American Airlines announced they were going to stop serving 15 cities effective October 7, after government payroll subsidies ran out.
- CARES Act payroll subsidies require airlines to continue to offer service to all of the cities they flew to prior to the pandemic, except where they were given an exemption by DOT
- Demand has certainly fallen, and some cities have little hope of near-term profitability
- At the same time, it’s this service – more than protecting jobs – that’s crucial in gaining support from some members of Congress for continued government payments to the industry. Threatening service losses pushes those subsidies forward.
American spread the chosen cities out over 14 states, meaning they affected constituents of 28 Senators. And several members of the House Transportation Committee had their home airports seeing service eliminated. This was a political message.
Only the choices of cities wasn’t well-crafted. They apparently didn’t realize that they had made a legal commitment that prevented them from dropping service to Joplin, Missouri and Sioux City, Iowa. They had Essential Air Service agreements in place for both of those cities and couldn’t terminate service on their own. Oops.
American likely missed this because the routes are no longer subsidized – they agreed to the EAS contract without subsidy for each in order to block United Airlines from receiving subsidies to offer competing service.
The airline sought the DOT’s permission to terminate service, filing their 90 day required notice – ending service December 1 – but asking the Department for relief to end service earlier citing losses of $2.2 million in Joplin and $1.9 million in Sioux City since the start of the pandemic.
- Denying the request to terminate service early
- Requiring a 30 day holdover period as well.
The DOT is seeking replacements for American to offer Essential Air Service flights to both cities, and has told that American cannot end their service in 2020 unless a new operator starts service earlier.
Losses of half a million dollars a month on average per city, though, are what’s being used to leverage the next round of payroll support which would yield $5.8 billion for American. That’s leverage.