AA to operate 3 cabin 321s with lie flat first, business class

[WorldTraveler]

that is accurate, Jim, but 3 additional passengers using even the average fare for the market (let alone AA's average fare) would cover the extra fuel bill for the 757.

If the intention is to use the lightest aircraft possible to accommodate 100 seats in a super-premium domestic configuration, then the 321 is the best aircraft (unless you wait for the 321 max).

If the question is to maximize trip revenue and still maintain existing average fares, then it isn't clear that using an aircraft that accommodates 2/3 the number of passengers that AA's existing transcon aircraft is the best answer. It seems obvious that AA is NOT satisfied w/ existing average fares and/or does not believe they can grow their share of the market by using even some widebody aircraft such as older 763s.

Remember that one of the arguments that has been well-used as to why AA has justified keeping the 762s is because they are the only passenger carrier operating widebodies on a regular basis.
Apparently the cargo market is not as large or is not worth finding a way to retain, even with just daily widebody service (which perhaps could come at some point later).
Remember also that selling cargo on int'l routes to/from JFK requires connecting JFK's largest and generally more distant domestic markets with the rest of AA's system.

AA's decision is clearly motivated by being able to walk away from a large chunk of the economy market - which they apparently believe even w/ post BK costs they cannot successfully serve.
That may be true, but it does raise the question of what is wrong w/ airline economics if the two carriers with a long history in the transcon markets and an abundance of loyal passengers who do pay high fares cannot profitably serve all segments of the market, leaving significant portions to other carriers.

Given that AA said its plan is based on growing its capacity by 20%, reducing its capacity by as much as 30% in some of its longest standing markets makes one ask the question where the growth markets will be.

 

[FWAAA]

I'm not convinced that AA intends to abandon all that capacity - for all we know, AA intends to schedule more flights on key weekdays, say 15-18 total flights JFK-LAX instead of the current 10, and thereby maintain total seat capacity wihile increasing premium seat capacity. Alternatively, perhaps several 777s could be flown daily JFK-LAX in addition to these A321s, maintaining or increasing capacity. Far-fetched as that may sound, AA has run a daily 777 MIA-LAX for years and this summer has run double daily 777s.

If AA intends to run just 10 daily A321s between JFK and LAX, that smacks of the defensive strategy employed by AA over the past decade. When your costs are significantly higher than the competition, it makes perfect sense to slowly downsize capacity while concentrating on the higher-yielding passengers. And AA has downsized substantially since it had over 900 mainline jets in early 2001. One-third of those planes are gone and AA has a mainline fleet just over 600 today. 49 of those planes were widebodies. Dozens were 757s and many others were 727s, 717s and MD-80s.

But after a decade of such defensive competition, AA finally took the plunge and filed for bankruptcy protection in an attempt to finally lower its costs (primarily labor). When AA emerges from bankruptcy protection, it should have much more competitive costs, and lower costs should equal expansion. Granted, much of that expansion will occur in international flights, but some of that expansion might occur domestically, if only to help feed that expanded international schedule.

As we all know, when airlines shrink, their cost per seat mile grows as the fixed expenses are spread over fewer seat miles. When airlines expand, the opposite happens.

I realize that today's announcement is probably the best (prudent and conservative) business decision, but it makes me think that whomever was in charge of this decision forgot that AA was in bankruptcy and should be in a position to expand, not contract, over the next few years. Horton's announced plans are to grow by 20% in key business markets, and I have to think that NYC-LAX is one of those markets.

 

[700UW]

US origanlly ordered the 321 when they made their first airbus order but then cancelled them as they didnt have the range to make a transcon.

Airbus added an additional fuel tank which in turn reduced cargo bin capacity but extended their range and then US placed an order for them.

And replacing a 767 with an A321 is a huge cargo hit.

 

[WorldTraveler]

Just to highlight the difficult that AA faces in the transcon markets, I just priced an itinerary with less than one week's notice between JFK and LAX on Virgin America for less than $900. Virgin is now the 2nd largest carrier in the JFK-LAX transcon marketplace, just slightly ahead of DL and about 2/3 the size of AA. But they continue to put pressure on fares, even though they aren't profitable.

I'm sure they are cheering todAAy's announcement.

I would actually hope that AA DOES throw an int'l widebody in the market to pick up peak demand not only in the premium cabins as a result of int'l connections but also in the coach cabin where it is necessary to feed int'l flights. It is necessary if they want to keep discount carriers at bay. AA, DL, and UA based on DOT data all carry about 70-75% local passengers on their JFK-LAX routes. That number is obviously most surprising for UA given that they already use aircraft with slightly over 100 seats - highlighting that their passenger share of the JFK-LAX local market is 1/3 of AA's and 1/2 of DL's.

Given that the NYC market will remain highly competitive not only domestically but also in int'l markets, I am not seeing how AA is going to expand its presence in NYC by 20%. As you note, the ability to keep costs down and remain competitive requires growing, not shrinking even in markets where low fare carriers are a threat.

Of course another theory is that AA and B6 could merge - as was mentioned regarding AA and WN - but the chances of finding common ground between AA and B6 is a lot higher - and it is possible that B6's brand could be retained alongside AA's with AA simply leaving some markets/segments to B6. However that still raises the question of why any network carrier can't compete in some markets/segments even post BK but low fare carriers can.

 

[eolesen]

AA could expand its presence by 20% by doing a full codeshare with B6. Now that they're announcing a tier system to TrueBlue (VX just announced the same today), it might make more sense than ever, especially if the pilots get out of the way of domestic codewhoring.

AA appears to still be carrying the largest share (~30%) of the JFK-LAX traffic, and they are indeed getting a revenue premium vs. others in the market. It's probably not the widebodies as much as it is the frequencies.

VX is offering six trips a day, roughly every 120-180 minutes. Not a friendly pattern of service for many business travelers, but adequate for their fan base.

AA still runs 10x with 60-90 minute headways. When the A321s show up, it would be pretty easy to add in four trips to make that hourly.

I once sat in a presentation where Crandall was present, and someone brought up putting more DC10's on DFW-LGA (there were three or four in the schedule), because there was "so much demand" during the peak hours. Bob quipped "nobody went broke flying too small of an airplane" and went on to say he'd rather put in twice as many narrowbodies and get rid of the DC10's. This was just as the MD80 was overtaking the 727 fleet as the workhorse, and long before RJ's showed up. The DC10s were gone domestically a few years later.

 

[BoeingBoy]

I just priced an itinerary with less than one week's notice between JFK and LAX on Virgin America for less than $900.

There's part of your answer in a nutshell. If AA can sell 10 first/business seats per flight average, that pays about 2/3 of the trip cost. I know that AA did have a lot of Hollywood corporate contracts (first choice of the studios I think). Don't know if they still do but if they can become #1 in that market it can be profitable.

Jim

 

[tom barry]

AA could expand its presence by 20% by doing a full codeshare with B6. Now that they're announcing a tier system to TrueBlue (VX just announced the same today), it might make more sense than ever, especially if the pilots get out of the way of domestic codewhoring.

AA appears to still be carrying the largest share (~30%) of the JFK-LAX traffic, and they are indeed getting a revenue premium vs. others in the market. It's probably not the widebodies as much as it is the frequencies.

VX is offering six trips a day, roughly every 120-180 minutes. Not a friendly pattern of service for many business travelers, but adequate for their fan base.

AA still runs 10x with 60-90 minute headways. When the A321s show up, it would be pretty easy to add in four trips to make that hourly.

I once sat in a presentation where Crandall was present, and someone brought up putting more DC10's on DFW-LGA (there were three or four in the schedule), because there was "so much demand" during the peak hours. Bob quipped "nobody went broke flying too small of an airplane" and went on to say he'd rather put in twice as many narrowbodies and get rid of the DC10's. This was just as the MD80 was overtaking the 727 fleet as the workhorse, and long before RJ's showed up. The DC10s were gone domestically a few years later.

Boy Eric, this sure sounds like the famous RLC statement...THAT (if it came to it) He'd STOP chasing 'Nickles and Dimes' and fly Only International, Transcon's, and Hub to Hub, and the old fact remains true,.......he who controls the LHR to JFK to LAX to NRT/HND IS the 'Big Dog' !

Once all this BK stuff 'shakes out', I'm starting to get a progressively Good Feeling that everything will be just fine with AA, as they regain the #1 position, while DL and UA spend time flying MORE a/c burning MORE fuel than AA.
Good Times ahead methinks, World Traveler !

 

[eolesen]

I know that AA did have a lot of Hollywood corporate contracts (first choice of the studios I think). Don't know if they still do but if they can become #1 in that market it can be profitable.

Studio traffic is alive and well, and willing to pay for privacy.

 

[WorldTraveler]

Boy Eric, this sure sounds like the famous RLC statement...THAT (if it came to it) He'd STOP chasing 'Nickles and Dimes' and fly Only International, Transcon's, and Hub to Hub, and the old fact remains true,.......he who controls the LHR to JFK to LAX to NRT/HND IS the 'Big Dog' !

Once all this BK stuff 'shakes out', I'm starting to get a progressively Good Feeling that everything will be just fine with AA, as they regain the #1 position, while DL and UA spend time flying MORE a/c burning MORE fuel than AA.
Good Times ahead methinks, World Traveler !

except that there really is no conceivalbe way for AA to be #1 in the US and the world anymore than it is possible for anyone else to be #1 in every major market... the only way that could occur is with a merger between AA and either UA or DL because only AA has enough pieces that DL and UA lack to make a true "I've got everything" carrier.

Right now, AA is the only US carrier with S. Florida to Latin America and that is unlikely to change even with potential changes in alliances. AA's advantage in Latin America is significant but AA's disadvantage in Asia is far larger than its advantage in Latin America - the transpac market is a larger and richer market in part because of the greater distances.

The execs and strategists at AA, DL, and UA all recognize that it is impossible for anyone to be all things to all people although they all are clearly trying to be as much as they can within the constraints that exist.

If NO ONE has everything, then no one is at a disadvantage for not having it all - if looked at on a global basis.

However, there are some markets that do have more strategic advantage than others - and NYC is one of them.

Data clearly shows that CO obtained a substantial revenue premium in the NYC market because it had a larger hub and more services to more places than any other airline had done in NYC up to that time.

DL has clearly decided to challenge UA's dominance of the NYC market and at least in the "pennies and dimes" domestic market, DL has now surpassed UA has having the most capacity. If, as I expect, DL announces a joint venture on the Pacific and has 4-5 transpac flights under its own metal or as part of a JV, then the only advantage UA retains, the Asia market from NYC, starts dwindling.

NYC matters and is so heavily contested because so much corporate traffic originates or has a destination of NYC. AA for years dominated the NYC corporate market - in part because they used the preferred NYC airports of LGA and JFK. (as much as UA/CO people want to say otherwise, JFK and LGA carry the majority of traffic in almost every NYC market - CO's IAH-LGA route carries more local revenue than its hub to hub EWR-IAH route).

There is enough evidence to show that size does matter in NYC and because DL and UA are quite a bit larger than AA and have quite a bit more global and US coverage than AA, they are moving key corporate revenue from AA.

When you combine NYC with the fact that UA now has a strong if not dominant position in the NYC, CHI, and LAX markets that are core to UA, then the idea that AA can dominate the US market place seems a little far-fetched.

While Crandall and current execs at UA and CO may believe the domestic market is not worth pursuing, it is worth noting that the most successful US airline - WN is entirely domestic.
Notably, EVERY US airline including AA obtains the majority of its revenue from the domestic market. Kinda hard to believe you can be successful by not competing effectively in your largest market.

Thus, AA might well succeed at retaining the highest revenue part of the market in JFK-LAX with their 321s but unless they match either on their own metal or with full revenue-sharing partners (which B6 cannot be as a separate company) the size and coverage that DL and UA have in NYC, they cannot be the largest carrier overall.

But it might not matter to be #1... as long as you can get your share of the markets you do serve - which for now AA is doing.

But you can't argue that AA can skim off the markets it wants while also arguing that AA will be dominant in the largest markets - because not only is AA not the largest in the largest markets but there really is no realistic way they can be.

What AA is clearly hoping - and that would remain true whether AA is a standalone carrier or merges with any carrier except DL or UA - is that they can retain enough of a presence in the key markets to keep core traffic on AA.
DL and UA obviously are clearly pursuing plans that prove AA wrong.

 

[Mach85ER]

I once sat in a presentation where Crandall was present, and someone brought up putting more DC10's on DFW-LGA (there were three or four in the schedule), because there was "so much demand" during the peak hours. Bob quipped "nobody went broke flying too small of an airplane" and went on to say he'd rather put in twice as many narrowbodies and get rid of the DC10's. This was just as the MD80 was overtaking the 727 fleet as the workhorse, and long before RJ's showed up. The DC10s were gone domestically a few years later.

I also saw Crandall on a post 9/11 interview. He said something along the lines of with the increased security costs, the frequency strategy went out the window and wouldn't make sense in the future. that was awhile back and I can't reference it. Whether the conditions regarding costs and frequency has changed since then and if Crando has changed his tune is unknown to me.

 

[BoeingBoy]

Increasing frequency has never been a paneca, at least since deregulation. Frequency is a balancing act on each route. Too little and you lose passengers and the revenue they provide, too much and you increase costs more than revenue. For an extreme, take NYC-ORD. One flight/day on a 747, 3 flights/day on 738's, or 9 flights/day on CRJ-200's all provide about 450 seats/day. The 747 is too little frequency so cost outruns revenue. The 738's are the bare minimum frequency for the business passengers. Lots of frequency on small RJ's fits the needs of most travelers but the seat mile costs of the RJ's is high. So a compromise may be to run 738's at peak times and some larger RJ's at select off-peak times - it keeps costs as low as possible for the traffic that's there but retains enough frequency that passengers aren't lost to another carrier with a better schedule.

Jim

Jim

 

[Freighterguynow]

2 - the 321 wasn't designed as a true transcon aircraft but reducing the capacity allows adding the fuel to make it a transcon aircraft - when everyone else that uses 321's for transcons is making fuel stops a reduced capacity 321 will make it, saving the cost of fuel stops and missed connections while offering a better service - nonstop transcon flights. Making one fuel stop can wipe out the profit on a week or more of non-stop flights by itself.

Jim

The tanks themselves are physically too small to carry enough fuel. Everyone of those fuel stops left the gate topped off.

I can't believe the airline that pulled a single row of seats and launched a huge ad campaign just to put them back in 18 months later is thinking this.

Makes just much sense as adding an airline hubbed in Denver while touting the Cornerstone Stratagy.

 

[BoeingBoy]

The tanks themselves are physically too small to carry enough fuel. Everyone of those fuel stops left the gate topped off.

Fewer passengers/bags/seats/etc = less weight = lower fuel burn = the same amount of fuel will give a longer range.

Jim

 

[eolesen]

Fewer passengers/bags/seats/etc = less weight = lower fuel burn = the same amount of fuel will give a longer range.

Jim

By going with 112 seats vs. 170, they're shedding ~15,000 lbs. Should be more than enough fuel for that much lower of a payload.

 

[BoeingBoy]

US puts 184 seats on the 321 although I assume the lie-flat seats AA will be using may be heavier than the standard domestic FC seats US uses.

Jim