American Airlines dropped Los Angeles as its gateway to Asia. The remaining long haul flights American operates from LAX are to joint venture partner hubs – Tokyo, Sydney, and London.
American Airlines was losing money on it’s Los Angeles – Asia flying before the pandemic because, they believe, these markets were too competitive. And South America doesn’t work for them out of LA, either. So they’re focused on domestic flying. That makes their LA-based pilots, who don’t have the opportunities to fly widebodies, unhappy.
Delta is now the largest carrier at LAX, having displaced American. At an employee meeting in Dallas on December 9, a recording of which was reviewed by View From The Wing, a pilot asked ‘are there any intention to downsize Los Angeles any more than it has been?’
CEO Robert Isom began,
Those gates that we have out in LA, and all the money we’re putting into it – it’s hundreds of millions of dollars..those gates are really important, we’ve got to fight like crazy to make sure we keep our footprint there. The question is what kind of flying that we do with those gates.. there is a international issue that we do face that gets really hard in LA.
Vice President of Network Planning Brian Znotins continued,
The challenge we have with LA..is that LA was not profitable for us. But what we found is that the losses we were generating there were concentrated in just a handful of long haul routes. The rest of the hub actually did fairly well. So flying to China, flying to South America, that was tens of millions of dollars in losses.
The reason those routes don’t perform well, especially the Asian routes, is that any Asian carrier that wants to fly to the U.S. will almost always pick LA first. And making money flying around the country, flying around the world, is all about supply and demand. If you oversupply the market, the yields are going to be lower than what you can sustainably generate a profit off of. And if the supply is lower than demand then you can generate yields that allow you to generate a profit.
And what we found is that LA to Asia is almost in a perpetual state of oversupply because of all these foreign flags that need to be in LA even if the capacity isn’t warranted. And so flying to Beijing, Shanghai, and Hong Kong, all of these routes were very challenging for us to turn a profit. And we said if we can take these airplanes, move them elsewhere around the country, some to transatlantic, some to deep south from places like Miami, and New York and Dallas.
And then furthermore if we can take some of the airplanes that we do want to fly to China and fly out of Seattle instead where we have less of an oversupply situation, a great partnership with Alaska who can help feed those airplanes not just from connections but from the local traffic the Microsofts, and the Amazons of the world who need to go to China, we can build up a bit of an Asian connecting operation.
And LA we still do serve Sydney, we have London in the market there as well, we’ll continue to fly those routes those routes do well for us. But for the Hong Kongs, Beijings, Shanghais, and the deep South Americas those were the ones that were generating all the losses. We take those out of the equation LA looks pretty good for us. We’re really happy with what we see in the gate portfolio there. There’s no plans to further shrink LA, in fact we want to grow it in the future as part of our Alaska partnership.
The implication of what Znotins says – that Asian carriers can fly to LA, but they make money domestically (where they don’t face as much competition from as many airlines), is that American can profitably fly on domestic routes because of government protectionism. By limiting access to U.S. markets, prices are kept high and consumers have fewer options. But if foreign carriers were permitted to fly domestic routes, and had access to gates and (where applicable) slots, American wouldn’t be able to compete in Znotins’ explanation.
Tim Dunn and Jared should start their own blog. Way too much real estate wasted on their pi%*ing match!
aaway,
ALL of the current big 3 and their predecessor airlines filed for chapter 11.
AA tried to do an out of court restructuring and it didn’t work – so they had to do a real C11 well after DL and UA and their mergers.
So, the problem wasn’t AA’s pilots but that AA did not move quick enough when other carriers did – and they are still paying the price strategically.
as for DOT ratings, AA and UA are right next to each other in the ranking of most categories of the Air Travel Consumer Report and the 3 legacies are more reliable than the low cost carrier segment. AA is simply not significantly worse than UA in service quality according to the DOT
Problem is the merger with a crappy airline!! Now crappy airline running AA into ground! They have no clue what their doing! South American was always full maybe not cargo but people always filled the airplane!
Why waste money on AA, DL & UA when you can book a foreign carrier for about the same price and get an extremely better experience – even in coach.
I go out of my way to avoid the Big3 on all international routes.
So what I hear is that if your booking AA domestically out of LA, you’re flying on Alaska?
This is how you go around the DOJ of a merger. A non merger merger. Very sly.
@Tim Dunn – “ALL of the current big 3 and their predecessor airlines filed for chapter 11.
AA tried to do an out of court restructuring and it didn’t work – so they had to do a real C11 well after DL and UA and their mergers.
So, the problem wasn’t AA’s pilots but that AA did not move quick enough when other carriers did – and they are still paying the price strategically.”
Mayor Dunn – AA’s 2004 “out of court” restructuring worked just as well as Delta’s 2003 “out of court” restructuring. Where AMR failed was addressing the CBAs in a meaningful manner. The APA/AA contract was particularly restrictive with regard to operating long haul international.
Filing Ch11 late presented an opportunity to gain – absent externalities or other strategic initiatives subsequent to exiting Ch11 – a sustained cost advantage vs. the then still melding DL/NW & UA/CO combos. Unfortunately, Parker’s interference was an externality….and that is why the current iteration of US d.b.a. AA is paying the price strategically.
AMR is dead, long live AMR.
Tim Dunn and aaway are both partially correct. AA was a bankruptcy waiting to happen for years, the out of court restructuring efforts didn’t go far enough and it became a high cost airline with low international yields. But waiting too long they still had an opportunity to catch up. The pilots, in part, gave them Parker when they decided Horton had to go and engaged in a work slowdown. (There are other things that led the creditors to opt for Parker, including the influence of the PBGC which favored Parker’s exit plan which wouldn’t dump AMR pension liability.)
After the merger things looked pretty decent for the combined carrier because the price of fuel plummeted – something that would have benefited legacy AMR management as well. Meanwhile Parker made the legacy US Airways component less competitive as well because of all of the raises those employees received as part of the deal. There were many other problems of course, chasing away high yield customers (which their own data supports), encumbering themselves with debt on top of debt already held by the airline.
But ‘waiting’ for Chapter 11 didn’t do them in, they could have recovered. Though perhaps if they hadn’t waited Parker wouldn’t have been in the position that he was (though don’t forget he tried to grab Delta during its bankruptcy too).
If AA did not get labor costs reduced which is virtually impossible to do outside of bankruptcy but much easier inside bankruptcy, then AA did fail esp. when UA and DL both emerged with lower labor costs BECAUSE of bankruptcy. Given that DL ended up in bankruptcy 4 years rather than a decade later as AA did.
And AA had years of evidence that its Asia strategy wasn’t working but they persisted in large part because they didn’t have an alternative to a west coast to Asia presence. Now AA is simply holding out that it can make Seattle to Asia work despite the fact that Delta has been in that market for years and, if overcapacity from foreign carriers is an issue, it will be just as significant for the markets that AS will connect to AA nonstop markets.
Time was AA’s enemy and it had many opportunities to address both its labor and network problems – but it waited for years to address both.
The outcome is that AA’s Asia presence will be from DFW so they aren’t as bad off as Southwest but AA has indeed ceded most of the Asia-Pacific market – other than what it can carry via JL – to DL and UA. And AA is a far smaller part of the AA/JL partnership than any other AA JV or any JV partnership that DL or UA have.
Seems like DFW weirdly makes a lot more sense as an Asian gateway.
Able to one-stop all of Latin America and a huge area from Texas and the US southeast.