As part of their bankruptcy reorganization efforts American Airlines has announced that they are cutting the longest route in their network, the flights between Chicago and Delhi, India. The flights are being terminated as of March 1, 2012. Live from a Lounge (a local on the India side) and One Mile at a Time (a quite vocal AAficionado) have both weighed in on the topic, mostly with disbelief. To me the surprise is really that it took the bAAnkruptcy to do the route in.
At least one analyst out there says the route was losing $40MM annually. And naturally you’re going to cut anything that isn’t profitable in a reorganization, right? The problem with that approach is that, at this point, nearly everything American touches is not profitable; they’ve got the inverse of the Midas touch. The real question should be whether a route can be profitable, not whether it is right now. And in the case of the Delhi flight, the answer is still no.
It is the longest route in their system, roughly 7500 miles in the air each way. That’s a whole lot of fuel that needs to be carried so the plane can make it to the destination, and that fuel has increased significantly in cost since the route was launched in 2005. It seems that even if the company could get the labor costs down, their stated goal in the bankruptcy process, the other fixed costs of the route are still too great.
The same analyst who asserts the $40MM annual losses also suggests that there are a few other routes which are hemorrhaging cash and which seem primed to be cut: New York-London, New York-California, Chicago to Delhi, Beijing and Shanghai and Miami to Buenos Aires. Seems unlikely to me that all those are going to be touched. The London routes gets the advantage now of ATI, something that was far too late in being granted by the authorities on both sides of the Atlantic. That should help significantly for margins on that service. The transcon market is an interesting one and I could see some changes come, but I doubt they’ll fully retreat. And the South America service seems to have way more potential than the Asia routes, putting it squarely in the "potentially could be successful" category.
Could the Beijing and Shanghai routes be on the out? Loads to China are down and the yields are likely following. At the same time, however, getting back into that market is incredibly challenging. Plus, there aren’t particularly great onward connections if you look to partners. It seems much more likely that the China routes could be profitable and that they’d stick around a least a bit longer.
The other consideration for American, more than individual routes, is the combined effect of cutting too much on the route map. Their international network was already somewhat anemic outside of Latin America and further cuts won’t help that. Even with partners and the ATI agreement, it is hard to market and sell flights to corporate contracts when you don’t actually have service to the destinations they need to serve. And a merger with US Airways, JetBlue or Alaska Airlines isn’t going to solve any of those problems.
Related Posts:
- An interesting view on bAAnkruptcy from the NY Times
- Unions grab a stronghold in American restructuring
- Some more thoughts on today’s bAAnkruptcy filing
- Here comes bAAnkruptcy for AMR/American Airlines; operations to be unaffected
- US DoT approves anti-trust deal for American, British Airways, Iberia
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ATI?
Can you name the analyst or firm you sourced?
ATI=Anti-trust immunity. Basically the ability for multiple airlines (often aligned along global alliance lines) to collude on pricing, schedules and inventory. It also lets them share costs and revenues on routes operated by the other carriers. The idea is metal-neutral operations, where an AA customer flying on BA or IB would have the “same experiences” as one example, but it doesn’t quite work out that way. At least from the customer experience perspective. It does from the money side.
The analyst is Bob McAdoo. He’s rather controversial in his views of AA but he gets a decent amount of respect in the industry.
Can everyone who writes about American pleeeeease stop doing the “AA” in the middle of words thing (i.e. “bAAnkruptcy”)? We get it. American Airlines is abbreviated “AA.” The first time it was done years ago it was slightly clever to write “AAdmirals club AAngels” or something like that. But it’s possibly the most tired thing on the internet now. It’s not clever, it’s not funny, it’s just annoying.
I’m certainly not singling this post out, because it’s done all over the place, but for the love of god, just stop.
In terms of cutting routes, American certainly does need to walk a fine line between axing unprofitable routes and keeping an attractive enough of a route network to be appealing to travelers and businesses.
Cut the fat!
They just added a fifth frequency on JFK-LHR, so it can’t be that bad.
I think AA madea mistake in cutting ORD DEL. India USA India Europe is one of the most frequently travelled sectors by Indian flush with $ and a hunger for adventure.
They would never cut new york-London or the Transon. They are classic flights which are popular business routes. Other ones. Maybe.
I feel like a US merger where American bought out US could work. @Andrew cAAlm down.