthy catchment area uh for for demand there's no there's no doubt um now philadelphia itself the city is there is a rather uh it's a rather the economy is very uh let's say average incomes are very low there the poverty rate in philadelphia is is it's detroit like i mean it's very similar to uh cities at the very bottom end the list in terms of average per capita income.

7:26Gordon Smith: So there is some, in that sense, you know, think about companies headquartered in Philadelphia. There's a few like Comcast and there's a big, you know, Aramark is they serve stadiums with a different thing. They're a huge company. There are a few, but it's, and they had, you know, definitely huge medical centers, huge universities. There's business there. But most of the wealth is out in the suburbs and that's fine. You know, that's, that's, that's fine for if you're, if you're an airline operating from the airport, you'll get that suburban traffic. The challenge, one of the challenges with Philadelphia, a couple of challenges I'll mention.

8:04Gordon Smith: One is that it kind of punches below its weight in terms of tourism. It's not New York. It's not DC. It's not even Boston. It's not Chicago. Uh, some people do come think the world cup, you know, having, having matches there may have helped a little bit, but there is that. These planes are harder to fill from Europe to Philadelphia. The other kind of issue with Philly is that a lot of areas in the metro region, including some of those areas that do have a substantial amount of wealth, substantial amount of companies that fly. A lot of those are located in places that could very easily fly from Newark or even Baltimore, maybe even Washington, Dulles.

8:51Gordon Smith: So there's a lot of competition. I'm a good example of that. So I live down by Princeton, New Jersey. Most of the time I fly from Philadelphia, but I could very easily go to Newark. In fact, in some ways, Newark is even easier for me because it is accessible by New Jersey Transit. Whereas if I go to Philadelphia, I have to drive. So you can see where Philly has a few disadvantages there. You know, it's not quite Newark. But I think, you know, there's enough connecting traffic there. There's enough local traffic there that American is able to have a vibrant hub to Europe. And they're, you know, going to try to push it even further with these XLRs.

9:31Gordon Smith: We'll see how they do. So, yeah. Anything else on American or United? I mean, it's just interesting to see, I think, how competitive I think Transatlantic has become. And I think at least just seeing among the three major U.S. airlines how they're kind of maybe being forced to rethink how they do Transatlantic. It seems as if at this point, like maybe just doing London, Paris, Rome, Amsterdam doesn't really cut it anymore. It seems as if you have to be offering more and more because maybe in many ways, like the typical American tourists or like their customers who are going to Europe has changed quite a bit, especially after the pandemic.

10:12It seems as if there's a lot of desire to go to other parts of Europe and like some of these like smaller cities, too. So it's just interesting to see like now I feel like all these airlines are really maybe being forced to think like where else they should go in Europe and if it's like worth, you know, deploying aircraft to go to some of these other places that are just not like the super big cities and the really big tourist destinations that maybe most of their customers flying transatlantic have already visited.

10:41Gordon Smith: Yeah, totally. I mean, that's been a very big trend since the pandemic, you know, starting 2022-ish, maybe 2023, up until now, particularly in the summers and even into the fall now. More people are traveling to Europe in the fall. uh big big trend is that uh yeah just so many more americans are not only going to europe but are also willing to spend the money to fly in a business class or premium economy class so there's so much money there that's that's kind of explains some of the eagerness behind behind all of this expansion and all these you know new european routes uh we should be very clear that these U.S.

11:25Gordon Smith: airlines also have joint venture partners. And these are very, very tightly woven joint ventures. So, for example, Delta is working very closely with Air France and KLM and Virgin Atlantic. United is working very closely with Lufthansa and American with British Airways and Iberia. So some of the schedules are almost seamless when we talk about, you know, American flying here, American. It's almost as if, you know, if Iberia is flying around, it's almost as if American is flying it. So just something to keep in the back of your head when you're thinking, you know, when you're considering the, um, the networks or the, uh, transatlantic offerings that these big three U S airlines, uh, provide, uh, I guess another, you know, interesting development is that Alaska's getting into this market.

12:15Gordon Smith: Um, they're just doing it from Seattle, so it's not terribly relevant to anyone but Delta, which has a Seattle hub. But they are flying to a couple of routes now in Europe with their 787s, and I think they do Iceland with their 737s. And the other transatlantic U.S. carrier that we've missed so far is just JetBlue, which has a handful of routes that they do with the narrowbodies. Not the XLRs, but because they're in New York and Boston, it's close enough where they could do with the LRs, which is slightly less range. Yeah. I was also just going to say like your point on how those travel trends have changed and how they're now bleeding more into the fall seems to also be like another just big thing in the industry with the way airlines are thinking about their summer schedules and how I think now a lot of them are being extended into well into October, which maybe before the pandemic wasn't really heard of.

13:10But now it seems as if a lot of people, maybe they don't want to go to Europe in the summer when it's like 100 degrees. And, you know, I think also for a lot of people, like school starts in August, too. So maybe they'd rather go later or they'd rather go earlier, like in May when school ends. So I think that's also just been like another trend that we've been seeing. I think Scott Kirby, he said on CNBC, like last week, that October used to be one of their worst months. And now it's one of their best because everybody's like booking their vacations in the fall now. Yeah.

13:38Gordon Smith: And the only other additional trend or additional demand driver of that, I think, is that there's so many retired people. I mean, just in terms of raw numbers, the retiree population in the United States and in Europe, too, is growing so much. that and there's just if you think about you know the the wealth that this demographic has you know just given stock market gains and real estate gains over the past you know five six years a lot of the people that are going over from the U.S. to visit Europe are retirees and retirees are going to care less about if it's you know well I got to I can't I can't go because the kids are in school kind of thing.

14:21Gordon Smith: So that's driving some of that off, traditionally off-peak demand as well into the fall. So now if they can get people to go in January, that would be like a huge victory, but I don't think they're there yet. I mean, it seems like at least with some things, it's, I don't know, it seems that the first quarter has been a bit better like lately for the industry. Yeah, I think it's even there, there's probably some March travel and yeah, there's always, you know some some people who who be willing to go at the very offbeat uh you know when the prices are low is for sure but uh yeah i haven't heard any january uh you know demand booms yet to to europe yeah who knows maybe that's common maybe maybe it'll get warmer and warmer and uh you know the weather in january will be what it used to be like in october i don't know but yeah it won't be 100 degrees at least at least it won't be 100 yeah some people i know people who would probably prefer the uh you know the 10 degrees fahrenheit than 100 degrees not me but uh some people some people like the cold better than the heat so okay great anything else on um transatlantic uh i think i think that's all i yeah i think we covered some was some of the bigger bigger trends and uh yeah notice how delta i mean i think you mentioned delta what was the route that you mentioned that they just added?

15:38Gordon Smith: Was it Sardinia? Sardinia route? Yeah, right. And they, I think it was Malta this year. Yeah, they did Malta and Sardinia. Yeah, it was based off of like a, like a customer survey that they, they did for a good range of destinations. And I think like Sardinia and Malta got the most votes. I believe Ibiza was also on that pole, but I guess now united is going to be flying to a visa next summer right okay democracy in action at delta okay very nice yeah they um so yeah you had those two but delta hasn't yet you know it still might come but delta hasn't come out with any you know big uh you know multi-city announcements for 2027 yet now they might not because delta and we'll get into this in part two delta has not ordered the XLRs like United American has done.

16:30Gordon Smith: So with that we'll take a break. When we come back we'll talk about Delta and the XLRs and what some of the other airlines are doing with that. Okay, we're back for part two and we're going to talk about this new Airbus aircraft called the A321XLR and this is just a derivative or a tweak of the A321 Neo which is perhaps the, I think it's safe to say that that is the most popular, most well-regarded narrow-body aircraft in the skies today. I think Boeing would argue that, no, no, it's the MAX 8, but the people love the 21 Neos for sure. And both of those planes are, you know, extremely popular, the MAX and Neos.

17:18Gordon Smith: But the 321s in particular, now this is a tweak. There's the LR version which I mentioned jet blue is a couple of those a few other airlines as well That's LR just standing for long range. What we're talking about is the XLR which is The extra long range and that can go for example from Philadelphia all the way to Vienna So you could sort of see that's you know Traditionally you'd never get a narrow body to go that far Maybe an old 757. I'm not sure what the range of that is, but but those don't exist those are not in production anymore. So the XLR is kind of a new airplane that can fly these very long overseas destinations.

17:58Gordon Smith: I have here before I go any further. So American, do you have the list in front of you? Who's flying the XLRs? Yes. So yeah, go through some of those. Who are the big operators and who's got the most on order? Yeah, so the big ones, at least in the United States, are so far United and American. And I believe... That's for the currently on order, right? Yes, and then also the ones that I even currently just have on their fleet. I believe United said they're expecting to get more soon too, which is why they're so bullish on it. But yes, United and American, I think, have the most on order. I think JetBlue also has a few on order which would also maybe help if it does decide to expand more in that transatlantic market which I believe has been a little tough for them to break into and then beyond that we've got like Qantas has like 32 on order, Indigo is 28 on order, Air Canada has 27 just to name a few sorry to interject there but if you want to cheat and add Qantas, I don't know if this is cheating, I think this is a fair game if you want to add Qantas and Jetstar together, they're actually the number one customer for the XLR.

19:15Gordon Smith: So Jetstar is the low-cost carrier for Qantas. So they're above, are they even, say, about 68 orders. So, yeah, they're technically number one, and then United, then American. I don't know if that's cheating, but I think it's fair game. Call them number one. And then, yeah, Indigo or Canada, you mentioned some of the others, AirAsia X, Air Arabia. And then, yeah, a few airlines are actually already flying them. You talked about American and United. Qantas does have some already. I think Jet Stars, they're coming soon. Aer Lingus, Siberia, Air Canada has a couple. Indigo has a couple, et cetera.

19:51Gordon Smith: There's a few others out there. But you can see there's not that many out there yet. So, question. Delta, why no XLRs? Any thoughts? Well, at least publicly. I know like former president Glenn Hauenstein he used to say that he doesn't think Delta can give like the business class the product that it wants to give with the XLR so that's why they just are not super keen on it which you could see like an argument for that technically at least when you look at the way that maybe some airlines have configured like business class seats on these aircraft it is really hard to put in like a full like lie flat seat and like a narrow body like that and not have it maybe feel like a little suffocating at least compared to what it would be like on a wide body um i know an american at least had first rolled out um their uh xlr business class seats i think that was one of the issues with the seats i think also like flight attendants had trouble like moving around like the aisle because of how much space like the seats took.

21:01So there are like some constraints, I think, with it.

21:05Gordon Smith: Yeah, I think that's pretty clear. The other thing about having wide flat seats on a shell size that small is that there's not that much room for any economy seats in the back. And so, you know, you really, really rely super heavily on the premium. So So you're betting that the premium boom is going to continue indefinitely, which it might. You know, there are arguments that structurally there are, you know, changes in the economy or whatever and the consumer behavior that will ensure that that trend persists, but maybe not. And then it becomes a problem because you really and then what do you do, you know, on your off seasons, your off peak seasons, you kind of kind of move the plane around a lot.

21:48Gordon Smith: It's almost like, you know, I'm grossly exaggerating here, but just to give you a sense of the idea, it's almost like a private jet. It's like it's a very premium heavy type thing. I have the, this is from the website Aerolopa, which is a good reference for seeing how different airlines configure different airplanes. So United has 150 seats on their XLRs. American has 155. And if anybody, I got that from Errolopa. If that's incorrect, please send angry emails and we'll promise we'll correct it on the next podcast and our newsletter. But it should be a reliable site here. United 150, American 155.

22:32Gordon Smith: They both have 20, I guess those are the lie flats. And then they have 12, is that premium economy. United has 118 in the back. American has 123 in the back. So American's a little denser. I'm not sure if United has just more aisles with, uh, you know, maybe a row or two with extra legroom. Don't know exactly, but just to get a sense of, you know, 150, that's, that's just not, not a lot of people that you have to, you know, think about what you have to pay the pilots and, you know, all the fuel and all the, there's a lot of costs that you have to cover with just 150 seats or 155 seats. Um, Air Canada is a little bit different.

23:14Gordon Smith: Air Canada, they have 182. So they have a much less premium heavy configuration. They're kind of banking on a little bit of a different sort of traffic base on their flights. But American United are very premium heavy. So yeah, we'll see if that ultimately, you know, if the aircraft is successful. I don't think it's a slam dunk. Yeah, I mean, also worth adding with United, I believe on their XLR, at least in the economy plus section, some of the middle seats are also blocked off kind of like a European business class style that they're doing there, too. too. Yeah, good point on that. And then as far as Delta, I mean, one issue with the XLR for Delta specifically is that I don't really think it can do much from Atlanta, even with that range.

24:04Gordon Smith: I mean, I don't know, maybe it can hit some places in, you know, very Northern Europe, but these kind of very sexy, you know, Mediterranean destinations in Spain and Italy and, you know, there's really not any much you can do from Atlanta. Maybe Detroit, maybe Minneapolis. I'm not sure. I'd have to look at the range for a few of those kind of things. But that may be one reason that it would only primarily be a New York kind of aircraft. And Delta is just like, man, it's not really worth it for that. So that could be another reason. I'm not sure. Yeah, definitely. I think it seems to be like united american too they're both mostly using that aircraft and the northeast because it seems like that's probably where it's like best suited newark philly is where you're seeing it pop up the most and they'll do i think you mentioned before we we went on the air magna you mentioned that they also do transcontinental flights like american is doing yeah american is doing that and then i think they're i don't know if they're doing it yet but there are plans for American United or American for sure to do some South America flying.

25:14Gordon Smith: Maybe you can reach deeper down into South America from Dallas or I don't know if they have any Miami plans. But so there's some versatility there that we should all give it credit for. But again, it is, I think the jury's still out on that aircraft because it is so reliant on premium. and uh you know i i just wanted to mention i think it's an important point may have been more relevant for our conversation earlier but uh i just just popped in my head that i think it may be um something that's worth talking about so american that vienna route that they're going to do keep in mind that when you're doing these distant routes uh transatlantically into all the way into Eastern Europe around like Vienna is a good example Prague um Budapest I think is another that they're doing so these what tends to happen is you you don't really get much higher fare for those but the the costs are considerably more because of that extra distance so you're adding the extra cost, but you're not really getting extra fare, extra revenue.

26:30Gordon Smith: And I'm generalizing here. But a lot of people, you know, when you're booking summer vacations, a lot of Americans are like, well, we can go to Barcelona or we can go to Vienna. A lot of these are interchangeable, not for everybody, but for, you know, some of these different destinations compete on price, which is a reason why it is sometimes hard to get a yield premium on, let's say, a Vienna versus of Barcelona, but the Barcelona, the costs are going to be lower. So revenue, same costs, not always the same. So one point that I know airlines in the past have kind of run into a lot of trouble in some of those Eastern European routes, even Delta for a while.

27:08Gordon Smith: I mean, I remember a time Delta was doing Bucharest and they just couldn't get that for a variety of reasons, couldn't get. But one of the reasons being that, you know, kind of very distant Eastern Europe does add extra costs. athens is actually another one that's pretty far athens i think is just a much much bigger market so you can get away with it um the tourism is so big you also have a lot of uh family visit traffic there's just you know huge creed population and you know new york and you know a lot of places in the u.s that connect through new york so um yeah i think just an important point to make uh if you're you know if you've got your eyes on that uh vienna route will it work?

27:51Gordon Smith: Maybe, but there are some additional challenges there with flying deeper into Eastern Europe. Yeah, you notice nobody flies, no one in the U.S. flies to Istanbul, no one flies to, even before, you know, tensions between the U.S. and Russia, nobody really flew into the former Soviet Union, so Delta did, I guess, a little bit, but so, yeah, all things to consider. Anything else, Meghna? What did we miss? Yeah, I was going to say with the XLR, One thing that also at least stood out when United was making the announcement, like their head of network, Patrick Quayle, he did say that at least like they're being a little bit more conservative with the way that they deploy the XLR as far as like the distances go.

28:33Because it didn't necessarily seem like they were entirely at least convinced that the XLR can go the full range that Airbus has advertised. I think there was even like some coverage somewhere where I think Airbus had said, you know, it can go from New York to Italy. But United didn't really seem convinced on that. So which is why there may be also mostly deploying it in like Spain and France as well. So I think there's also a little bit of that concern, too, if it can actually go the distance that Airbus has touted.

29:09Gordon Smith: that's always a big question with with new aircraft is what exactly can they what what missions exactly can they perform uh and remember that's going to vary based on how many people are in the plane it's going to vary how much cargo you fly i don't think you know we're talking about huge cargo markets here but that could you know they these are you know there's going to be cargo on some of these these routes so that's going to affect the uh the weight of the aircraft as well and by extension, the distance. So absolutely, if some of these new, very distant routes, Vienna just being one example, if it does turn out where, oh, yeah, a couple of days a week, we've got to take weight penalties, we've got to leave three empty seats open, four empty seats open, that starts to become like, yeah, the economics of the route start to become questionable.

29:57Gordon Smith: I don't know that's going to be the case, but I probably heard the same things as you, Magna, that there are some question marks about exactly, you know, what kind of distances that the plane can do. Yeah, definitely. It'll be interesting to see, like, how that, like, Philadelphia-Vienna route works out, I think, on that aircraft, since I believe it is one of the longest, like, XLR routes that are at least out there right now. Yeah, I am very curious to see that. And these are, I presume, summer onlys, all of those that you mentioned in the beginning, seem they're either all or mostly just going to be done during the summer.

30:35Okay, very good. Thank you, Meghna.

30:37Gordon Smith: I think we had a good discussion on the latest and greatest from the transatlantic market, from the U.S. airline perspective, at least. So thank you again. And thanks, everybody, for listening or watching, if you're watching our channel. And see you next week. whether you're listening to us on spotify apple or wherever you get your podcasts please remember to subscribe rate us five stars or leave us a positive review this really helps us get the word out about the airline weekly launch so we can continue to bring you this podcast every week absolutely free of charge and if you're watching us on youtube be sure to subscribe to the skiff channel and hit the notification bell to find out whenever a new video drops