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:
- 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.
- 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.