At an employee question and answer session with American Airlines leadership this past week American’s Vice President – Planning, Vasu Raja, talked about my post about the airline’s service cuts at New York JFK. (“Today I’ve had a number of emails come in from people about some article that like there’s a … we’re in some downward spiral in New York because we’re cutting JFK – Orlando.”)
I argued that by cutting about two dozen destinations from New York, the airline makes it harder for customers to remain loyal to the airline and makes it harder for sales teams to win corporate business.
American is no longer operating a connecting hub at New York JFK. They’re focused on non-stop business routes from New York.
The key thing here, I think, is that they aren’t working to serve the needs of business customers so that those customers always choose American. For that they’d need to serve Florida markets and the Caribbean (because business travelers are leisure travelers, too) and they’d need to serve the destinations business travelers needed to reach like Frankfurt and Houston and Denver.
When I asked whether their JFK hub (and they still call it a hub, not a focus city) was in a death spiral I wasn’t suggesting they’d serve zero routes out of JFK, or out of New York. After all they have a revenue-sharing joint venture with British Airways and New York – London Heathrow is the biggest revenue route in the world. They offer strong service to their LAX hub, seemingly with demand being driven primarily on the LAX side.
Instead I was suggesting that American had withdrawn from being a player in the New York market, with each retrenchment helping to accelerate the next retrenchment. American can no longer compete for the wallet share of business customers, and is only able to pick up business on a limited set of routes.
As a result customers can’t remain loyal to the carrier and pay a revenue premium to go out of their way to do so, but choose it when they represent the best choice (with their limited schedule or based on price) on a one-off basis.
What’s Left of American’s Shrinking Route Map
Cranky Flier covers American’s retreat from JFK. He points out just how much their European service has been drawn down, leaving only 4 London Heathrow flights, and one each to Barcelona, Madrid, Milan, Paris, and Rome (summer only).
Much of their service is to other hubs, with once-weekly service to a handful of Caribbean destinations along with international service to Antigua, Buenos Aires, Cancun, Punta Cana (summer), Sao Paolo, Bermuda.
Aside from 50 seat regional jets they’re running Boston, and beyond-perimeter flights that they can’t operate from LaGuardia like Austin, San Antonio, Las Vegas, San Diego, San Francisco, Seattle, and less than daily winter service to Vail.
Their small regional operation covers some of their Boston service, along with Nashville, Baltimore, Columbus, Cleveland, Cincinnati, Indianapolis, Norfolk, Philadelphia, Pittsburgh, Raleigh, Montreal and Toronto.
They’ve dropped at least 10 destinations in the Caribbean and Latin America as well as several big US cities and European destinations from their New York route map.
I concluded my piece suggesting they didn’t need a $300 million investment in their terminal 8 to bring British Airways over from terminal 7, they just needed to wait to cut a little more. Cranky Flier ends his, “how much further can American shrink? There might be room for even more partners in the future the way things are going.”
American Explains Their New York Strategy
American is constrained by lack of slots in New York and at Newark by lack of gates (current management sold off much of their LaGuardia operation to Delta while they were running US Airways). So how do they make the most of the assets they have? Their strategy seems to be focusing on a few cherry picked routes, flying to their hubs, and flying to destinations beyond LaGuardia’s perimeter rule from JFK when those destinations themselves are strong American Airlines cities.
At the employee forum last week Raja began explaining the perimeter rule for flights out of New York LaGuardia, and Doug Parker asked, “how far is that perimeter, it’s like just outside Dallas right? Or Denver?” The perimeter rule prohibits flights beyond 1500 miles with exceptions for Saturday service and Denver.
Raja complains that it’s really expensive to build in New York, too, “to build 8 gates at JFK would be like rebuilding Charlotte airport” — except they are not today maximizing use of their JFK gates.
American’s facility at terminal 8 isn’t maxed out. They have planes that sit at gates for a long time. But the airport is slot controlled and American has only about half the slots that Delta has there.
The question is, what do they do with the slots they have? Hub flying is replacing origin-destination flying out of New York JFK. American operates to fewer places. They focus on London Heathrow, Los Angeles, San Francisco, Dallas and smaller cities where they have a major presence.
Vasu Raja points out that while JFK – Orlando is being cut – the change in service that prompted me to write my original post – “we’re growing in JFK to Austin and JFK to San Antonio” and that American is moving all Orlando to LaGuardia since it can be flown from inside the perimeter, while San Antonio and Austin can’t be so they get more service from JFK. Except…
- New York LaGuardia isn’t scheduled to get another Orlando flight. It’s keeping the one that it has, which is badly timed — a single 6:45 a.m. departure, so no after work trips down to Florida from New York. They’re even reducing service to South Florida from LaGuardia, killing West Palm Beach service.
- Eliminating New York JFK – Orlando is not, in fact, making an additional Austin flight possible — that new second flight has already been on the schedule and operating, while Orlando doesn’t disappear for three months.
Oddly Raja suggests they’re putting larger aircraft on New York routes replacing two-class regional jets with Embraer ERJ-190s, planes American has said they’re retiring.
In any case American focuses on ‘niche’ ‘business customers’ using what he called “the best facility in all of New York, the most modern facility in all of New York and we own it” as their comparative advantage.
The Best, Most Modern Facility In New York?
The Best, Most Modern Facility In New York?
He defends hub flying because “our other hubs – Chicago, LA, Dallas, London are some of the biggest markets for business customers out of New York” and explains the airline is “flying into spokes that are really strong for us in our system, places like Wilmington but also Austin and San Antonio” while “on weekends where there’s less business demand fly to really high end leisure places like Jackson Hole.”
American’s much scaled-back international operation is “on our biggest and best airplane the 777 all out of JFK.” And as a result of this strategy “for the first time in 15 years in the company we are profitable in New York international.”
It may be true that they’ve retrenched New York’s international footprint enough to be profitable overall, with about half their service between New York and London. However while “all 777 international” is simple operationally, it means many destinations can’t work.
There are several routes Delta finds success with using non-peak hour 767s. American though wouldn’t be able to make those destinations work even if it were willing to fly Boeing 787-8s given the reduction in business class seats on those planes that are getting sent to Anchorage and Cancun. And cutting so many destinations out of New York has to make it harder for customers to keep flying American, as I hear from them all the time.
American’s Strategy Going Forward
The airline’s strategy may be best understood in CEO Doug Parker’s words from September 2017, that they would ‘never lose money again.’ So it is with New York. They aren’t playing to win New York, or even perhaps to maximize the profits they might make there. But they aren’t losing money, which is a better position than they were in before.
Indeed Raja points out that “we started the JV with British Airways we had a 60% unit revenue deficit to them. As of the end of last year it was 10% and it’s closing all the time.”
Put another way, American views its only winning move in New York is not to play.
Beefing up New York JFK – Dallas Fort Worth and flying as much Heathrow as possible is a strategy. Their 219 peak day takeoff and landing slots aren’t all used for London, Los Angeles, or Dallas. So we’ll see how the rest of them do.
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