American Gets to Keep Its Authority to Fly to China — Without Actually Flying to China

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.

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. Crony-Capitalism and incompetent management. The idea that AA should abandon the fastest growing market in the world (Asia) and its best franchise (South America) for the quickly shrinking and hyper-competitive European market and the pig-in-a-poke of South Pacific, is stranger than fiction. If I were an AA shareholder I would be hitting the bid all day long. A true ship of fools.

  2. What the heck is Robert Isom talking about? ORD-China isn’t ideal because of the transit and connectivity ability of Chicago?

    Ok I guess your New England, NY, Mid-Atlantic and northern Midwest customers will need to fly significantly longer routes or double connect, because for some wild logic Chicago is a poor transit point.

    The irony of cutting the ORD-Asia routes is now I have noticed connecting in DFW has gotten a whole lot cheaper. So rather than fixing the yield problem they just ended up moving that issue to a different part of the system – perhaps it’s ok because DFW has scale that ORD doesn’t.

  3. @Golfingboy – I assumed he was referring to the act of connecting at ORD to Asia. In my one and only time doing that I flew in from the hinterlands, went out of the building, took a train and then went back through security. That’s less than ideal and other can comment, but I don’t think I made a mistake, I am pretty sure this was the arrangement they had there. Perhaps they’ve fixed it but I’ll never go through ORD to Asia again until I get some pretty clear confirmation on this point.

  4. @David – this is correct as the international terminal is a separate building. Outbound you should be able to depart from the same terminal on AA, but inbound they have to offload you at terminal 5 then you will need to transfer to the terminal 1-3 area for your connecting flight.

    Less than ideal indeed, however ORD is going to go through a total remodernization which hopefully will eliminate this problem for UA/AA customers.

    DFW or LAX isn’t any better though. DFW you will go to terminal D then need to reclear security and most likely take the air train to a different concourse. LAX they tend to park the arriving China flights in the maintenance hanagar and bus you to the international terminal for processing due to gate constraints.

  5. here are some quotes from the actual docket :

    “In taking this action we expressly put American on notice, as we have other carriers in similar circumstances, that there should be no expectation that an additional request for a waiver beyond June 28, 2019 would be granted. Any future requests from American on this matter will be considered in light of the specific arguments offered and responses thereto, and in the context of the circumstances presented at that time.”

    “…..and provide American with the opportunity to submit firm plans to restore its two U.S.-China services on or before June 28, 2019.”

    The way im interpreting this (and all the previous back-n-forth) is that AA wanted to be shrewed by first asking dormancy till end of June, *then* submit plans for resumption like 10-11 months later…. and using every excuse in the book to essentially say they simply want to abandon ORD-China and make both DFW-PEK and DFW-PVG double daily.

    But DOT saw right through that and now says they need to actually resume by June 28, which is close to impossible given such a short notice. Even though they say DL/UA “deferred decision”, it’s pretty much a formality to give AA one final chance to actually prove themselves. For all practical purposes, those route authorities are goner for AA, and MSP/EWR#2-PVG are very likely to come into fruition.

  6. I’m starting VR flight service from ORD -PEK. I’ll be taking that route for free.
    I’m offering first class for $999 each way. You can order whatever you want to eat inflight and UberEats or Grubhub will deliver to the “plane”

  7. Hello. Is there any update on this, or are we still expecting to hear the final call on ORD to PEK/PVG by tomorrow 6/28? Thank you.

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