American is “Revisiting Some of the Fundamentals of Latin America”

Last week, American announced a slew of changes in Latin American markets. Some routes were cut while new ones were added, and there were frequency changes as well. This may seem like an ordinary schedule change, but there’s something more to it than that. As Vasu Raja, American’s Vice President of Planning, explained to me in an interview, American is “revisiting some of the fundamentals of Latin America.”

Don’t get too worked up there. This isn’t suggesting that this is just the tip of the iceberg on some enormous, imminent change. Rather, it’s just American finally taking a look at the part of the network that has required the least attention since the merger.

Latin America has been somewhat on auto-pilot, especially compared to the other long haul regions. I kind of envision it like this over the last few years.

Asia, as we all know was a weak spot in the American network, so the airline has poured a ton of resources into developing Los Angeles as an Asian gateway. And in Europe, the airline has to rationalize the pre-merger American and US Airways operations while coordinating with its joint venture partner. In Latin, however, there’s no joint venture partner, pre-merger US Airways had little presence to speak of, and American had a dominant, profitable position. The squeaky wheel gets the grease, and Latin just wasn’t squeaking.

Sure there were some changes needed when the Brazilian economy went into a tailspin, but that was reactive and not strategic. What triggered the airline to act now? Strangely enough, it was Cuba. When Cuba opened up to commercial service, airlines jockeyed for position. American, having its main Latin hub in Miami, was uniquely positioned to take advantage. After some time and a whole lot of changes in the industry, American has Havana generating profits in line with the rest of the Caribbean network, according to Vasu. It sounded like he was somewhat surprised by it, but it shows the importance of being in Miami. South Florida is good in general, but Miami is a very uniquely good spot.

So with that in mind, while American waits for its joint venture with LATAM to be approved, it decided to revisit the Latin American network and take some chances. Some of these new routes may work, and some may not. But all are worth taking a shot. Here’s what’s changing.

• ADD: Dallas/Ft Worth – Cancun (additional flight)
• NEW: Dallas/Ft Worth – Oaxaca
• CANCEL: Dallas/Ft Worth – Quito
• CANCEL: Dallas-Ft Worth – Rio de Janeiro/Galeao
• ADD: Dallas/Ft Worth – San Jose del Cabo (additional flight)
• ADD: Dallas/Ft Worth – Torreon (additional flight)
• NEW: Los Angeles – Buenos Aires/Ezeiza
• DECREASE: Los Angeles – Sao Paulo/Guarulhos (drop from 5 to 4 weekly)
• ADD: Miami – Antigua (additional flight)
• CANCEL: Miami – Belo Horizonte
• ADD: Miami – Caracas (additional flight)
• NEW: Miami – Cordoba (Argentina)
• NEW: Miami – Georgetown (Guyana)
• NEW: Miami – Pereira (Colombia)
• DECREASE: Miami – Rio de Janeiro/Galeao (drop from 7 to 5 weekly)
• DECREASE: Miami – Sao Paulo/Guarulhos (cancel one flight)

Some of these moves are just responding to demand and aren’t really a shift in strategy. (Even the Caracas increase is solely based on demand. American only takes payments in dollars, so it has no currency issues that plagued the airline previously.) But there are a few worth looking at in greater detail.

Brazil Cuts Lead to Opportunity Elsewhere
You’ll notice a fair bit of Brazil getting cut back here. While the Brazilian economy tanked a few years back, it has staged a rally since then. The problem is that Brazil was just over-heated before, and the rebound hasn’t come back anywhere near the lofty heights where it once was. As Vasu says, the “demand environment has changed.” So American looked at its portfolio of Latin flying and decided to whack from the bottom.

Look at Belo Horizonte, for example. That market has consistently lost money, but American continued fly it. Now, the route is gone, and the airplane will be used to fund the new flight to Cordoba. Cordoba is an interesting market for a few reasons. First, it’s a leisure-heavy market with a stronger US-point of sale than other Latin markets. It also apparently has a counter-cyclical high season (northern summer) compared to other deep Latin destinations. Lastly, it is a pain to reach today. The only decent connections are on a Copa narrowbody via Panama, an option via LATAM connecting to a narrowbody redeye from Lima, and Santiago. The most convenient option would seem to be via Buenos Aires, but that generally requires an airport change. For most cities in the US, this means two stops, and for those in the premium cabin, most options are not very nice. So it’s messy, and American thinks it can find a niche.

You can also look at Miami to Sao Paulo. American is cutting its daytime flight heading south so it can use the airplane elsewhere. That market was “an ok flight” when Brazil’s economy was at its peak. Now it’s not. But this could be an opportunity to go with more seasonal service. The things American has experimented with elsewhere in the network haven’t really made it to Latin America yet. This is something I imagine could come back down the road, if only for certain parts of the year or certain days of the week.

Letting Employees Choose Routes
Georgetown, Guyana is a strange market. It’s one that has generally been served from the US by fly-by-night charter operators and not by scheduled airlines. Apparently, American didn’t even have the market on its radar until a pilot sent along some statistics that helped American take a harder look. Falling in line with the Pereira and Cordoba options, Georgetown looked like a developing market that American could make work thanks to the Miami hub. It decided to give it a chance. It helps that this is an A319 market, so it doesn’t require a big and expensive aircraft. If it works, that pilot deserves a thank you.

Bulking Up In LA
Lastly, there’s the new LA – Buenos Aires flight. This will operate three times a week, and the Sao Paulo flight will now drop from 5 to 4 times a week. So there will be one daily flight (with the destination alternating) from LA heading down to deep Latin America. My initial reaction to this was “oh good, American isn’t losing enough money on fancy long haul routes from LA. This should help.” But Vasu says I’m wrong.

Vasu says both the Dallas/Ft Worth and Miami flights to Buenos Aires are doing “really well” and the biggest connecting market over DFW to Buenos Aires is Los Angeles. In that sense (and that sense alone) this is like Austin to London. American’s biggest origin for connections on its Dallas/Ft Worth to London flight was Austin, and now it’s big enough to support its own nonstop.

This isn’t London, of course, but it’s apparently a large business market, which is attractive. Further, there are a lot of markets on the West Coast that American can’t feed into Buenos Aires very well today, and it thinks that’s an opportunity. By starting the LA flight, it can not only serve the local market, but it can free up space on the Dallas/Ft Worth flight for others, and it can open up new connections from the west coast. All that being said, I continue to be skeptical about the entire LA build-up, and this is no exception.

While these moves don’t all appear related, they do have one thing in common. American is paying more attention to Latin America now, and it’s going to be more active at making changes when warranted. If markets like Cordoba and Pereira work, then I imagine we’ll see even more experimentation at making what is already the best Latin American network for a US airline even stronger.