Why Is Asia American Airlines' Achilles Heel?

[Force Majeure]

We have been thru the new technology aircraft vs older aircraft discussion before but the argument doesn't always say that buying a new technology aircraft is the best financial move.

...However, if and when Delta buys/bought new technology aircraft, it would be/was precisely the best move that any airline could do, and that is why Delta is leading the pack when it comes to everything.

Man you have an angle to prop up any move that Delta makes. I have to give you credit. You are the most creative on here to come up with an explanation in trying to make Delta king of the world in all they do or say.

 

[WorldTraveler]

you do realize that WN is just one of many airlines that are both consistently profitable and buy used aircraft?

This isn't a DL thing nor is it even an airline thing. It is the process of ensuring that a company fully covers the cost that it takes to acquire expensive equipment. The history of the US airline industry is that they do not. That means one of several things:
1. the acquisition prices are too high even with the discounts
2. the assets are not kept in service long enough to pay for them
3. interest rates are too high and too much of the investment is financed
4. the asset doesn't really deliver the cost savings that were promised
5. the revenues that the asset were supposed to deliver don't materialize.

there could easily be more but for the airline industry and US legacy carriers specifically, all five of those are true.

Thus, it is the right thing to do to begin to ask if it is really prudent to be buying new aircraft and specific to the 787 and 350 whether the acquisition cost can really be justified since any new product has extra costs and learning curves.

We have yet to see the actual CASM on the 787 but there are more than a few people who say the economics esp. of the -8 do not justify the high purchase price compared to other options including winglets on the 767 which account for about 1/3 of the total expected fuel savings the 787 is supposed to achieve relative to the 787.

 

[FWAAA]

 
Well, it's not really rumor.  At the January pilots Crew News meeting, the question of Asia expansion came up.  Parker said that they will definitely work to expand the Asia presence of AA, but it is unlikely that AA will ever equal the Asian networks of DL and UA since a lot of their Asian rights were legacy back to the 1950s and could never be negotiated today.

While the Tokyo fifth freedom hubs that both PanAm and Northwest Orient operated (sold to UA and merged into DL, respectively) cannot be duplicated, the good news for AA is that both UA and DL are scaling back their Tokyo hubs, in favor of nonstop flights to the economically-reachable destinations like ICN, TPE, HKG, etc.    Of course, the really-distant, far-flung cities like BKK and SIN just don't seem to be economical to fly nonstop from the USA (witness Thai and SQ giving up on their nonstops, and they're both state-owned airlines).   If state-owned luxury airlines can't justify nonstops for the prestige and pride, then profit-seeking USA-based airlines probably can't do it either.      
 
A few UA frequent flyers are throwing tantrums over at Flyertalk as UA has discontinued NRT-BKK and NRT-HKG.   With its joint venture partner, ANA, UA doesn't need to fly those routes anymore, and will likely discontinue other NRT-Asia routes in favor of leaving those connections to ANA.    Those UA frequent flyers are most unhappy that they can't upgrade the NRT-BKK segment on ANA, although UA and ANA share revenues and thus cut costs.   I doubt UA and ANA are shedding any tears that low-fare economy buyers can't upgrade anymore.      
DL is building up a huge Asian hub from SEA, and is discontinuing some of its NRT-Asia flights as well.   Obviously, until DL can find a suitable partner, it will probably continue the flights to the far-flung BKK and SIN and any others that are just too far to fly nonstop.   
 
AA has a revenue-sharing joint venture with JAL, and JAL flies to most of the popular Asian destinations from both NRT and HND, so I don't see AA at a long-term disadvantage.    Smisek at UA has lost the focus and AA has been successful in attracting a lot of elite UA frequent flyers over the past two years, so if new AA ramps up nonstops to Asia from LAX and JFK, along with this summer's new DFW flights to PVG and HKG,  perhaps AA won't always be a distant third place to DL and UA when it comes to Asia.   

 

[WorldTraveler]

well thought out commentary but I have to push back on some of your comments

1. You and others have said many times on here that LAX is not a good hub to Asia for US airlines because of the large number of Asian carriers and the quantity of seats they have in the market. That statement IS correct and it highlights why most of Asian traffic from LAX is carried on foreign and not US carriers..
you can't decide now to argue that LAX is a great gateway for AA without telling us how AA is going to overcome those same issues which have been part of the LAX-Asia market for years.

DOT data shows that the only US carrier nonstop route from LAX that gets average fares comparable to what UA gets from SFO to Asia is DL's two routes to Tokyo - and it is because Japanese carriers have much higher cost structures than the rest of their peers in Asia. DL has long dominated (via NW) the west coast - Japan local market and commands revenue premiums to other carriers from LAX-Tokyo. AA and UA don't provide that level of market dominance from LAX to PVG and UA has tried and failed to operate other LAX-Asia routes. UA would far rather not operate LAX-Asia but they aren't going to allow a US competitor to threaten their SFO hub

2. The decreased reliance on Tokyo as a hub does not necessarily provide an opportunity for anyone from LAX to Asia. Decreased reliance on Tokyo means other carriers will find other ways to carry their own traffic which is what DL is doing. UA is also growing its non-Japan network. There is no logic behind saying that AA can find an opening because other carriers are decreasing their reliance on Japan.

3. DL does not need to have a partner to fly or not fly to SE Asia. You and others have repeatedly tried to equate what DL is doing in Asia with what UA is doing and has done but they are not the same. NW used the NRT hub to provide the flow traffic beyond NRT necessary to keep capacity in the US-Japan market high. UA has not done that. DL is not going to walk away from its dominant position in the local US-Japan market. Others have used the argument that you don't walk away from profitable markets - but the local US-Japan market is what is profitable for DL. The flow traffic that is carried via NRT has only been breakeven in DL's own words. DL will maintain enough flow traffic over NRT on the appropriate sized aircraft to ensure they maintain dominance of the local US-Japan market.

4. UA has done alot to alienate its own customers but they also recognize that their Pacific network is their bread and butter and there is no evidence to support the idea that they are losing revenue there, esp. to AA. Further, AA failed in their 2003 restructuring because they counted on other carriers to lose revenue and AA itself ended up carrying thousands of extra employees for years, hurting AA's own competitiveness. If AA succeeds in the market on its own, great. But don't expect someone else's woes to be your salvation.

5. Your response continues to believe that new AA's Asian network will be built around the largest and most competitive markets in the US based on old AA's route network - yet AA has failed to do that before. The reason for AA's failure to establish itself in Asia has not been costs - it is revenue. The reason why DFW has a chance to succeed is because AA is competing from a large monopoly hub that can connect hundreds of other flights to every Asian flight. There are no other markets where AA can do that... ORD and LAX are highly competitive and there simply aren't enough connections at LAX to overcome the low quality of much of the local market. US' hubs do have a lot more potential to serve as gateways to Asia for both of the reasons that DFW will succeed.

You have to accept that AA's future in Asia will reflect the reality of AA's position in the market and the fact that AA has not been able to do what AA needs to do in Asia but US' network very well might provide the network help AA needs to have a viable presence to Asia.

 

[700UW]

American Airlines To Launch Service Between Dallas/Fort Worth And Shanghai June 11
 
http://finance.yahoo.com/news/american-airlines-launch-between-dallas-153000210.html

 

[737823]

American Airlines To Launch Service Between Dallas/Fort Worth And Shanghai June 11
 
http://finance.yahoo.com/news/american-airlines-launch-between-dallas-153000210.html

Old news.

Josh

 

[robbedagain]

Hows that old news when it just came out recent?

Thanks for the link aa using 772 for that run

 

[IORFA]

Old in that it was announced before yesterday.

 

[WorldTraveler]

AA apparently just received government approval and the flights will be available for sale this weekend.

FORT WORTH, Texas, Jan. 30, 2014 /PRNewswire/ -- American Airlines today announced the schedule for its new service between Dallas/Fort Worth International Airport (DFW) and Shanghai's Pudong International Airport (PVG), further strengthening its commitment to serving the Asia-Pacific region. Customers can begin booking flights on the new route Sunday, Feb. 2, for travel starting June 11.

 

[eolesen]

LAX is not such a dumb move when you look at the higher O&D potential.

The LAX-Asia local market is worth about 8000 pax a day across all airlines, while the SEA-Asia market looks to be worth about 1300 pax per day.

Let's say DL has 55% of the local SEA-Asia market (they look to have ~47% now), and AA manages to get 9% of the LAX-Asia market (they have more than 8.5% including their share of the JBA with JL).

Because of the larger volume of traffic @ LAX, AA still comes out slightly ahead.

Likewise, domestic nonstops added to feed those flights will generate higher O&D at LAX than they will at either SFO or SEA.

Sure, there's more competition, but with growth, 11-15% of LAX will always be more valuable than 65% of SEA.

 

[WorldTraveler]

except DOT data shows that DL and UA get much higher average fares from SEA and SFO to non-Japan Asia than any US carriers get from LAX.

There is no shortage of volume available to compete for at LAX but US carriers do not fare well against carriers from Asia outside of Japan which have much lower costs than US carriers

further, AA still has to split LAX with DL and UA who have hubs north of LAX which have the ability to serve not only the LAX market but also their own hubs.

LAX does not compete as effectively as a connecting hub as do other west coast hubs.

And alot of traffic that AA could push over LAX could just as efficiently if not more so connect over DFW and ORD and possibly PHL in the future.

Is it worth it for AA to try to slug it out for a couple of routes from LAX or put their efforts into making interior US gateways work to Asia where AA has a lot better chance of winning against the competition?

We will see as soon as Parker starts putting his thumbprints on AA's network but no one should be surprised if LAX-Asia becomes less and less necessary to AA's network.

 

[FWAAA]

well thought out commentary but I have to push back on some of your comments

1. You and others have said many times on here that LAX is not a good hub to Asia for US airlines because of the large number of Asian carriers and the quantity of seats they have in the market. That statement IS correct and it highlights why most of Asian traffic from LAX is carried on foreign and not US carriers..
you can't decide now to argue that LAX is a great gateway for AA without telling us how AA is going to overcome those same issues which have been part of the LAX-Asia market for years.

 
I don't believe that I've ever dissed LAX as a desirable gateway to Asia.   
 
WT, the primary point of my post was not to provoke you to once again edumacate everybody about how AA's strategy will fail.   We heard you the last two dozen times.   The point of my post was to refute what Parker told the pilots (as conveyed to us by nycbusdriver) about AA's potential in Asia.   As UAL and DL overfly NRT (or, in UA's case, rely on its JV partner for more NRT connections), the historical advantages of UAL and DL diminish.   
 

You have to accept that AA's future in Asia will reflect the reality of AA's position in the market and the fact that AA has not been able to do what AA needs to do in Asia but US' network very well might provide the network help AA needs to have a viable presence to Asia.

 
I couldn't care less whether AA's strategy succeeds or fails.   Again, the point of my post was to call out Parker on his irrelevant comments about the historical nature of UAL's and DL's advantage with their NRT hubs.    Once UAL flies primarily nonstops between the US mainland and various Asian destinations, then its NRT hub purchased from PanAm will no longer be relevant.    New AA can fly just as many nonstops if it chooses.   For cities not reachable via nonstops, UAL and AA have JV partners in Tokyo.   
As an aside, your posts use the term "you" a lot.   There's no need to personalize your posts.   Just post the facts and your opinions without all the "what you fail to recognize" and "what you must accept."   

Your lack of acceptance here and elsewhere isn't because you post facts with which people disagree.   It's not the content - it's the manner of presentation.    

 

[eolesen]

Your lack of acceptance here and elsewhere isn't because you post facts with which people disagree.   It's not the content - it's the manner of presentation.

If only I could double-like this statement...

It's not the message, it's the delivery.

 

[WorldTraveler]

of course it is always the delivery.

No, it is going after the delivery because you can't argue the facts - or not win.

No one here has forgotten yet how badly you two both attacked Doug Parker and attempted to argue that he wasn't fit merge US with AA and then for him to win the top spot.

It's also not any secret that I stated my preference for AA to restructure on its own.

But AMR's creditors did choose to merge with US and for Parker to lead the combined company.

You, FWAAA, can find my delivery objectionable but your comments about Parker in the same post that you made comments about my delivery highlight precisely why my comments were dead on, whether you want to hear them or not.

AA might have had a willingness to sustain a couple hundred millions of dollars per years in the Pacific but I am about as certain as tonite's sunset that Parker will not.

You two can talk all you want about what predicament AA was in and why it has had to do what it did, but the time for AA to deliver revenue sufficiently large to overcome its lengthy losses on the Pacific is here.

The simple fact is that DL and UA's legacy Asia position does give them market strength that will continue unless both screw up dramatically whether NRT is used as a hub or not. IOW, NRT doesn't make or break US carrier service to Asia but DL and UA would be completely asleep at the wheel if they don't use their current market position - which extends throughout Asia even if it is more heavily focused on Japan for DL - to build new routes in Asia easier than AA can.

If it is true that DL and UA's advantage in Asia will disappear when/if Japan flying is reduced, then it should equally be true that full Open Skies in all of Latin America should make it easy for DL and UA to overcome AA's advantage in that region.

You also keep hoping (and yes I said "you") that DL will just fold up its tent at NRT which I have said repeatedly they won't do without ensuring they have ensured their market strength and more importantly revenue is just as strong if not stronger elsewhere in Asia and that DL remains the dominant carrier in the local US to Japan market.

You can feel free to let me know if I am found to be wrong in a couple years but the notion that DL and/or UA are going to roll over to allow AA to build a Pacific route system is about as likely as expecting that DL will take over the North terminal at MIA.>

 

[robbedagain]

Bottom line is this WT is always right no other poster can be! Delta is king and no other airline can ever come close