First Glimpse of American’s New York Strategy Shows Less Focus on New Yorkers

We had our first look into the new American’s schedule planning strategy last week when the airline announced how it would deal with its newly-reduced slot holdings at Washington/National and New York/LaGuardia. Slight refresher: As part of the settlement with the Department of Justice, American had to give up slots at both airports for the merger to go through. Now we know American’s plans for those airports. While much focus has been on what’s happening in Washington, I find the moves in New York to be far more interesting.

American Post Merger New York Moves

The merger-related bloodshed at LaGuardia was far less than at National. American had to give up only 17 slot pairs, 5 of which were already leased out. That means it only had to cut 12 flights a day. That shouldn’t have been hard considering American and US Airways already had overlap on routes like LaGuardia to Charlotte. But American’s planners didn’t go with the easy scheduling move and instead did something interesting. They’ve shifted away from catering to New Yorkers.

While United focuses on building the biggest single airport hub in the NYC area at Newark and Delta works to grow its double-hub at LaGuardia and JFK, American seems to have found a different way to use its precious slots. It’s going to target those who are coming to New York.

First, the airline opted to kill three routes entirely from LaGuardia. Gone are Cleveland, Minneapolis, and Atlanta. If you read my post last week, you might agree that the ability to get 5 award seats at the last minute post-snowstorm on that Minneapolis route might have been a clue it wasn’t doing so well.

These three markets are clearly places an airline would fly if it was trying to cater to those in New York. They’re good business cities with a fair amount of business traffic. But people in Minneapolis and Atlanta aren’t going to ditch Delta and those in Cleveland are highly unlikely to leave United to become American loyalists. Those flights were clearly put into place because American thought people in New York needed them.

Now, look at the list of cities that will be getting service after the shuffle is complete. We don’t know frequencies (though I do expect cuts in other markets will be needed to fund this), but we do know that there will be some kind of service from LaGuardia to Charlottesville (VA), Dayton, Greensboro, Knoxville, Little Rock, Louisville, Norfolk, Richmond, Roanoke, and Wilmington (NC). Do these sound like the most important business destinations for New Yorkers? No. But New York is an important destination for people in these cities. And that appears to be the reason for this shift.

Keep in mind that the new American has a lot of insight into what works and what doesn’t. After all, US Airways flew all of these routes (minus Little Rock and Knoxville) until recently when it swapped slots with Delta to get a bigger holding at Washington/National. US Airways made that swap because it knew it could make more money in Washington, but that doesn’t mean all those routes out of New York were bad. I can only assume that these were the best of the markets that US Airways killed before.

This is almost like Northwest’s old “Heartland” strategy to dominate cities in the upper Midwest. But instead American is doing this in cities in the South (with a little Midwest sprinkled in). These are all cities where the new American carries a quarter of the traffic or more. But before the merger, American and US Airways couldn’t independently serve all the needs of people in those cities. Now they can.

Look at a place like Dayton. US Airways serves Charlotte, Philly, and Washington/National. That’s great for people heading east and south but pretty worthless for those heading west and north. American, however, serves Chicago and Dallas. Combined, that makes for a very powerful network that can get people wherever they need to go.

But today if people in Dayton want to fly nonstop to New York, they have a couple flights a day on United Express to Newark or one a day to LaGuardia on Delta. Looking at data for the 12 months ending June 2012, American and US Airways, even without a nonstop flight, still carried more than 20 percent of the traffic in that market. With a nonstop flight, American can get more of that traffic and probably get more of the total business from those in Dayton.

On the other hand, there are markets like Wilmington. That’s a small market that American left after a brief attempt at Chicago service. But US Airways carries two-thirds of the traffic in that city with flights to Charlotte, Philly, and Washington/National. It’s the dominant carrier with Delta as the other real competition. And even though the new American is dominant, Delta gets the lion’s share of New York traffic because it has a nonstop. And New York is a big destination for people in Wilmington. With a New York nonstop of its own, American can take back a lot of Delta’s traffic.

We could do this for each market, but the idea is the same even if the market dynamics are all a bit different: American can add a flight from each city into New York and then be better able to compete for corporate accounts in those cities. (Little Rock is a bit different. It loses Washington/National service because of the slot losses there, so this New York flight may almost be like an apology.)

I had always assumed that American would want to shrink New York after the merger, but this could very well prove to be a better use of the slots. It’s certainly more creative, and they should already know what will work well.

[Original photo via pio3 / Shutterstock.com]

33 Responses to First Glimpse of American’s New York Strategy Shows Less Focus on New Yorkers

  1. David says:

    By dropping some of the major destinations from NY (yes, I know competing against a hub-to-hub route is hard), it also says to me that American is admitting it’s not going to be a top tier player in NY and that for now it will have to take the offcuts and dregs that other airlines don’t really want. It’s the kind of sign that an airline is losing the battle at a particular major city but doesn’t want to admit it yet.

    • Jason says:

      I don’t necessarily agree. NYC is going to be a blood bath if UA, DL and AA go all in, not to mention VX, B6 and WN are presences there too. If AA can fill planes by looking at the demand on the other end of the route, what does it matter if it’s catering to (*gasp*) non-NY’ers? NYC is a big enough destination that you don’t have to focus on its enormous customer base or treat it like hub to fill planes especially with the markets they are focusing on.

      Also, it’s not like they are dumping routes they are easily competing on. Look at MSP. Delta has 7 non-stops to LGA and 3 non-stops to JFK each day. ATL is even worse. Delta runs 16 non-stops to LGA and 5 non-stops to JFK. Throw in 6 more non-stops from AirTran/Southwest and it’s a market that I am sure AA can dump and utilize the slots in a more profitable manner. CLE is a little less defensible, but only if you believe that United is going to continue its drawdown there. It currently has 6 non-stops to LGA, while Delta adds another 3.

      If AA can fill their planes with high-paying business clients in smaller markets that value getting to NYC on non-stop flights, they are probably better off utilizing their LGA slots there rather than going head to head against hub fortresses of other carriers. I don’t think that’s an admission of failure rather a focus on getting profitable.

  2. A says:

    Are the AA flights to MSP, CLE and ATL on regional jets? I’m not so sure I buy the thesis that local traffic in fortress hub cities will always go with the dominant carrier. When I used to do a lot of flying to DFW and MIA my preference was AA as I knew that I’d be on a mainline 737 or MD80. The DL options were always regional jets which most people despise. Also the 50 seaters don’t even have an upgrade option available, in case hell froze over and my meager DL gold status got me something.

    Not saying I disagree with the heartland strategy but there is no way to gain another carriers frequent flier unless you compete.

    • Jason says:

      In each of these cases AA is running RJs while the dominant carrier is using mainline equipment. I doubt many local fliers are turning their back on their main FF program for a carrier running less frequency on regional planes. Now if AA puts those CR7s in a market that doesn’t currently have a non-stop option the local population is glad to have it.

  3. Simply put, it sounds like American is going to focus on areas of relative strength rather than continue to fight for share in areas where it’s relatively weak. As you point out, US Airways serves many of the “new” destinations already (and served them from LaGuardia in the past), and has a strong customer base in those places.

    The “conventional wisdom” of market share versus profit held that the best strategy would be to continue to “compete” and take a financial beating because you have an unwritten “mandate” to serve major business markets from a place like New York, even if you have a relatively weak presence in those places. Maybe that’s part of why so many airlines are no longer around.

    Instead of referring to these markets as “offcuts and dregs” as David does (as he puts forth the “market share” thought process), I prefer to call them potentially profitable niche markets where the airline might be able to make a profit (what a novel concept), instead of worrying about how good its route map looks.

    • Sean S. says:

      Yes and no. The profit versus marketshare argument makes sense if you’re thinking about a relatively new entrant in the marketplace, or one that has completely readjusted it’s place in the market, such as Spirit or Frontier. But in the case of the three legacies, marketshare is still an important indicator because unlike other airlines their market segment is the traditional business and corporate account, plus getting everyone and their grandma from point A to point B. Their route networks and hub strategies don’t generally lend themselves to simply picking off a variety of routes or not being strong in one area but not another, not when the customer they are serving is concerned with access and destination reach. Someone flying Virgin America or Spirit doesn’t care about whether or not they can use the same airline to get to Poughkeepsie as well as to Dallas or to Tokyo, but someone with a corporate account does.

  4. The majors always think they have to do everything the other guy does and we’ve seen over the decades how bad that idea is. Yes a lot of people fly between LA and NY so there is room for a lot of nonstops on different carriers, but AA is now thinking that maybe people in other cities go to NY a lot also and would like a nonstop. They know they can not be the big guy in the NY area, but who says they can’t make money with what they have and let the UA’s/DL’s/B6′s all loose money fighting each other in the major markets.

  5. Olamide Iledare says:

    What I would like to point out is that many of the cities that will be serving New York are all bases for Americans regional carries already making them relatively cheaper to operate. Also as they get crj9 and new 175s on line they will be able to offer first class and wifi for the business travelers. High ticket cost with regional labor cost equal pure profit smart move.

  6. GBKnoxville says:

    I find the Knoxville addition surprising as DL already serves TYS twice daily. Is there really enough demand from a small city in East TN to warrant two competing carriers? I don’t expect to see both of these last too terribly long. Were talking 600,000 metro here without any major corporations to fill the planes regularly.

    • CF says:

      GBKnoxville – I guess we’ll find out if there really is enough demand or not. It’s always possible that American thinks it has an in there and wants to challenge Delta. Maybe there isn’t enough room for both, but if American can win enough traffic, then Delta may be the one to flinch.

  7. Kilroy says:

    I like the move. Note that many of the cities added are a good 90+ minutes from a decent-sized or “major” airport, and that several (Charlottesville, Knoxville, Louisville, heck, even Richmond and Norfolk to a lesser extent) have significant university populations.

    I’ll be curious to see what the price difference between these cities and LGA runs relative to the nearest major airport, or vs getting to NYC with a connection. Leisure travelers may drive an extra hour each way or add a connection to save $100, but as long as the price premium is reasonable I can see a lot of business travelers paying more for the convenience and security of nonstop.

  8. GBKnoxville says:

    I don’t understand the Knoxville addition. DL already serves 2 dailies from TYS, in a very DL oriented market. Knoxville CSA is about 600,000 without a lot of corporate traffic unless nearby Oak Ridge Labs have some connection in NYC. Just don’t see those flights lasting with the two competitors.

  9. Olamide says:

    All the routes being offered to LGA are bases of Americans regionals carriers. It will be interesting to see if the choose to but there new 175 and crj900 on these flights with wifi and first class. Should be welcomed additions for the company travelers and will give american high fairs with relatively cheap labor.

  10. Ron says:

    So if American focuses less on New Yorkers, what does this mean for their international strategy out of JFK? Right now they serve 8 destinations in Europe and 4 in South America. With connecting traffic presumably routed through Philadelphia, who’s going to fill these planes?

    • CF says:

      Ron – Keep in mind that of those European destinations, many are focused on the other end already. Barcelona and Madrid are joint venture-partner Iberia’s hubs. And of course London is BA’s main hub. Even Manchester is going to have some benefit from the BA partnership. London is different in that I imagine American wants to continue to serve the biggest, most important business markets from New York ( London, LA, Sao Paulo…) but other than that, I wouldn’t be surprised to see a shift in destinations.

  11. JayB says:

    To AA/US, but to you all, whether UA/CO or DL/NW, and to B6, VX, F9, and WN/FL, when you are deciding to move into any route (not a hub-to-hub), remember these 6 things:

    1. Provide a schedule to facilitate day-trips (with some backup for when things go wrong),

    2. Show me the route is a true stand alone, point-to-point and not just another orphan spoke to hub route.

    3. Use mainline, not RJ aircraft, Save the RJs for where anything would be better than nothing. Otherwise, get rid of them,

    4. Offer a small, but special upgrade seating section on each on your aircraft (not a special first class section for which you might want to market, price, and sell business) to reward me as someone elite and deserving of special recognition. Skip your FF plan for the route. Simply demonstrate you will treat me well and expect that I will reciprocate with my lots of business.

    5. Offer a simple, reasonable fare, one that doesn’t change each minute of the day. I’m not expecting something really cheap, simply something we’d can both both agree is fair,

    6. In in all your actions, demonstrate you’re here first and foremost to serve me as a real customer in this, I’ll describe as to me, some route of importance. Don’t try to fool me by having me wind up as nothing more than pawn in your strategy to simply kill off the competition.

  12. Robert says:

    I know I’m going to get some flack for this but here goes. ALL the greater legacy air carriers are gone. Sad. And because of the recent mergers all my favorite airlines are history. By the way, enough of this rooster poop that its going to be all better for us as airline customers because of these incredibly wrong mergers. NW/DL. What a mistake that was! So here goes….I,for one, invite Air France, British Airways, KLM, Lufthansa, et al …to have a try at OUR DOMESTIC airline system. To see if they can offer better customer service. I know, customer service. It was once the GOLDEN RULE of most companies. Let AA, UA, DL, compete with these carriers by flying New York to Los Angeles, San Francisco. etc. I would love to have the type of service Emirates, Singapore, and Thai Airways would offer domestically. It would give them a run for there money and ARROGANCE! Let the free enterprise show itself in this country. I’m tired of being the BITCH of these three cattlecar-with-wings mega-buses. So what do you all say? Let’s turn it around, hopefully, we can have REAL SERVICE!

    • David says:

      Robert – plenty of non-US airlines have wanted to fly within the domestic USA for years. You need to get the people in Washington to agree to it first. Until then, it’s not going to happen

    • CF says:

      Robert – No flack from me. I wish they would allow cabotage, but I am not nearly as bullish as you are about that somehow working. Lufthansa is not going to come in and compete against United. Maybe you get some misguided airline try to come in and provide premium service, but I’d bet they get slaughtered. Still, I hate the artificial political controls that prevent them from trying if they want.

    • Paul C says:

      You don’t want to pay for, “real service”! Nor does the majority of the American populous. Besides, there’s a little something called, ‘cabotage’ that prevents foreign carriers from operating and carrying local passengers within the U.S.

      • reese says:

        TOTALLY AGREE! As a longtime Airline Employee, We hear “IT” all the Time……what has happened to the Level of Service…..blah,blah blah. Our response is “Where do all These Cheapskates,Bargain Hunters and Critics justify paying WalMart prices and expecting Ritz Carlton Service?”. Get real folks, unless You are Willing to PAY for Service, You are NOT going to Get It. First Class….? You need to Pay for It, not expect to be Upgraded to it. REALITY Check. Point, Set match. You have NO LEG to Stand On.

        • Jason says:

          At the risk of being snarky, what exactly is the quantifiable extra cost associated with pleasant and friendly FAs and GAs? Personally, whenever I’ve perceived a difference in service levels between carriers it usually comes down to how nice and attentive the staff is. IMHO I think Delta does the best job among the domestics. Most of them seem to really give a crap while I can’t say the same for some of the others.

  13. Ryan says:

    It is more or less the exact same strategy Delta is using at LAX. Like New York, Los Angeles is a key business market with a massive population and major tourist appeal. Like New York, Los Angeles is artificially constrained (by gate scarcity rather than slots) and hotly contested between several major airlines – both “legacy” and LCC. While an airline like Virgin America is clearly adding highly competitive routes that cater to Angeleno travelers, Delta has focused on linking underserved and unserved niche markets to LAX. That is to say, bringing travelers from Indianapolis, Spokane or Guatemala City TO Los Angeles, while facing little to no competition.

    DL may not offer Angeleno travelers nonstop options to key markets like Chicago or D.C., but it sure is an attractive option for an Indianapolis-based traveler, for example. Given that folks in Indianapolis tend to pay higher fares than those in Los Angeles, it makes sense to me! Meanwhile, Delta has started to add increasingly important (and competitive) markets to its Los Angeles roster: i.e. Boston, Dallas, Nashville, and San Jose (CA). Delta has become increasingly attractive to Angeleno FFers, but they didn’t have to get their shirts handed to them like Virgin America did.

    I think American is onto something here with New York. Delta seems to be finally gaining ground in Los Angeles, and I daresay AA can do the same in New York.

  14. I’m glad to see that they’re focusing on profitability and not market share. Focusing on market share was one of the things that brought down General Motors. (They were so fixated on getting back to 30% market share, that they weren’t really worrying about selling cars profitably.)

    But the question I’ve got is, AA/US essentially have what US had before to work on this, why US implement this strategy back before the merger?

    • CF says:

      Nick – When US looked at its options, it felt that a slot at National was worth more than a slot at LaGuardia for its operation. That doesn’t mean that it didn’t have a good way to use some of those slots at LaGuardia, but it could get a better use by trading for slots elsewhere.

      Now, it has those slots again but I don’t think it could get the same deal as it got before if it wanted to ditch them. First, it couldn’t get approval to grow at National anymore. And second, nobody is as aggressive at wanting those slots as Delta was back when it wanted to grow New York.

      The last piece is that with American, US Airways has more ability to serve these markets. Looking at Dayton, it could only go east and south before. You add NYC and you still can’t get people west and north. But now American can be a total solution, so NYC is a cherry on top of that package.

  15. steve says:

    US wasted those LGA slots in the past by clogging the airways with 35 seat Dash-8′s. I hope the new AA will see the value of using larger aircraft as both LGA and DCA will never have another runway and the slots need to bring real value to the airline.
    The argument is that small cities will lose service to these two airport and that they are entitled to these flights is nonsense. All those small cities can connect through many hubs to reach LGA and DCA. Where did this entitlement attitude come from? These slots are a rare commodity and need to be used for the benefit of the majority of the flying public, not for a 35 seat aircraft which many times is not full.

  16. Bob Turner says:

    As an Elite with AA and living in Dayton, the US merger ( or acquisition by) is been great for the reasons you mention. For me, going in to the east or south meant backhauling to ORD and taking a longer flight. Most of my travel is west so DFW has always been my preferred hub. The merger will be a big benefit in the long run.

    Some background on Dayton: used to be Piedmont’s northern hub in the eighties. That was until US bought them in 1989. However DAY fares have been traditionally lower than CVG. Consequently we get lots of people from from Cincinnati driving up to Dayton (less than an hour) to beat the DL fares.

    • I used to live in the Dayton, then Cincinnati area. I had a few friends who were DL loyalists when CVG was a big hub for DL. More than once they’d drive to DAY, fly to CVG then onto their destination. Seemed like a waste. Although often on their way back they’d go via ATL.

    • Jason says:

      CVG consistently has lower fares than DAY now in addition to a lot more direct points. But it has taken a LONG time and Delta basically abandoning the hub to do it.

  17. Marc says:

    Does the addition of the day lga flight have anything to do with Psa airlines having their base in Dayton ?

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  19. George says:

    Cranky, I for one am very happy. I lived for over 40 years in NYC where accumulated 4 million AA miles and now live in Richmond. For many years NYC was THE #1 destination for flights from RIC (as it should be), but now it is #4. Prices for the 288 mile flight are often as high $900 because, while DL flies to both LGA and JFK and UA flies to EWR, neither has had competition since US sold the LGA gates to DL and JetBlue dropped service to JFK. I personally have used the 7 hour train trip rather than pay the last minute fares.

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