American Airlines’ New Strategy: Just Give Up — Editorial

Over the past few months, it appears that American Airlines — the world’s largest airline by passenger volume — has taken a thrifty corporate mentality to a new level. When faced with the possibility of competing with other airlines to satisfy and win over consumers, American now employs the ancient survival strategy used by rodents and just plays dead.

If I were an American shareholder, I’d consider this strategy with caution. The airline is unable to satisfy demand on its core trunk routes linking US airports with the massive British Airways Oneworld hub at London Heathrow Airport (LHR), and many of the airline’s own decisions have led up to this growth constraint.

Consider this interesting executive comment reported by View From The Wing this morning, attributed to American’s Vice President of Planning, Vasu Raja.

“It’s not enough. We don’t have enough seats into Heathrow…Heathrow is our hub just as Chicago is or Dallas is… when you think Heathrow think Dallas it’s the same way, we can’t be big enough. We would be bigger at Heathrow if we had more slots to operate there.”

American doesn’t have enough slots at Heathrow to expand its service, but it also hasn’t been keen on competing for slots at just about any hub airport in the past five years. The airline has forfeited it’s once dominant position in New York, letting Caribbean and Latin American routes just fall in the hands of competitor Delta.

Meanwhile, American is removing business class seats on Boeing 787s and 777s, and like other US airlines has shunned high-capacity jumbo jets, like Boeing 747s and Airbus A380s, that are designed for just such a situation.

American Airlines has relied on partner British Airways to use jumbo jets to serve passengers it isn’t prepared to, even from its own U.S. hubs. Image by British Airways.

AA’s answer in the case of the London growth squeeze, as in its forfeiture in New York, has been to just let other airlines do the lifting. In the case of the Chicago to London situation, partner British Airways is doing what American has rendered itself incapable of, flying twice daily jumbo jet service on 747s and A380s.

British Airways shares transatlantic seat revenue with American on shared routes according to available capacity, according to Raja. That means that American and BA share revenue on routes where both carriers operate proportional to the percentage of seats each airline flies. It’s unclear how or even if revenue sharing comes into play (outside of standard codeshare revenue) on the numerous US to London routes served exclusively by British Airways.

Delta has taken the opposite approach in leveraging its Air France/KLM joint venture, opening up transatlantic service to connect passengers to global hubs in Amsterdam and Paris. Whereas British Airways has taken the lead on just about every mid-sized US route served by Oneworld airlines, Delta operates most SkyTeam routes connecting Amsterdam and/or Paris to mid-sized cities, including Cincinnati, Indianapolis, Portland and Raleigh.

There are other ways for American to grow its European network vis-a-vis international connections. The airline could take more advantage of its partnership with Spanish carrier Iberia by operating more transatlantic flights to hubs in Madrid and Barcelona.

But American operates relatively limited service to doesn’t treat Madrid as a global hub, and operates its routes there only from its domestic US hubs.

Alternately, American could have repurposed its New York Kennedy (JFK) slots when it cancelled many Caribbean and some transatlantic routes to expand domestic connections that could better feed its 777-300ER London trunk routes there. But American has leased out or even sold some slots as it has concentrated northeast operations to Philadelphia.

American’s lackadaisical stratagem aren’t confined to the routes department. Diagnostic: the airline’s handling of perpetual IT outages that caused ongoing cancellations and delays this week.

Point Me To The Plane has become aware of and is further investigating several cases in which American passengers were given no advance notice of potential delays or cancellations. These passengers arrived at a connecting hub only to be told just minutes before boarding that their onward flight would be cancelled.

Rather than proactively cancel affected flights, reroute passengers or provide waivers and refunds, the airline appears to be dropping the expense of finding and scheduling alternative flights — even to just limp back home — on customers’ heads.

My own experience connecting through Chicago O’Hare on Tuesday seemed to confirm this tact. A delay on an American Eagle connection, which I later learned was the result of IT failure-induced crew repositioning, was posted after I had landed in Chicago. A gate agent refused to provide any information on the cause of the delay, and responded “I know nothing, I have an 11am departure.”

When asked whether the aircraft was en route (it turns out it was), the agent responded “how would I know that, the flight is in three hours, I can’t help you.”

It seems, given this cycle of inaction in the face of adversity, that American may be presently unable to help itself.

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Comments

  1. I agree that American is giving up, but this article is riddled with a inaccuracies.

    1) It is clear how revenue shares comes into play when AA and BA don’t fly on the same route: they still revenue share! All North America-Europe capacity is revenued shared, even if it doesn’t touch London, and Iberia and Finnair are part of the revenue share, too.

    2) American Airlines operates five daily flights to Madrid and is the largest foreign long-haul airline to Madrid (and also Barcelona).

    3) American has not given up any of it’s JFK slots. It still has all of them, just uses them on “less important” flying, like Norfolk.

    I agree that AA’s employing a “just give up” strategy, but please check your facts.

    • 1) I have not seen any material that suggests that American and BA are sharing revenue from markets with a single service, like Austin, Denver, Houston, New Orleans, Seattle, etc beyond codeshare revenue dictated by codeshare revenue passengers positioned on those flights. That is separate and apart from the type of agreement Raja described.
      2) This is decent service but pales in comparison to what you’d expect in a joint venture transatlantic hub, including Delta and Air France/KLM, United and Lufthansa, etc.
      3) American has markedly reduced service at JFK, both internationally and domestically, through the leasing of slots and repositioning of international services. Some of this came several years ago as a result of an antitrust agreement.

  2. And now they’re apparently dropping the ORD-PEK route and there’s talk of other Asian routes from ORD being dropped as well. Which dovetails nicely into what you’re saying here.

  3. Not so many years ago, American used to be the very best at proactively notifying customers of delays and cancellations and rerouting you when necessary. Now, they are truly awful at it. I depend upon 3rd party apps like Flightradar24 and FlightAware to let me know where MY plane is. American might show the plane is going to depart DFW on time in 2 hours but Flightradar24 shows that the plane is still sitting at the gate in LAX. Invariably, they don’t post the delay until 5 minutes before boarding is supposed to begin and even then, it’s rarely accurate.

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