There’s no Open Skies agreement between the U.S. and China. Instead a bilateral agreement lays out what route authorities can be doled out by respective governments.
American Airlines dropped Chicago – Beijing and Chicago – Shanghai and Hawaiian Airlines dropped Honolulu – Beijing.
American would like to keep their route authority from Chicago to China even while not using it. That would mean preventing any other U.S. airlines from adding China frequencies, which benefits American by avoiding competition for its Dallas and Los Angeles to Beijing and Shanghai service.
So they asked the Department of Transportation to grant a ‘dormancy’ of their authority to keep the routes for a year without flying them. Normally they would lose the routes after 90 days.
The odds that they’ll return to flying from Chicago to China are really, really low. American Airlines President Robert Isom told employees last year that the airline started Chicago – Beijing because “that was the first slot that we had a chance to get to.” He continued, “it was never the ideal transit spot because of the connecting ability of Chicago.” He cites “tens of millions if not hundreds of millions” of dollars in cumulative losses flying Chicago – Beijing.
American’s Vice President of Network Planning Vasu Raja has said interally that the airline used to take any Asia route it could and operate at a loss because they were so small in Asia, but “[t]he difference between Chicago to Beijing and Chicago to London isn’t 15 margin points it’s 60 margin points.” They want to focus on Europe flying because “we can’t run any part of our system with the kind of losses we’ve sustained” in Asia.
American Airlines Chicago
The idea that they’re going to turn around with a plan to start service again by June seems far-fetched if ‘this time is really different’ as American’s CEO Doug Parker frequently says about the industry, that they don’t just operate flights for the sake of operating them but they make decisions as a business to earn a profit.
Nonetheless they told the DOT that
- “American’s ORD-PEK and ORD-PVG services create important benefits for travelers” even though American will not be offering these services and of course other airlines flying to China would also “create important benefits for travelers” — even more so if those airlines actually fly the routes.
- They would re-start flying “at such time the market becomes more favorable” before November 1, 2019 and “American anticipates that market conditions will improve” although offered no reason to expect that it will.
- “Non-stop service between American’s Chicago hub and China is a critical part of American’s strategy for growth in Asia” in fact it’s so critical they’re going to stop offering the service, and Vasu Raja has claimed they were relying on low yield connecting traffic for their Chicago flights not local traffic.
Despite the weakness of these arguments DOT granted American its dormancy waiver until June 28, 2019, and they made a simple case why it makes sense: other airlines proposed starting service using these route authorities in 2020, so they don’t need to take away American’s rights yet.
They told American not to expect extensions, that it’ll depend on arguments made at the time, including an update from other airlines on what they would do with the route authorities. If other airlines want to start service right away, and American does not, we should expect to see the Department of Transportation award the right to fly to China to those other airlines.
That makes a surprising amount of sense, compared to the arguments American threw at the wall hoping for just such an outcome.
American Airlines Boeing 787-8 in Chicago
Of course American plans to use the Boeing 787s that were flying to China in the South Pacific if and when their joint venture with Qantas is approved. If they actually re-started China service they’d all of a sudden find themselves tight on planes — no more ability to waste the 787s on Cancun and Anchorage, and 767s rapidly retiring.