How American Airlines Will Respond To Low Cost Carrier Growth In Miami

American Airlines has experience competing against Spirit Airlines at Dallas – Fort Worth and at their Chicago O’Hare hub. Now they’re being forced to contend with a big buildup in Spirit operations in Miami. Former Spirit Airlines CEO Ben Baldanza addressed the game theory in how American is likely to respond in his Airlines Confidential podcast.

American benefited from high costs at the Miami airport because it kept low cost competitors out, and allowed American to keep fares high. Baldanza said that Spirit would have had to raise fares $20 per ticket to cover the incremental cost of operating out of Miami (versus costs at Fort Lauderdale).

Now that Miami has lowered its charges, Spirit can come in competitively. They’re running most flights once a day, sometimes less than daily – only New York LaGuardia will be double daily. That’s not going to kill these routes for American, and it’s going to play specifically into how American responds.

Destination: Flights Available: Start Date:
Atlantic City (ACY) Daily Oct. 6
Atlanta (ATL) Daily Oct. 6
Baltimore (BWI) Daily Oct. 6
Bogota (BOG) Daily Oct. 6
Guatemala City (GUA) 4x per week Oct. 6
Medellin (MDE) Daily Oct. 6
Newark (EWR) Daily Oct. 6
Port-au-Prince (PAP) Daily Oct. 6
Santo Domingo (SDQ) Daily Oct. 6
San Salvador (SAL) 3x per week Oct. 7
Barranquilla (BAQ) Daily Nov. 17
Boston (BOS) Daily Nov. 17
Cali (CLO) Daily Nov. 17
Chicago O’Hare (ORD) Daily Nov. 17
Cleveland (CLE) Daily Nov. 17
Dallas-Fort Worth (DFW) Daily Nov. 17
Denver (DEN) Daily Nov. 17
Detroit (DTW) Daily Nov. 17
Hartford-Bradley (BDL) Daily Nov. 17
Houston Intercontinental (IAH) Daily Nov. 17
Las Vegas (LAS) Daily Nov. 17
Myrtle Beach (MYR) Daily Nov. 17
New York LaGuardia (LGA) 2x per day Nov. 17
Orlando (MCO) Daily Nov. 17
Philadelphia (PHL) Daily Nov. 17
Raleigh-Durham (RDU) Daily Nov. 17
San Pedro Sula (SAP) Daily Nov. 17
San José, C.R. (SJO) 4x per week Nov. 17
San Juan (SJU) Daily Nov. 17
St. Thomas (STT) 3x per week Nov. 18

 

American is able to respond in a targeted way to Spirit’s incursion:

  1. More basic economy fares to match Spirit pricing. They don’t want to lose the passenger business to Spirit. But they don’t want to charge lower fares for people who would pay more. Basic economy lets them segment the market, so that their average fare doesn’t come down as much even as they compete for passengers.

  2. Targeted pricing based on time of day and day of week. American only needs to lower its fares on flights that correspond to when Spirit is flying. A passenger looking to travel at a different time won’t have Spirit as an option, so American can hold its prior fares.

There’s no question that Spirit bringing so many flights into so many markets hurts American. American will lose passengers, and generate less revenue from some of the passengers it retains. But it isn’t a body blow to their hub operation, either. And lower fares will likely bring more people into the market, too. Some of those people will fly American, not just Spirit. And those are customers for ancillary charges like checked baggage and seat assignments and some are even potential co-brand credit card customers.

Baldanza, who not only used to run Spirit but who also worked at American and US Airways, doesn’t see American retaliating with a big buildup in Fort Lauderdale. Their past retaliatory buildups in Fort Lauderdale haven’t worked well (such as against JetBlue). And the current economic environment is one where they are less likely to operate money losing flights out of spite (or as a credible threat against further incursions, and to encourage Spirit to leave Miami in hopes American draws down Fort Lauderdale).

I’d add that increased capacity into South Florida will further dilute their own position in Miami, and that they’re somewhat short haul aircraft-constrained operating at most of their 2019 domestic capacity levels in planned schedules already.

Put another way, American likely responds surgically rather than going nuclear in response to Spirit entering their Miami hub.

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. My home city has Spirit and Frontier flights. They are rarely a consideration unless I can make them work directly and take all the extras into a consideration. Any connections are usually insane and not worth the 6-8 hour wait time. Family members do use Southwest because they offer some nonstop alternatives, but they’re not the bargain they once were.

    Quite frankly, despite having some run-ins with AA, I use them more and more – they have better options for where I want to go and the benefits of even Gold status plus the black Citi AAdvantage card for the Admirals club distributed among family members makes travel so much better than something like Spirit that I’m not putting up with the type of people who fly Spirit unless the fare saves me hundreds. If I were a road warrior, I might consider either United or Delta, but again, their options from here are limited to hub flights and not as many as AA offers. Not a AA fanboy, but I’ve made it work.

  2. American canceling record flights….. I think they are showing exactly how they are going to compete with Spirit. Yes, Spirit is miserable, but in the last few years that I’ve flown them, not one canceled flight, including covid travel for the last 12 mo.

  3. It’s like trying to wage a war with an army against covert snipers perched in the trees. The only way to “win” is to draw them off the trees and make them think they can win a true battle in the field. That’s when you fight back. When Spirit tries to grow even more in MIA is when AA counters. In the meantime, they sit and wait to see just how far they want to battle their cash.

    In the meantime, Delta and Southwest quietly grow in the weeds.

  4. I would love to see Spirt drive them into chapter 11 after holding the American tax payer hostage for bailouts. When mom and pop lost their $20 hour job, we paid pilots their 200k full salaries. Nothing would make me happier then seeing that mismanaged airline pay the ultimate price. I will never fly AA regardless of the fare as long as Doug Parker is CEO.

  5. After the outrageous bailouts that the airlines received, I hope they all lose their jobs and pensions and never find work in the industry again. Stick it to ’em!

  6. I think the longer-term picture is seeing Spirit outgrow smaller, secondary airports like FLL. They need to move to larger airports to support the size of their operations and long-term growth.

  7. Given that AA threw 777-300ERs into MIA to JFK and LAX and other markets in response to JetBlue’s entrance into those markets, it is laughable to think that AA will be restrained in holding back NK’s growth at MIA. B6 is a supposed partner and they targeted AA’s highest revenue MIA markets. NK is “only” targeting a single flight in most domestic markets but is also adding service to a bunch of Latin/Caribbean markets where there is a whole lot less capacity and where AA has had a stranglehold among US carriers.
    The bigger story is WN’s growth in MIA. Less than a year after they launched flights, they are serving a dozen plus markets. Combined with NK and F9, the three will operate a healthy double digit percentage of AA’s capacity.
    AA had it very easy in MIA for years thanks to MIA’s airline pricing/fee structure but that has all changed and will not only help MIA grow but also become less dependent on AA. As a distinct market, the MIA domestic market has been smaller than FLL for years but that is likely to change.
    AA will give up share and pricing control in MIA and that will lead to significant pressure on its margins.

  8. It would be great if American would compete with a stellar AAdvantage program, premium on board product, reliability, excellent route network, and outstanding customer service for a slightly premium price. Ah yes, but this is low cost America West running the show. They’ll just go dumpster-diving and cut the product even more.

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