American Airlines Reorganizing its Fleet to Spend Less Money, Reduce Capacity

On American’s earnings call this morning the airline tried to get ahead of disappointing financial performance both in absolute terms and relative to its largest competitors by announcing new aircraft deferments (reducing, or pushing into the future, capital expenses) and making other changes to their fleet in order to reduce the amount of product (seats) they sell.

  • Some routes don’t make sense in light of higher fuel prices.
  • Investors punish capacity growth because more seats mean lower fares. Of course an individual airline may make money with more seats, but when all airlines do it fares fall, so there’s a collective action problem. Since large investors generally own all airlines they attempt to enforce capacity discipline across the industry.

American is making the following changes to its fleet plan,

  1. Deferring delivery of 22 Airbus A321neos. American will take 17 A321neos in 2019, 15 in 2020, and 18 in 2021 while the deferred aircraft are expected to be delivered “beginning in 2024.” Any deliveries that far out are speculative at best.

  2. Early retirement for Hawaii 757s. American will retire the 10 Phoenix-based Hawaii Boeing 757s in 2019 instead of 2020, replacing them with A321neos (ETOPS-certified)

  3. Delay retirement of Embraer E190s. 14 E-190s will retire in 2020 instead of 2019.

  4. Adding 8 leased A319s. At the end of February I wrote that American was shopping the used market for Airbus A319s.

  5. Retiring fewer 737-800s. In March we learned that American planned to retire 45 of their 76 Boeing 737-800 Classics over the next two years, however I wrote that American’s previous deferment of some of their 737 MAX orders would mean that Classics would stay longer in the fleet (and go through Project Oasis interior conversion to look like 737 MAXs). American is retiring 15 fewer 737-800s in 2020 than planned.


American Airlines Airbus A319

Here’s the internal message shared with employees on fleet changes:

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. “Since large investors generally own all airlines they attempt to enforce capacity discipline across the industry.”

    Wow, this is as close to an allegation of collusive behavior I have ever seen you articulate.

  2. Is it illegal for investors to collude in this manner, or is it only illegal for the leaders of the airlines to collude?

  3. @jfhscott – I do not think it is explicit collusion. I don’t think there’s illegal behavior. However large airline investors generally (1) own a portfolio of airlines, and (2) benefit when the industry does well rather than when an individual airline does well, and (3) prefers higher fares generally, so less capacity generally, and (4) make public statements in support of their interest.

    I also think that airline investors believe increased capacity is self-defeating because it’ll be met with increased capacity from other airlines, and won’t inure to anyone’s advantage. Indeed there’s some evidence of that.

    Nonetheless there is evidence to support the thesis that investors drive capacity discipline on the part of airlines.

  4. Pardon my ignorance, but isn’t increasing seats to 172 seats across the fleet (Project Oasis) considered increasing capacity?

  5. Will those A321neo’s that will handle the Phoenix-Hawaii flying be able to handle the extreme heat of 116+?

  6. “In March we learned that American planned to retire 45 of their 76 Boeing 737-800 Classics ”

    Aren’t 738-800s called NGs? The Classics are the original 737s (-100/-200/etc.)

  7. How well this works out will depend to an extent on oil prices. If Trump’s erratic foreign policy and his sabre-rattling with Iran were to push up oil prices, keeping the older, less efficient aircraft might prove costly.

  8. They do know that we:
    Don’t want to fly A320/321s on long haul routes I assume.
    Don’t really like old A319’s with no leg room, tiny business seats.
    That most flyers want nicer larger planes to Hawaii not dropping down to compete with Southwest routes or LCCs.

  9. Those Hawaii 757’s are terrible, considering the fares AA charges for this leisure market. I’ll gladly fly in an A321 over any 757 any day (and I do).

  10. I would think they’d scale back on project oasis – why add more seats if they’re trying to reduce capacity. Unless they’d rather add more seats, and then cut frequencies.

  11. RE: Investors punish capacity growth because more seats mean lower fares. Of course an individual airline may make money with more seats, but when all airlines do it fares fall, so there’s a collective action problem. Since large investors generally own all airlines they attempt to enforce capacity discipline across the industry.

    OK, so, this is an accepted truth.

    Now, let’s count the ways this is so much more than a “whiff” of collusion, and/or price/product fixing begging for legislative action and/or vigorous anti-trust enforcement, or even aggressive regulatory intervention to break up the cozy airline industry cartel/oligopolists’ club by forcing divestiture terminal facilties, gates (e.g., Dallas Love Field), slot pairs at congested and/or slot restricted airports (e.g., LaGuardia, JFK, Washington/DCA), etc.

    1.) Semi-, quasi- or even outright common cross ownership of airline related capital be it:

    a.) garden variety stock/equity;
    b.) issuance and marketing/distribution of debt (general obligation, Equipment Trust Certificates, other forms of exotic financing for aircraft ownership; derivatives for the cost of fuel, currency, etc.; tax exempt financing issued in conjunction with state and local government and/or airport agencies/special purpose redevelopment agencies (e.g., NY State Transportation Agency, etc. for the administration thereof, and so forth);
    c.) co-branded credit cards;
    d.) the purchase of frequent flyer miles by banks for reward points which has become extremely lucrative for banks and airlines;
    e.) the only real sources for start-up/venture capital to finance new entrants

    2.) Simply put, every which way one looks up and down the airline sector, one very critical sector of our economy that has extraordinarily high, and indeed, next to impossible impossible to scale, barriers to entry: our airlines

    3.) And over the past ten years, that critical, exceptionally high barrier to entry for newcomers sector of our nation’s economy has succumbed to a complete takeover, some might even argue, skyjacking, by another sector of our economy, and the only sector with the wherewithal and resources to do so given some of the manifestations of that top to bottom virtual stranglehold the financial community has to that sector’s survival and access to capital referenced above.

    And so, having successfully engineered a takeover of the airlines over the past decade, cutting off access to capital for new entrants to even contemplate taking on the cozy cartel oligopolists’ club, and the fostering of a cozy semi-, quasi-, or even outright cross ownership by a very narrow group whose interests are clearly aligned (as Gary’s comments included above suggests) we’ve ended up with an industry remade in the mold of that cozy cartel, to disproptionately serve that very narrow group of closely aligned interests, and whose top managers are hired with the expectation that they will disproportionately serve the interests of the cozy cartel (just ask Dave Barger, formerly of Jetblue what happened to him when he refused to kow tow to the Wall Street bullies…er “Analysts”…relentless demands’ to degrade Jetblue [as the current management just this week said they’d advance by warp speed] and in turn faced their wrath with a big time “Off With His Head” decapitation as CEO of that once great, and formerly flyer friendly, fee free, densified free, airline) far and away over both passengers and employees who were asked to make tremendous sacrifices (of course, at Wall Street’s insistence/behest) in the wake of a market crash and resulting Great Recession (that itself was of Wall Street’s doing), and the resulting bankruptcies that then preceded, or even facilitated, the competition killing mergers that really has shown its true colors in the years since Dougie P’s USAirways successfully orchestrated a takeover of American Airlines, which may very well have proven to be the tipping point leading to the dearth of competition in our skies today – and the progressive imposition of product degradations, cabin densifications, explosion of fees, erecting of ever higher fare fences, butt numbing, no legroom seats, child sized loos, frequent flyer mile devaluations, etc., etc., etc., that most beleaguered flyers – and experts – all know and refer to as the industry’s “Race to the Bottom”.

    Or of course, how it was but barely a “NY Minute” after Alaska Airlines turned off the lights at Virgin America, and then announced it, too, was “adopting”/implmenting (Wall Street’s) marching orders to densify planes, introduce the hated and despised “Basic Economy” fraud, and begin embraking on all of the other now oh so familiar, cookie cutter, nominally variable (to keep up the illusion of ‘competition’, that is) product “differences” that yet still are so similiar to everyone else’s (except, of course, Southwest – such party pooping, total “sock”-blocking, killjoys to the Robber Barron crowd I’m sure! Hehehe) products, cabins, fare “segmentations”, etc., etc. that it’s as if done by a template the way one sets up spreadhseets or other computer driven templates for whatever else is essentially the same thing with a minor tweak here, a minor tweak there, but in the end, is essentially the same thing when one steps back looks at the big picture.

    Guess they had to find a way to “pay back” all that money and deal making that goaded Alaska Airlines into vastly overpaying for Virgin America in the first place (but, ah, I digress).

    Then, of course, comes all of the other levers pulled and manipulated to retain control over Wall Street’s perfectly engineered takover of the airline industry to make sure it’s well oiled piggy bank to fund ever larger and larger than the already obscenely large multi-billion dollar stock buybacks that industry legend, and former Chairman and CEO of American Airlines (back when it WAS “Something Special in the Air”, and the envy of the industry, that is), Bob Crandall, was clearly referencing earlier this week in his Skift interview when he spoke of the rampant “inequality” in the industry where the perfect storm of a desperate lack of competition (engineered by Wall Street), a lack of new entrants to inject desperately needed competition to take on the cozy cartel (engineered/funded by Wall Street), product degradations and many other typically, well known and well defined aspects lumped under the cutesy and benign sounding term “Race to the Bottom” that otherwise pretty much fit to a tee the criteria and behaviors symptomatic of cartels and oligopolies as defined in virtually any ECON 101 textbook under the chapters with those headings

    Yep, all engineered by, and bearing the fingerprints of the heavy hands on Wall Street, as the example of Dave Barger losing his job at JetBlue, and Alaska’s full on embrace of the product degradation business model favored [demanded in exchange for ‘arranging’ and financing the takeover and elimination of a pesky competitor – that btw was ruining the party on the crown jewel of domestic transcon routes, too) amply suggests.

    Lastly, and singled out here intentionally to ensure this critical aspect isn’t lost in a sea of words, the slashing of jobs for more senior (as in higher paid) labor, the fobbing off of pensions to the taxpayer (via the PBGC) of pensions, and the breaking of unions under the watchful eyes and full consent of the federal judiciary branch, no less, in bankruptcy court, all engineered by, yep, you guessed it, Wall Street!

    Toss in those juicy decades long and still running tax loss carry forwards still ongoing at some of the post-bankruptcy airlines (engineered by Wall Street) that were also part and parcel of federal bankruptcy proceedings which convneniently allowed the airlines to elminate competitors, abrogate union contracts, get rid of a great deal of experienced/senior labor, fob off pensions to taxpayers, but ah, yes, keep those very, very nice tax loss carry forwards to reduce/eliminate (legally dodge/“evade”?) corporate income taxes…

    …and lest we forget, last year’s welfare/wealthcare for corporations and billionaires masquerading as the now even more deficit exploding, budget busting taxpayer funded giveaways…er “tax cuts” for the fortunate few whom are already the most exceptionally priviledged and advantaged among us (also engineered by Wall Street)…

    …and well, is it any surprise we have the toxic, corrupt, immoral, arrogant, callous, greed riven airline industry cozy cartel/oligopolists’ club that we have?

    Agree or disagree with Bob Crandall’s conclusion that deregulation failed, or his implicit claim that his opposition to airline deregulation was not just well founded, but has now been vindicated.

    We can all debate which policy prescriptions are best to deal with the broken airline industry we now have that has become so drunk with its own power and arrogance it actually had the chutzpah to not only submit a “wish list” to Putin’s (and many others’) “Useful Idiot” to eliminate consumer regulations that, guess what? – were mostly implemented to addrees bad behavior, and a whole slew of the most egregious, sleazy pricing/selling “practices” when the industry actually had many airlines to choose from, but also seeks to eliminate or so badly degrade protections for the elderly and disabled/reduced mobility passengers it practically makes one want to question if we’re on the way to becoming barbarians.

    (Yes, it’s that bad; seeking a back door to impose ancillary fees for the elderly and disabled/reduced mobility passengers, that is. Because let’s face it, that’s what the intent is even if they’ll never admit it).

    But, one thing’s for sure, our airline industry is sick, broken, and desperately in need of reform, preferably by policy prescriptions that facilitate new entrants, but if not, then going the route to reregulation that Crandall believes is necessary to address the industry’s current ills.

    Crandall is right; our airlines have become a mechanism in the furthering inequality by exploiting the lack of competition that allows them to deliberately calibrate their products, cabins, fare structures to their advantage; demanded tremendous sacrifices from labor in times of crisis, but then falling woefully short of sharing the newfound wealth in an era of limited, if any meaningful competition (during the longest peacetime economic expansion in modern times, no less); where, the facts now show, the bounties are being hoarded by a very narrow group of aligned interests with semi-, quasi-, and/or outright cross ownership that has broken into the flightdeck, seized control of aircraft, and are piloting the industry towards a destination that serves their, and only their, interests only by continued predatory behavior towards consumers who, except for a handful of major cities like NYC, LAX or perhaps Chicago where Southwest’s dominance at Midway airport acts as a check against United and American, have few, if any choices when they need/want to fly.

    We’d all be better off as consumers if we did everything possible to free ourselves from this unfair, and undue, toxic burden, where we pay a lot for something, but in return are constantly fed self serving falsehoods blaming us as being cheap AF ingrates deserving nothing more than the too small, no legroom seats, too small loos (that the industry’s CEOs won’t even dare sit in or use when they fly as their fare paying, and their salary paying customers are expected to endure), or the crumbs (if that) we get in exchange for fares paid, all while tens of billions of dollars are simply racing out the back door to the nonstop conga line of Brinks trucks that’s picking up flyers’ hard earned cash, and hauling if all off to Wall Street’s, and its narrow group of closely aligned interests’ outstretched hands – while for the rest of us, the “Race to the Bottom” required to top last year’s profits and fund this year’s even larger than last year’s obscenely large stock buybacks, that directly corresponds with the current and recent rounds of product degradations experienced and/or newer and/or higher bs fees – all continues apace.

  12. Honestly, your summary is too much “inside baseball” for your readers, who are travellers and not airline finance gurus. This move seems primarily motivated to smooth over CapEx spending. But the one meaningful outcome for travellers is the early retirement of the antiquated 757 Hawaii fleet. I recently booked away from a PHX-Hawaii connection because I didn’t want the long and potentially less reliable trip on the 757. I’m sure others have done so as well. Having those routes flown by new aircraft makes the PHX-Hawaii service much more attractive.

  13. CORRECTING THE PARAGRAPH denoted with the “2.)” above, as follows below, with an additional paragraph that reflects the correction of the copy.

    With apologies for the editing error that went unseen until after posting…

    2.) Simply put, every which way one looks up and down the airline sector, one very critical sector of our economy that has extraordinarily high, and indeed, next to impossible impossible to scale, barriers to entry – and one sees the iron grip of Wall Street, and its exceptionally narrow/small group of closely aligned interests that exerts excessive control over the industry’s managers, and demands of them that they serve their interests at the ever disproportionate expense of consumers/flyers, and labor, that has only gotten worse over the past four or five years as the last domino fell in Wall Street’s long held ambition, to takeover and exploit to its advantage a sector of the exonomy it exerts control over to eliminate competitors, “regulate”/oversee their products, fares, and capacity decisions, and of course, to completely turn off the tap for financing of any new entrants that would upset the cartel monster they created.

    Of course, ladle in a generous dollop of policymaking control in Washington at the highest levels of government, now even featuring the wife of the Senate Majority Leader Mitch McConnell, Elaine Chao, as a cabinet level Secretary at the Department of Transportation (which, of course, has the largest direct regulatory oversight of the airline industry), plus the astute hiring of former GOP Speaker of the House, Newt Gingrich, as the industry’s top lobbyist, and well, that’s a whole lotta firepower available to preserve, or even deepen, the roots of the current airline industry cartel/oligopoly’s stranglehold over this vital sector of our nation’s economy.

  14. @Chopsticks,

    Point well taken – and heard for sure!

    Agreed, the move by American to defer aircraft deliveries and delay retirement of others to smooth out CapEx is correct, and my longer discussion overall is not directly applicable in its narrowest context of these otherwise fairly ordinary capacity adjustments to reflect market/economic changes.

    And agreed, a great many turn to this space for info that helps them to find better, and/or more productive enabling airlines/aircraft to turn to when they fly, or of course, tips regarding how best to make the most of their frequent flyer miles/points and/or offers/incentives for those who corporate and/or personal travel affords them an opportunity to reward themselves or their families for the hard work that keeps them on the road, and away from their loved ones.

    My inspiration for the deeper dive came from Gary’s original comments in his blog post, as purposely copied and included at the beginning of my first reader comments’ post, as well as others’ discussion of same that Gary also responded to in the reader comments’ thread.

    I’m passionate about the airline industry, and for approximately five years, was a featured columnist at an industry newsletter that focused on “insider baseball” for the financial community, investors, airline/aerospace executives, labor leaders, government regulators, and more.

    As many of the columns I wrote during those years typically took deeper dives than most expect to see in reader comments’ sections here, I often lose track of that, and sometimes get carried away 😉

    At their worst, yep, no argument from me, too ”ranty” 😉

    …but every so often, it is hoped that the better readers’ comments posts may stimulate a broader, reasoned discussion by all of us, pro and con, in an industry focused space, which to me, is what motivates me as a writer, researcher, and yes, a consumer/flyer in search of the best possible airlines, best possible aircraft configurations for my very limited travel budget, and ultimately, a better travel experience for all of us!

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