American and United Fight to See Who Can Lose More Money in Small Cities

American, United

With international markets looking weaker for a variety of reasons, the US legacy carriers have turned their focus inward to domestic markets where fewer airlines and less capacity growth makes for a very attractive situation. United in particular, under the steady hand of its new President, has made it clear that it is going into the domestic market again in a big way. Last week it announced a slew of new flights, and now American is fighting back. This isn’t about a big hub like LA or Chicago, however, as fights often are. It’s about Champaign and Appleton. Or Charlottesville and Greenville. Is it insane? Oh heck yeah. But for the first time in a long time, smaller markets are getting some love. Enjoy that while you can.

It was only a couple weeks ago that former American and now United President Scott Kirby began United’s public push to build up its domestic presence. The airline rolled out dozens of new flights, several on entirely new routes. These new routes were clearly pulled from the American Airlines playbook that Scott was operating under until he headed north to Chicago last year.

In Chicago in particular, United announced it would enter Charlottesville (Virginia), Champaign (Illinois), Columbia (Missouri), Reno/Tahoe, Rochester (Minnesota), and Spokane. Tucson went year-round from winter-only before. This was about United stretching its domestic network to build up its hub, and it’s no coincidence that with the exception of Spokane, American already flew every one of these routes with no nonstop competition. Scott had seen the power of good, small connecting markets at American (and US Airways before that), and he wanted to get some of that goodness into the United network. With this move, American will become instantly less profitable in these markets. Scott is no dummy. He must have believed there to be room for another player in these market. But the question quickly became… how would American punch back?

American could have focused on competing in these markets or it could go back to old-school airline behavior and start throwing firebombs at United, hurting everyone’s profits along the way. American chose the latter. (To be clear, the former isn’t necessarily a great option either.)

Starting in July, American will launch nonstops from Chicago to Appleton (Wisconsin), Birmingham (Alabama), Boise, Colorado Springs, Greensboro (North Carolina), and Greenville (South Carolina). Why? Because United happens to be the monopoly nonstop carrier in each of these markets today.

Just in case this move wasn’t clear enough, American also announced it would start Dallas/Ft Worth-Spokane. It might not fly there head-to-head with United out of Chicago, but it can still serve some of the same connecting passengers over Dallas.

Does this make sense? Nope. I can’t imagine any of these markets would have started at United had Scott not been there to poke his old company in the eye. These are all small markets, markets that probably performed fairly well without much competition. But now, having another airline competing for a piece of a relatively small pie isn’t likely to bode well. It’ll get even worse if they start escalating further.

I’d like to think that I’m wrong and that this is a well-reasoned competitive response with real profit potential. But I can’t. Instead, this seems like an old-timey airline brawl where they punch and kick each other until in the end, they both knock each other out and everyone is worse off.

On the one hand, I can’t say I blame American for wanting to show Scott that it won’t let him do anything he wants without a fight. But on the other hand, if this fight spins out of control, then it could end up being a Pyrrhic victory.

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55 comments on “American and United Fight to See Who Can Lose More Money in Small Cities

  1. I can’t speak for all the cities, but airfares out of Appleton are very high due to lack of competition. In fact a coach fare from ATW is very similar to discounted first class out of MKE. Appleton has many corporations such as Kimberly Clark, Pierce, Great Northern, Georgia Pacific that could use come competition on business airfares. American is a welcome addition.

    1. but… it… all…. goes… to…. ORD.

      The way its going with AA showing up also, Deltas going to have to upgage again when there is a snowflake in the forecast for Chicago.

      I would have been more excited if ATW as getting something like… DFW or PHL.

      Additionally, the airfare is not that much cheaper out of GRB who also has AA, DL and UA, so I wouldn’t be holding my breath on fare relief soon.

      1. MSP is such a short stage length… its perfect for it. I mean, it is an hour or (usually) less gate to gate.

        Lately, they have been getting GoJetzzzzz and their crappy reliability. I’d rather take a punctual 9E/OO CR2 vs a delayed G7 CR7.

  2. How soon will they go “nuclear” and start fare wars in all these small markets? I mean, let’s poach the incumbent’s pax with super low unprofitable fares — we’ll make it up on volume!

    Guess the ’90s mentality has returned — NO Lessons Learned.

  3. CVG (Charlottesville) is a sizable college/hospital town with some healthcare businesses as well, so it has that going for it… Same with many of the other cities (Champaign, Greensboro, Colorado Springs, Birmingham, Boise).

    That said, with the exception of Boise and Appleton most of them appear to be only 1-2 hours away from a MAJOR airport (Dulles for CVG, ORD for Champaign, Denver for Colorado Springs, ATL for Birmingham, CLT for Greensboro/-ville), with other smaller airports in the same 1-2 hour radius (e.g., Richmond is only 1 hour from CVG).

    I wonder how many extra flights United and American can add during key times on the academic calendar (before and after school starts, around school breaks, etc) for these airports.

      1. Correct, my bad. Got the airport codes of places I have lived in mixed up. Still working on the coffee intake this morning.

    1. Yeah, I grew up in Small Market USA, and when you do that, you think nothing of driving to a larger city if there are better fares.

      As you mention with CHO-ORD, that route is only really going to work for those that want a non-stop flight to ORD. If you’re going to have to connect vs drive to IAD and get a non-stop, often you’ll just drive to IAD anyway.

      1. > As you mention with CHO-ORD, that route is only really going to work for those that want a non-stop flight to ORD. If you’re going to have to connect vs drive to IAD and get a non-stop, often you’ll just drive to IAD anyway.

        I don’t totally disagree with you, but I do think it will be interesting to see the numbers on that. If it’s a matter of driving 2 hours each way, paying more for parking, etc, vs connecting in Chicago, I think it’s going to depend a lot on the individual consumer as to whether they prefer a nonstop from IAD vs CHO to ORD to destination. Two hours each way is a long drive if it can be avoided, especially for students who don’t have cars (IAD to UVa was a $200+ cab fare each way 10 years ago). I’d guess that ORD will get much of the student market heading to/from the Midwest and West, as well as at least some of the business market (banks, companies doing recruiting, etc). For the townies and non-student leisure markets, things get more complex.

        If a nonstop is available out of say, RIC (Richmond, a little over an hour from CHO), or if a connecting itinerary is available from RIC with significantly better pricing, that would be an option as well.

  4. Cranky, you’re missing the point. Competition between AA and UA isn’t AA/UA’s problem. Sure they might feel some LF/yield pressure, but they’ll maintain their AP and RT fences and they’ll bring that higher-yielding traffic onto their hub flights where they do compete with NK/F9 and haven’t maintained their 1980s-era pricing structures.

  5. In light of these announcements, Chicagoans should consider themselves lucky. They really do get spoiled between two legacy hubs and two ULCC focus cities in O’Hare plus WN in Midway.

    1. You have no idea. I’m based here and having the competition is fantastic. I’d just like to see more International carriers. Still much cheaper getting to Europe out of JFK than ORD.

  6. Interesting that so many of these are college towns. I guess there is no chance of American restarting the old US Airways route from Charlotte to Athens, Ga. (Home of UGA).

  7. Say, “With international markets looking weaker for a variety of reasons” – there are no variety of reasons. If the bookings out of Europe are down at least 16%, as widely reported there, you can pin it safely on one reason. It is called Donald Trump. The country has become far less desirable a destination than it was. Trust me.

    1. You do realize that American among other US airlines have said there has been no impact to its bookings, don’t you? Emirates has they have seen their US bookings diminish.
      I’m still not sure there is any credible evidence of an impact to inbound US visits other than from the countries under Trump’s order.

  8. Granted, AA & UA will be flying small jets on these routes, but when they’re going into places that even SWA doesn’t serve, it seems dubious.

  9. AA has been serving COU with flights to ORD and DFW competition free for three years. They recently upgraded DFW service with CRJs instead of ERJs while leaving ORD service alone. However after UAs announcement they were offering service to ORD one of the daily flights on AA was upgraded to CRJs. Coincidence? I don’t think so.

    1. I live in COU and fly out of the airport about once a month. The flights, flights even on the larger CRJs are always packed. I am Exec Plat with AA and noticed the F class upgrades are even getting tougher which really surprised me. There are a lot of college students here from IL and TX. Kind of surprised UA did not announce flights to their IAH hub to seve the TX market. I am excited about the additional flights but also worry that it may impact our healthy AA loads. Will be curious to see how this plays out.

  10. Last month, at the big Terminal C North revo reveal, Kirby quipped that he expects AAs ORD operation to shrink significantly in the next 5 years and UA would capitalise on its retrenchment. If anyone would know it’s him.

    1. I’d like to know the justification he has for that statement. Perhaps AA has been working on some plans to improve its financial performance that he knew about but AA and UA both recognize that not being relatively similar in size is a recipe for revenue deterioration. AA underperforms UA in average fares from ORD both domestically overall and in most international markets they both serve but the question is really strategic; ORD is AA’s upper Midwest gateway and they have no other alternatives either in the Midwest or the Mountain states as DL and UA do. You need only look at NYC to see that AA took its foot off the gas while DL, UA and B6 kept growing and AA is now far less competitive there.

      Perhaps he is right that AA is looking to downsize ORD but if that is true, it creates a host of questions about AA’s future competitiveness.

      Three airline hubs in the same city is very hard to profitably sustain.

      thanks for posting that comment and for CF for this topic.

    2. That is a lot of “cheerleader” talk by Kirby. Look at the actions, not the words. Within the last year, AA added several gates in L concourse (I believe 3 gates). In addition to this, AA is adding an extension off of concourse L that will add an additional 5 gates. These actions completely contradict Kirby’s statement.

  11. Over the past couple of years, several airlines have said that Chicago has been named as one of the cities that most depressed their system revenues. With the addition of new capacity to AA-UA ORD-hub markets, low cost and ultra low cost carrier capacity additions to top leisure destinations which AA and UA are also aggressively chasing (ORD-FLL capacity nearly doubles by this summer while ORD-LAX capacity is shifting heavily to ULCCs), ORD air fares will remain cheap and several airlines are likely to continue to cite Chicago as a weak spot in their system revenues.

    1. Chicago has always seemed a city with too much competition. Not knowing any actual numbers I’d think that DL is making more $ off their hubs at DTW and MSP. Neither location required them to duke it out with another major and combined the O/D traffic has got to be more than whatever chunk AA or UA walk away with in Chicagoland.

      I know nobody would walk away from ORD but being there in the current environment doesn’t seem like it’s all that it’s cracked up to be.

      1. I am sure you are right on profitability. DOT data shows DL gets more local market revenue from DTW and MSP combined than AA or UA do at ORD. DL also is the largest airline in the Midwest as a whole and has more service to both Asia and Europe from DTW and MSP combined than AA and UA combined have from ORD. All of this is because of the dual Midwest hub strategy that NW built and DL has only enhanced. In many markets and overall, DL gets higher average fares from DTW and MSP than AA and UA do from ORD and DTW and MSP still have healthy low cost and ultra low cost carrier operations. AA and UA split a large market. DL has two medium sized markets and a whole region which generate more revenue for DL than AA or UA get at ORD.

        If AA is really considering reducing its ORD presence and there is reason to believe that Kirby might have been involved in a conversation or two about AA’s strategy, then the real question is what alternatives they have.

        In many ways, Chicago is similar to New York and Los Angeles. Everyone says they want to have a presence there but in NYC, DL and UA surpassed AA long ago while the same thing happened to UA in LAX. The difference in Chicago is that there are two airports and a low cost carrier – LUV – which carries almost as much domestic local Chicago passengers as AA and UA do.

        1. The other problem with Chicago is that it essentially halves gauges on competitive routes, which drives up casm, while pushing down rasm due to legacy v legacy competition. The thing is Chicago is one hell of prize if either actually drives the other out of Chicago but that seems unlikely.

  12. It’s worth noting that at least for AA these aren’t entirely new markets. Several have been served in one form or other in the past, multiple times even. For all the chorus we hear that “things have changed” it seems this is an example that the industry has resorted to its old failed tactics.

    I’m wondering where they are getting the spare regional capacity and how it will be staffed. I know both AA & UA have some slack in their 50 seat operation, but those of course are undesirable for many reasons including high CASM. Will they be able to get incremental staffing for these new services from their express carrier partners?

  13. I’m really curious how the STS-SFO thing turns out. I know that the airport was lobbying for DEN but there were no A/C for that run so they routed through SFO instead. I think at some point those flights will be split between DEN and LAX but it makes you wonder if we’ll see the return of commuter very-short-haul on routes like SFO-SCK, EWR-HVN, ORD-RFD, etc. RFD is a long shot but it AA and UA continue the ORD war….

  14. I assume that when UA announced their new service from ORD, most of those routes were already flown by AA. So how is this different?

    1. Bill – Well, United was responding to a perceived opportunity. Kirby knows those routes and thought United could be competitive on them (presumably).
      It was his knowledge and differing strategy that made United move. But for American, it doesn’t have any new information or change in strategy for this to make sense. This seems like a simple knee-jerk reaction to compete with United.

  15. We have a nice fleet of reconditioned DC-3s (with three-step Boarding Platforms) ready to deliver from Abu Dhabi desert storage.

  16. I wish when airlines announce rounds of new service, they would say where service was cut to start all these new flights.

  17. Yes, AA and UA may end up flying some more empty seats around, but in the grand scheme, this looks to me like a good thing. There are now just 3 major network airlines (or 4 with Southwest). With such market concentration, an old fashioned fight between 2 major airlines is a good thing. Not only do consumers see a bargain for a while, but both airlines signal to each other a strong willingness to compete.

    That willingness achieves a few things.
    1 – Persuades the Feds there is no cartel going on
    2 – Tells other airlines you are no slouch.
    3 – Ensures airline management stays on its toes and doesn’t get too comfy.

    Furthermore, some of these markets may well have room for a 2nd airline.

    We are not in the days of 15 years ago with about 10 major carriers at each others’ throat. Lots of major mergers have happened and synergies achieved. It’s time for industry competition to reassert itself and wake everyone up out of their monopolistic slumber

  18. It’s going to be interesting for Chicago. UA just restarted SJC-ORD after a 9 year(?) hiatus on that route. It looks like they are finally starting to become a more domestic focused airline.

    1. I flew AA ORD-SJC this month and was surprised they only had one flght. It was packed. Seems like there is some room for competition there.

  19. If you want to see a real battle ensue, wait until UA or AA restart flights from MDW to their other hubs…..Denver, Phoenix, New York, San Francisco, LA, etc., and see what happens. They have both been at MDW before, and when one entered/departed, so did the other!!

  20. I find it rather ironic that American is starting service to Appleton, Wisconsin just as Air Wisconsin is shifting its flying to United. Birmingham, Alabama), Greensboro, North Carolina, and Greenville, South Carolina already have strong American Airlines service and long time customers, so it seems to me that the new routes to Chicago are merely incremental enhancements to an already established American network. Spokane is already served from Phoenix, so the new service represents better network access. I could be very wrong, but it seems that these are relatively low risk expansions, looking to optimize both airlines’ networks. Time will tell.

    1. I thought Air Wisconsin had picked up some AA flying. Maybe I’m wrong.

      From GEG, AA’s new flight to DFW will handle South and Southeast connections. ORD will handle Midwest and east connections, and PHX will handle Southwest connections plus Hawaii. I think the DFW add makes perfect sense. Now if LAX were to start, PHX won’t make as much sense.

  21. Cranky, can you comment on Kirby’s noncompete clause at American? What is the statute of limitations on this?

  22. Somewhere out there, a regional airport director is being feted as a genius for no fricking reason. Probably getting a performance bonus too.

  23. In my experience living in a smaller market (Iowa City/CID), I’ve found myself taking a $20 coach to Chicago for cheaper ($45-$80) flights usually on Southwest rather than paying around $200-300 one-way plus shuttle costs to fly out of the local airport. The more competition the better, but I doubt that the airlines can get the cost structure of their regional flights low enough to attract more passengers who value price over time.

    1. This is as close to nailing it as I have seen in this. Southwest, Allegiant and Frontier generally fly large city to large city. ULCCs generally aren’t found in Duluth, Dubuque or other similar locales. If you are United and your only competition for regular service is American or Delta, you’ll take the risk because their cost structure is about the same as your’s and no one is going to do anything really stupid.

      Plus you have this big ole hub just aching for more passengers and the answer is simple.

      For what it’s worth, I understand it. Northwest used to own the Upper Midwest in places like Fargo, Sioux Falls. Same for American in parts of Texas and Delta for much of the Southeast.

  24. So why is it automatic that they will lose money on these routes? I have to believe that the $450 ticket from Cedar Rapids to MIA may have some value compared to the $99 LGA to MIA ticket, but maybe I’m wrong with that assumption.

    (Those are just examples for comparison’s sake, and not real fares searched today…put flame throwers away.)

    1. David – The fares a good, that’s not the problem. It’s the demand that’s the issue. Too much capacity out there and fares either plummet or seats go empty.

  25. Agree with the exception of AA’s new GSP (Greenville, SC) – ORD. WN used to fly GSP-MDW until they consolidated all their GSP flights to ATL, so there was one less competitor in the GSP-CHI market. This may be the only market announced where the new service is filling a hole, vs. AA being an a-hole. <— ha ha ha.

  26. I’m rural enough that I’d rather drive to ORD than STL even though ORD is a hell hole of an airport. I’m a tank of gas away from ORD (about 6 hours) and a 1 1/2 hour from STL, guess what’s cheaper? Usually ORD. It’s been this way since the TW debacle and subsequent debub by AA

  27. While I understand your concerns about additional seats, I think your fears are a bit overstated. These are tiny markets with very little additional resources being committed. Also, I have the sneaking suspicion that these markets can handle more inventory. In particular, I suspect the additional seats will result in a few more seats in the lower fare buckets: fares that will compel many locals to take these more convenient flights from their hometowns instead of driving to the big city airports to take cheaper flights. The legacy carriers have this advantage at the smaller airports; they basically have no low fare competition there.

  28. Is any of this related to American giving up two slots at Long Beach? I can’t think of anywhere they go from LGB but Phoenix, so does this qualify as places they’re deserting to go elsewhere?

    1. Don – No, that’s unrelated. American actually made that change awhile ago, but it’s just worked its way through the process now.

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