AdAstraPerAspera
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AA and CX haven't inked a joint business deal like AA has with JAL; that might have something to do with it.
AA to begin DFW-HKG and DFW-PVG in 2014; cancels JFK-HND
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yes, but CX has a hub at HKG. So does it work if AA operates the flight as a JV with JAL but they have to buy seats from CX for connections? Or is even codesharing with CX not part of the deal?
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meanwhile back at JFK, looks like AA will be down to just 3 flights on its own metal on JFK-LHR next summer, all on the 773ER, while BA will operate an all 744 schedule on its flights which is growing based on AA's reduction.
http://airlineroute.net/2013/10/20/aaba-jfklhr-s14/
http://airlineroute.net/2013/10/20/aaba-jfklhr-s14/
I assume that the AA/JAL joint venture will buy seats from CX, and perhaps some of those will carry the AA code (as some do now). Presumably, the AA/JAL joint venture has been connecting a fair number of passengers to HKG over TYO. Based on my experience flying AA to NRT, quite a few passengers connect from AA flights to SIN, HKG, BKK and ICN.
I still don't think that DFW-HKG has a high probability of success; to me, it's rather telling that CX continues to add flights to LAX and ORD, and none to DFW. It's the longest USA-HKG routing (very high cost) and will rely heavily on connecting passengers. If you have to connect in the USA anyway, why would anyone fly AA from DFW when CX offers lots of frequencies, perceived better service, AAdvantage miles (except on very cheap fares) and seats of equal or better comfort? Maybe I'll be proven wrong, but I don't think HKG or PVG from DFW will succeed.
AA claims that the reduction is temporary while AA reconfigures its 772s with the flat J seats during 2014. From management's letter to employees:
http://aviationblog.dallasnews.com/2013/10/american-airlines-to-cancel-new-york-tokyo-haneda-service.html/2/
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thanks for posting the letter... AA mgmt. may be saying that the motive was to accommodate the lie flat upgrades but the fact that AA is using all 773s and the rest is 744s by BA says that together they want to put as many seats in the market and the 744s at BA are the best way to do that.
Apparently they do see the DL/VS JV as enough of a threat to ensure that AA/BA is properly positioned - if only with the all lie-flat product.
As for HKG, it is worth noting that DL's onboard revenue on the DTW-HKG flight was not much lower than UA's on ORD-HKG and the costs of operating the 77LR were much lower than for UA's 744. A big part of the extra revenue that DL gained was from cargo which UA could barely carry. But DL pulled its DTW-HKG flight even with lower system costs.
AA does have an advantage on the 773ER to carry cargo which will help pay a lot of bills but AA's CASM on the 773 is not going to be terribly great because the seat density is lower than it could be.
But you are right that when an airline has a choice to connect passengers from a coast gateway vs. an internal gateway, the preference is going to be for the shortest int'l flight possible because the costs of operating a long-haul flight are much higher given high fuel prices.
The fact that AA is competing against CX is more of an issue with that route to me than the length. AA will be operating one of the longest HKG routes against one of their partners and in a region where DL and UA both have stronger presences. Unless JL has a JV with CX, it would seem AA is still buying seats from CX. We also saw with AF on LAX-LHR that there isn't a lot of evidence that 3rd country carrier operated flights do well from the US.
China is such a strong market and US carriers fare competitively better against Chinese carriers so I don't see near as much of a threat to AA with DFW-PVG.
Apparently they do see the DL/VS JV as enough of a threat to ensure that AA/BA is properly positioned - if only with the all lie-flat product.
As for HKG, it is worth noting that DL's onboard revenue on the DTW-HKG flight was not much lower than UA's on ORD-HKG and the costs of operating the 77LR were much lower than for UA's 744. A big part of the extra revenue that DL gained was from cargo which UA could barely carry. But DL pulled its DTW-HKG flight even with lower system costs.
AA does have an advantage on the 773ER to carry cargo which will help pay a lot of bills but AA's CASM on the 773 is not going to be terribly great because the seat density is lower than it could be.
But you are right that when an airline has a choice to connect passengers from a coast gateway vs. an internal gateway, the preference is going to be for the shortest int'l flight possible because the costs of operating a long-haul flight are much higher given high fuel prices.
The fact that AA is competing against CX is more of an issue with that route to me than the length. AA will be operating one of the longest HKG routes against one of their partners and in a region where DL and UA both have stronger presences. Unless JL has a JV with CX, it would seem AA is still buying seats from CX. We also saw with AF on LAX-LHR that there isn't a lot of evidence that 3rd country carrier operated flights do well from the US.
China is such a strong market and US carriers fare competitively better against Chinese carriers so I don't see near as much of a threat to AA with DFW-PVG.
kirkpatrick
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Mark, you seem to be a man in the know. What's happening to all the 777-200s being freed up with the addition of the -300s?
MK
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The transitioning to all-flat bed on JFK-LHR was in the works at least a year before than the DL/VS JV was announced.
Even if CX isn't codesharing on DFW-HKG, it could do well. HKG is going to wind up being their main gateway to South Asia until there is open skies in Japan, and the slot restrictions at HND go away.
PVG and PEK generate enough local demand that they'll work, especially as an alternative to the Chinese carriers (which I've yet to find a US businessperson who seeks them out on any basis other than cheapness).
The fact that you don't see signs like this in HKG is one reason why I think AA will do just fine on DFW:
English is still considered a native tongue in HKG, and that goes for the staff on both CX and KA. I can't say the same for the mainland carriers. Plus, where would you rather spend a stopover? HKG, CAN, or PVG?...
Even if CX isn't codesharing on DFW-HKG, it could do well. HKG is going to wind up being their main gateway to South Asia until there is open skies in Japan, and the slot restrictions at HND go away.
PVG and PEK generate enough local demand that they'll work, especially as an alternative to the Chinese carriers (which I've yet to find a US businessperson who seeks them out on any basis other than cheapness).
The fact that you don't see signs like this in HKG is one reason why I think AA will do just fine on DFW:
English is still considered a native tongue in HKG, and that goes for the staff on both CX and KA. I can't say the same for the mainland carriers. Plus, where would you rather spend a stopover? HKG, CAN, or PVG?...
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You are correct regarding the preference for more "western" carriers like CX but the Chinese carriers are in their own home markets and do control a certain portion of the market that CX does not. Further, the Chinese carriers do have lower costs which has consistently been shown to matter when it comes to survival in the airline industry.
Specific to AA and its new Asian routes, AA is adding far more capacity than what the local market can absorb. We haven't even seen the financial results for DFW-ICN and the chances are really high that it is a weak performer. AA continues to pursue a strategy of developing an Asian operation that can effectively compete with DL and UA. I am glad they are doing it from a hub as strong as DFW but DFW is only slightly better than ATL when it comes to geography. Every flight to Asia from DFW will be much longer and higher cost than flights from other more northern and western hubs in the US. Simple geography means that AA will have to undercut other carriers with more direct routing or backfill with more lower value customers. Elapsed flying time matters and when AA is competing in markets by adding an extra hour or two to an itinerary via DFW, it will matter. It also will increase AA's costs to serve many of the O&Ds that other carriers can serve via faster routings.
As for HKG, it shouldn't be lost on anyone that there are four new flights being added between the US and HKG this year - 2 by CX from LAX and EWR in addition to AA's from DFW and DL's from SEA. Fares are going to fall just as has happened with ICN.
AA may have decided they can be profitable enough elsewhere to make up for the cost to develop a Pacific network but they will be spending money to ramp up more expensive markets that other carriers are simply not incurring. BK provides a short-term window to gain based on reduced costs but the strategic challenges that AA faces plus the costs of the merger could cut short AA's ability to sustain heavy route development in a region of the world where AA is not strong and will be adding routes without the help of partners in the countries where other carriers are stronger and have partners.
Specific to AA and its new Asian routes, AA is adding far more capacity than what the local market can absorb. We haven't even seen the financial results for DFW-ICN and the chances are really high that it is a weak performer. AA continues to pursue a strategy of developing an Asian operation that can effectively compete with DL and UA. I am glad they are doing it from a hub as strong as DFW but DFW is only slightly better than ATL when it comes to geography. Every flight to Asia from DFW will be much longer and higher cost than flights from other more northern and western hubs in the US. Simple geography means that AA will have to undercut other carriers with more direct routing or backfill with more lower value customers. Elapsed flying time matters and when AA is competing in markets by adding an extra hour or two to an itinerary via DFW, it will matter. It also will increase AA's costs to serve many of the O&Ds that other carriers can serve via faster routings.
As for HKG, it shouldn't be lost on anyone that there are four new flights being added between the US and HKG this year - 2 by CX from LAX and EWR in addition to AA's from DFW and DL's from SEA. Fares are going to fall just as has happened with ICN.
AA may have decided they can be profitable enough elsewhere to make up for the cost to develop a Pacific network but they will be spending money to ramp up more expensive markets that other carriers are simply not incurring. BK provides a short-term window to gain based on reduced costs but the strategic challenges that AA faces plus the costs of the merger could cut short AA's ability to sustain heavy route development in a region of the world where AA is not strong and will be adding routes without the help of partners in the countries where other carriers are stronger and have partners.
Conversion to the new business class will keep less 777s cycling on operations for a good chunk of 2014 and into 2015.
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interestingly, DL just said that its NRT hub had the highest margin on its system.
Jacobin777
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Then why is it scaling Japan flying back with increase to Korea/China(from the DL conference call)? Also, how is DL's Latin America oops, er, I mean ops doing?
Congrats on the refinery "profit".
Also, AA's Pacific losses have trimmed down as well and I expect to trim even further down in the next 12-18 months.
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E,
Nice article if you are looking for someone to give you some sense of “feel good” even if the facts of the article are devoid of any facts.
First, he talks about the value of Revenue on Invested Capital but fails to note that AA’s Pacific network has been plagued by losses that have far exceeded on a percentage basis the losses that any other carrier has incurred in any other region of the world… and AA’s answer to that solution is to throw more capacity in the market, targeting many highly competitive markets where AA doesn’t even have the strategic advantages that other carriers have.
Where is the ROIC on a system that posted a NEGATIVE 25% operating margin in the 1st quarter of this year and NEGATIVE 15% in the 2nd quarter that was just released?
Second, the issues with Japan, which no one seems to be willing to recognize are directly related to the devaluation of the Yen by the Japanese government, has far less to do with access to HND or NRT but in finding markets that actually work. He doesn’t mention that UA is willing to pick the route up perhaps on the basis that they should be able to do as well on SFO-HND as DL does from LAX-HND, where DL carries more onboard revenue than AA does on either of its two LAX-transpac flights. Even though he released the article on the same day that DL reported its quarterly results, he doesn’t include the fact that DL said that NRT was DL’s highest margin hub on its system. The problem is clearly not that the Japanese market has no potential anymore or that NRT as a hub is dead. DL just proved that wrong even if they opt to trim downgauge and overfly Japan nonstop to other destinations in Asia in order to reduce costs given that NRT is a very expensive airport at which to connect passengers – but was even before the Japanese devaluation.
Third, he fails to speak to the fact that AA is adding double digit capacity in a region where it has lost money and been unable to gain a foothold relative to DL and UA and continues to add capacity at a far faster. And more significantly, AA is adding that capacity in an apparent last ditch effort to find a home-grown strategy to serve Asia at the very same time that it is taking hundreds of millions of wage cuts from employees and investors. You tell me what other carriers have walked out of BK with a strategy that has involved losing hundreds of millions of dollars per year in a region of the world just after having cut costs on the backs of employees and investors? Maybe AA is still in transition and its heavily money-losing LAX-Asia flights will go after the DFW flights ramp up, but it won’t change that DFW-Asia doesn’t serve large parts of the country and costs much more money to serve those O&Ds. Also doesn’t change that AA still runs a distant 2nd to UA in all of the ORD-Asia routes the two jointly serve and a #3 behind DL and UA on LAX-NRT.
Finally, where is there mention of the fact that CX is adding far more capacity between the US and HKG and not DL or UA? Where is the mention that CX has apparently shunned again AA's request for a joint venture between the US and HKG and the fact that AA is now turning to a Japanese partner to help fill seats on a flight to HKG? George might want to wait just a few secs before he is convinced that CX is going to be such a great partner to AA in helping AA make their DFW-HKG flight work.
When you post articles that talk about the real issues that are at play in AA’s Pacific operation, I’ll hang in up. Until then, there are truths that need to be told and there are people who deserve to know how their investment in AA is being spent.
Nice article if you are looking for someone to give you some sense of “feel good” even if the facts of the article are devoid of any facts.
First, he talks about the value of Revenue on Invested Capital but fails to note that AA’s Pacific network has been plagued by losses that have far exceeded on a percentage basis the losses that any other carrier has incurred in any other region of the world… and AA’s answer to that solution is to throw more capacity in the market, targeting many highly competitive markets where AA doesn’t even have the strategic advantages that other carriers have.
Where is the ROIC on a system that posted a NEGATIVE 25% operating margin in the 1st quarter of this year and NEGATIVE 15% in the 2nd quarter that was just released?
Second, the issues with Japan, which no one seems to be willing to recognize are directly related to the devaluation of the Yen by the Japanese government, has far less to do with access to HND or NRT but in finding markets that actually work. He doesn’t mention that UA is willing to pick the route up perhaps on the basis that they should be able to do as well on SFO-HND as DL does from LAX-HND, where DL carries more onboard revenue than AA does on either of its two LAX-transpac flights. Even though he released the article on the same day that DL reported its quarterly results, he doesn’t include the fact that DL said that NRT was DL’s highest margin hub on its system. The problem is clearly not that the Japanese market has no potential anymore or that NRT as a hub is dead. DL just proved that wrong even if they opt to trim downgauge and overfly Japan nonstop to other destinations in Asia in order to reduce costs given that NRT is a very expensive airport at which to connect passengers – but was even before the Japanese devaluation.
Third, he fails to speak to the fact that AA is adding double digit capacity in a region where it has lost money and been unable to gain a foothold relative to DL and UA and continues to add capacity at a far faster. And more significantly, AA is adding that capacity in an apparent last ditch effort to find a home-grown strategy to serve Asia at the very same time that it is taking hundreds of millions of wage cuts from employees and investors. You tell me what other carriers have walked out of BK with a strategy that has involved losing hundreds of millions of dollars per year in a region of the world just after having cut costs on the backs of employees and investors? Maybe AA is still in transition and its heavily money-losing LAX-Asia flights will go after the DFW flights ramp up, but it won’t change that DFW-Asia doesn’t serve large parts of the country and costs much more money to serve those O&Ds. Also doesn’t change that AA still runs a distant 2nd to UA in all of the ORD-Asia routes the two jointly serve and a #3 behind DL and UA on LAX-NRT.
Finally, where is there mention of the fact that CX is adding far more capacity between the US and HKG and not DL or UA? Where is the mention that CX has apparently shunned again AA's request for a joint venture between the US and HKG and the fact that AA is now turning to a Japanese partner to help fill seats on a flight to HKG? George might want to wait just a few secs before he is convinced that CX is going to be such a great partner to AA in helping AA make their DFW-HKG flight work.
When you post articles that talk about the real issues that are at play in AA’s Pacific operation, I’ll hang in up. Until then, there are truths that need to be told and there are people who deserve to know how their investment in AA is being spent.
robbedagain
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Hows it possible for aa to lose money on the japan route but dl to make money w japan yen losing
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because DL gets a whole lot better revenue in Japan.... NW did an outstanding job of building its Japan business and DL has not only cared well for what NW built but has grown it; JFK-NRT didn't exist for either DL or NW prior to the merger but it is now one of the highest revenue flights operated by a US carrier for DL. AA flew the route before the merger, dropped NRT shortly after DL started it (also started by DL with a 777 and quickly upgraded to the 744), AA started JFK-HND which did worse than JFK-NRT for AA (in large part due to the HND slot issues) and now AA is out of the JFK-Asia market completely.
DL has also pared its own Japan flying... but they still manage to retain the best revenue and have the dominant position in the US-Japan market which translates to revenue advantages.
It's no different from what US has at CLT or AA has to Latin America.
DL has also pared its own Japan flying... but they still manage to retain the best revenue and have the dominant position in the US-Japan market which translates to revenue advantages.
It's no different from what US has at CLT or AA has to Latin America.
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