American Airlines didn’t rebuild its Philadelphia transatlantic hub coming out of the pandemic. Europe opened later than travel returned to the U.S. market. And American found that they did better flying planes to Mexico than across the Pond. When demand for travel to Europe came roaring back, the airline didn’t have as many flights scheduled, and they didn’t have planes either – having retired their Boeing 757, Boeing 767, and Airbus A330 fleets early in the pandemic and facing delivery delays from Boeing on new 787s.
Without rebuilding transatlantic flying, they also didn’t rebuild Philadephia’s domestic route network to pre-pandemic levels. Those flights used to connect people onto international departures, but those international departures hadn’t fully returned so the domestic flights didn’t make as much sense either.
Now they’re adding 3 new transatlantic routes from Philadelphia (Copenhagen, Nice, and Naples) after announcing the transfer of their New York JFK – Doha flight to Philadelphia.
And they’re adding back Philadelphia flying, such as a new route to San Antonio, and adding back Philadelphia – New York LaGuardia. This latter,
- squats slots in New York, because with the end of the Northeast Alliance with JetBlue American no longer has a New York strategy
- hopes to serve some of the New York market through Philadelphia rather than non-stop.
American has eliminated its second New York – Rome flight as part of providing aircraft for its announced new transatlantic service.
Cranky Flier, in writing about the announced new route, disses on American for having previously focused on New York. But this gets it all wrong.
It is, as a side note, good to see Philadelphia getting love again. These new routes are about adding network value by putting new destinations on the map and then routing people through Philly to get there. The distraction of the now-dead Northeast Alliance had American put more airplanes into places from New York that didn’t add that same kind of network value.
“Network value” is all about connecting traffic. They compete with Delta and United for passengers who have an option to fly through Newark, Boston, Washington Dulles, New York JFK, Chicago O’Hare and Atlanta.
In contrast, American’s business in New York, with its JetBlue partnership, was largely about serving the New York market. JetBlue wasn’t so much providing connecting passengers for American (people transferring from JetBlue flights to New York JFK onto American’s international flights) as much as providing local customers for American’s flights. Non-stop means competing with a different product, that consumers will generally also pay a premium for.
- New York is a much bigger local market than Philadelphia
- Take its New York JFK – Doha flight. That was about 80% New York passengers heading to the Mideast and Indian Subcontinent, places like Lahore, Islamabad, Karachi and Dhaka. This was one-stop service for New Yorkers to where New Yorkers were going.
- Instead Philadelphia is all about connections. People connect to Philadelphia, will take the flight to Doha, but almost none of those passengers are flying to Doha. They are, again, heading to Pakistan, or smaller cities in India.
- So moving that Doha flight to Philadelphia has ‘network value’ but it is low value. It competes for double connections, which means lower yields. American still has its high costs, but they’ll earn lower fares.
And that doesn’t even begin to get into the hidden importance of competing in the New York market. Once American began partnering with JetBlue, and not walking away from New York any longer, they began signing up more customers for the AAdvantage program. In fact New York was their biggest market for new signups. And that converts people to co-brand credit card customers. And New York is the most important spend market in the country.
Selling AAdvantage miles is a multi-billion dollar business with a 52% margin while all of American including the sale of miles earns about a 10% margin. Offering a product that’s relevant to the New York market matters for New York card signups and wallet share, as American learned.
Cranky notes that American will have more year-round routes and fewer seasonal routes from Philadelphia to Europe in 2024 than they did pre-pandemic. Eventually this will become even more tilted towards year-round as American takes (delayed) delivery of Airbus A321XLR aircraft that can make a route work on fewer passengers than a Boeing 787. There’s some value in a connecting hub to Europe, but a hub with greater local traffic and far greater card spend is more valuable still.
Delta was able to grow in New York because US Airways sold them their New York hub, more or less. And that ultimately made American Airlines far less competitive. When US Airways took over at American they tried two strategies in New York:
- Serve people from other cities wanting to travel to New York, rather than New Yorkers
- Offer a ’boutique’ operation serving primarily partner hubs in Europe and the West Coast
But neither one worked. Offering New York flights to people for whom they work well as a one-off is a recipe for lower fares than competitors. American kept cutting routes, entering a death spiral there. They decided not to compete there prior to the pandemic.
While they described themselves as ‘too small to win, too big to give up’ American simply squatted on their resources in New York so others couldn’t take them. They actually did have to forfeit 7 slots from underuse, though.
American saw themselves losing money or breaking even, but largely because they did the accounting wrong, not looking at the most lucrative piece of their business (co-brand card). They found a partner in JetBlue that gave them the necessary scale to offer as much to New Yorkers as Delta and United from Newark. But that was struck down by a district court judge, and JetBlue decided not to appeal to focus instead of its (more anti-competitive) acquisition of Spirit Airlines.
So New Yorkers are left with less competition, one less viable competitor and an airline shifting its focus to “Filthadelphia.”
But New York wasn’t a distraction from Philadelphia, it was a better place to focus limited resources that did not work out – in part because of a change in administration, part because of whom they drew as a judge, and part because of JetBlue’s deal to buy Spirit that came after. Philadelphia on its own may even work to some degree, but ultimately Philadelphia is not New York. And whether American will admit it or not, they realize this is true – now that they have one executive in charge of all revenue from flying and from credit card issuers.