Across the Aisle From US Airways’ Planning Chief on The Importance of LA and New York to American … and More

Yesterday was what is likely to be the last US Airways media day. Next year, the merger with American will be done, and we’ll all be heading to Dallas/Ft Worth for the first American media day. Since the merger has yet to close, there wasn’t a ton of news to break today, but I did have the chance to sit down and have some really good conversations.

Next week, I’ll have an Across the Aisle interview with US Airways Chairman and CEO Doug Parker. But today, I’m posting my interview with Andrew Nocella, Sr Vice President of Marketing and Planning.

While Andrew doesn’t even know if he’ll have a role in the new combined airline yet, in our talk, we discussed everything from what the new American might look like in LA and New York to what US Airways is going to do about those turboprops that are reaching the end of their useful lives.

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Cranky: I’m curious about your views strategically on LA and New York in particular.

Andrew: Our strategy as US Airways is going to be different than Across the Aisle US Airwaysour strategy as American Airlines; it has to be. We’re going to be changing in a lot of ways, as has Delta/Northwest and United/Continental, in my opinion. When you look at the business centers that LA and NY are, they’re economic engines for the country and for the airlines that fly there.

For US Airways, we had, I don’t want to say a boutique or niche approach, but I don’t know what the right word would be. We recognize where our strengths were, where we could deliver a great product at an efficient cost and make money and that wasn’t going to be in New York or LA as a US Airways standalone. But as the new American, we think it’s going to have a major presence in New York and LA. It needs to. And that’s where the corporate business is.

The corporate business in New York and LA will determine if we get the corporate accounts in Indianapolis and Chicago and Orlando and all those other cities. So we’re going from US Airways and now we’re gonna be one of four big airlines in the country. And at LAX, all four have a material presence. And in New York, three and JetBlue have a material presence. The dynamics of operating in an environment with that many airlines is different than we’re used to, but American is used to it.

Cranky: So it’s the corporate accounts that are going to drive this. It’s not, “we’re going to fly to Orlando because a lot of people want to go to Orlando from New York.” It’s, “well, we’ve got corporates, and they’re going to pay enough to make the flight work.”

Andrew: Yeah, I mean we’re going out there to compete hard against the new United and new Delta. We’re going to have to offer a product range in term of flight services and scope that allow us to do that and that means having a big presence in New York and LA. I’m so glad we still have the Shuttle and it’s going to mesh very well with American’s long haul opportunity in New York.

Cranky: Do you wish you hadn’t done the slot swap with Delta?

Andrew: I was afraid you were going to ask that question. I have to admit, I do not. The reason I don’t is after the merger closes, we’ll have about 175 flights a day out of LaGuardia. I think that’s a sufficient number to serve New York combined with 100 flights at JFK. We’ll have 300 flights a day out of New York City. The two others guy have close to 500. Five hundred is bigger than 300 but 300 is still a lot. It’s a gigantic presence and we can craft it so it works for the company.

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Cranky: How do you see JetBlue fitting into that in New York and Alaska in LA?

Andrew: In the case of Alaska, it’s a really great relationship and American has recently expanded it. We don’t know a lot of the details in terms of the economics but I’m very bullish with what it brings to American. In the case of JetBlue, we haven’t looked at any details to be honest. That’s something we just haven’t gotten to at this point.

Cranky: They seem pretty interested in continuing the relationship.
Andrew: I’ve definitely seen some quotes here and there.

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Cranky: In a place like Phoenix, I see it certainly having a place in the airline. It’s the west hub, it’s the option you have. But how do you see it evolving because your costs are higher as American?

Andrew: I think Phoenix, and across the whole airline, we have some cost synergies and some cost dis-synergies and a lot of revenue synergies. As we spread this across the network, we see a positive P&L hit. We think that’s true of Phoenix too. We’re going to use these cost efficiencies and revenue efficiencies to make what we have better. All that being said, Phoenix’s performance has been outstanding over the last 12 months. Highest improving margin hub recently. I think we’ve made a lot of changes and the competitive environment in Phoenix is in a way that the hub is profitable.

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Cranky: How do you view the regional market right now? You’re inheriting a lot of 50 seaters. Delta and United have walked away. Is there an opportunity?

Andrew: As an industry and as an airline we’re moving away from them. We just did a deal with Mesa where we took out 9 Chautauqua ERJs and replaced them with CRJ-900s. We’re working on another 4 for 4 swap this summer. My macro view is that the larger the supply of 50-seaters becomes, the lower the pricepoint. So things over time come to an equilibrium because the aircraft are not just going to the desert to sit. That being said, they’ll never be the same numbers as before. And I do think the one complication with my theory is the engine costs. Overhauling the engines is a very expensive situation. Unless we can find a way to do that, those aircraft are in danger of never flying again.

Cranky: How are you going to replace your props?
Andrew: That we don’t know.
Cranky: They’re old.
Andrew: They are old.
Cranky: And there’s nothing there.

Andrew: Every time a manufacturer comes to visit us, I ask for a small and slow prop. I don’t need a large and fast prop because that’s just like a regional jet with props. Nobody seems to want to produce it for a lot of different reasons. So there is no effective replacement at this point.

Cranky: How long can they keep going?
Andrew: I think you’ll see Dash-8s in our fleet through 2017/18/19/20.
Cranky: And you don’t know what’s going to replace them.
Andrew: No. It’s a dilemma for the small communities that we serve.

Cranky: I look at Chicago and I see a lot of nearby cities that American serves that United doesn’t and that seems perfect for a prop.

Andrew: Yeah, even from Miami to the nearby islands which used to be ATRs. They’re now on regional jets. The system is being subopimtized because there isn’t a viable 40 to 50 seat low cost slow turboprop available in the markepltace. It’s a frustration. We’d like to find a solution and we’d like to find a solution for our employees at Piedmont too.

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Come back next week when I’ll post my talk with Doug Parker about how he spends his time these days.


26 Responses to Across the Aisle From US Airways’ Planning Chief on The Importance of LA and New York to American … and More

  1. Ben says:

    I know Bombardier doesn’t make a turboprop in this category anymore, but doesn’t the ATR 42-500 fit into the 40-50 seat turboprop market he is talking about? I thought the thing with ATR’s were that they were slow, at least when compared to the Q-400. Is the latest generation of that plane a lot faster than the older 42-series? Or that much faster than the Dash-8’s US currently has in its fleet?

    • Bravenav says:

      The ATR still has the de-icing legacy attached to it and could never be used in the northern hubs.

      • it seems odd that someone hasn’t figured out the ATR’s alleged de-icing problem by now.

        • Ben G says:

          It seems that they have, however the flying public won’t take the time to notice that. To the uninitiated, ATR still equals “bad plane”.

          • Ben, I’m guessing the vast majority of the flying public couldn’t tell an ATR from a Q-400. I remember the Indiana crash fairly well (as I was living in Chicago at the time); and at the time, I recall many media outlets were reporting that the aircraft was a Saab.

          • Ben G says:

            By looks, no they probably couldn’t. But if they see ATR on their ticket, that might trigger some panic. Don’t get me wrong, I’m a fan of turboprops for shorter segments, but it might get pax to look at booking elsewhere to avoid the ATR.

      • SJU says:

        American Eagle/Executive Airlines flew ATR’s out of DFW not too long ago (between 2008-2010) and they flew even during winter precipitation and de-icing.

      • John C. says:

        Other than AvGeeks, does the flying public really even know about the ATR icing issue? It was a long time ago and the general public just knows ‘jet’ and ‘prop’ as the two plane types.

    • Ben G says:

      The ATR42-500/600 have a roughly 10-30 knot speed increase over the Dash 8 100/200. However the range of the ATRs is a bit less than that of the Dash 8s.

      The bigger issue with the ATRs might be the public perception of them in icing conditions. After well-publicized incidents in the 1990s, all of the North American operators moved them out of temperate climates. Though there have been modifications made in the time since and the type regularly flies in Northern Europe, the stigma surrounding the ATR brand might drive too many customers away.

      • Sounds like the ATR needs to do an MD-95 to 717 brand switch.

        • Ben G says:

          That was my thought, a rebranding. Call it the Airbus A-042 and you might have a winner.

        • Bravenav says:

          If they depended on US sales, then perhaps so, but ATR is doing very well in other areas of the world. Also, the 72 is where their bread and butter is, not the 42, even though there is no viable competitor to the 42. Which goes back to the point Mr. Nocella was making that there is no realistic replacement for the small turboprop.

          • I’m sure if they could get US sales with a rebrand they’d be all for it, provided they could get enough extra revenue to make the rebrand worth it.

            That being said, would people really bypass an airplane specifically because the model type has had a crash? If that were the case we wouldn’t fly MD-80s, 737s, 747s, or A320s.

    • CF says:

      I think the problem with the 42 is that it’s not going to be as low cost as they’d like it to be. As Bravenav says, the 72 is the bread and butter. The 42 is more of a shrunk version of that. I don’t know the economics myself, but that’s the feeling I get. It’s also not as versatile as the Dash-8 with the airports it can fly into.

      As for the icing thing, that was a long time ago and I don’t think the public would have a really negative reaction to it today. (And the ATRs being sold today don’t have that issue.)

  2. It does sound like the ‘new’ airline wants to be a business traveler airline and will put all their efforts into those markets more then leisure markets or the leisure traveler. Just how many of those business markets are via PHX that can’t be done via DFW? It’s not like their ‘west’ hub is more north to build up a north/south west coast market like UA at SFO or even DL at SLC.

    • I wouldn’t want to backtrack if I was traveling between Long Beach and cities like Albuquergue, El Paso, Denver, Omaha, Kansas City, etc.

      Just to put another point I’ve seen raised regarding Phoenix in perspective, metro Phoenix has more people than the entire states of North Dakota, South Dakota, Montana, Idaho and Wyoming combined. While Denver and Salt Lake City look like more centrally located hubs on a map, The north western part of the U.S. isn’t nearly as populous as the southwest (even without the massive opoulation of the L.A. area factored in).

      Last time I checked, airlines fly people and cargo. The more potential customers you can reach, the more possible traffic you can generate. I also think airlines have a better idea of traffic flows and potential revenue generating possibilities than do airline geeks (and that includes me).

    • CF says:

      David – I think there are a lot of smaller cities that can be served through Phoenix and not Dallas. Places like Long Beach, Burbank, and Oakland come to mind. Plus, they can support more frequent flights to Phoenix even if they could support a flight or two to Dallas. So Phoenix would be able to provide a more business-friendly schedule.

  3. Erik Huey says:

    Brett, you and I both are now ex-Cactus folk…lol. Talk about reservations for a minute, in your opinion which center(s) will survive and which you think will close? My former colleagues at INT (US) are a little nervous, many of whom have been down this road before. Just an hour east of there is AA’s RDU res center. And then there’s US’s center in RNO. Your opinion?

    • CF says:

      Erik – I have no clue. You would think there would be an opportunity to consolidate the number of res centers in the US, but I wouldn’t even know how to guess which ones would survive.

  4. Gary Smedile says:

    AA and US have some sorting out to do regarding pricing. Lately, as I make business travel plans between “points A and C” with a connection at either, for example DFW or PHX, US is noticably less expensive and still with convenient schedules. If the new carrier over-absorbs the current AA pricing system, watch business travel migrate away. (btw, it’s a mixed bag if I consider UA and DL alternatives with overall, UA being closer to AA and DL closer to US rates).

    On a different note, please tell me that’s not a lit cigarette in the “across the aisle” guy’s right hand. No wonder the woman seems to be recoiling!

    • Sanjeev M says:

      What you’ll see is premiums for nonstop and cheaper fares if you can connect. If you really think about it, the current US Airways hubs of CLT and PHX are the king of low yield connections to everywhere.

      If you want DFW-LGA or DFW-DCA you pay for it. Else accept the cheap connection via CLT.

      Also re: a previous point US Airways and AA have historically been the airlines of choice for businessmen in the northeast and midwest respectively. Both are known (particularly US) for price gouging at their fortress hubs (e.g. former PIT). So its only fitting that the new AA is the king of corporate travel and AAdvantage is #1, despite DL doing everything in their power to change that.

    • CF says:

      Gary – It is indeed a lit cigarette. I’m not a smoker, but there’s nothing wrong with a little retro fun.

  5. Mke says:

    50 seats on an ATR is still too many to serve those small communities with decent frequency – i think they are looking for a newer version of something like an EMB-120 with around 30 seats. must be a reason skywest is still flying them.

    (which was, by the way, introduced around the same time as the ATR so neither are exactly new )

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