Ever since the US Airways days, the current American management team has been completely and totally focused on building service in hubs and only in hubs. That has frustrated many, especially those in logical spokes that could benefit from more service. This is finally starting to change, if ever-so-slightly. Today, American is announcing double-daily flights between Austin and both Boston and San Jose along with Saturday-only service to Los Cabos. I spoke with Vasu Raja, SVP Network Strategy at American, and he confirmed that this isn’t just a one-off. If it works, then American is open to more non-hub opportunities.
When this management team was running America West and took over US Airways, it ran away from non-hub flying quickly. After the US Airways media day in 2012, I wrote this:
This year effectively marks the end of the US Airways transition to focus its flying on its Phoenix, Charlotte, and Philly hubs along with its Washington/National focus city. In 2006, only 83 percent of flying touched these cities, but with the completion of the LaGuardia slot swap with Delta that gave US Airways more slots in Washington, it’s now up to 99 percent. All non-hub flying from Vegas is gone. Same goes for LaGuardia except for the Shuttle to Boston along with Pittsburgh flights. Nearly all Pittsburgh and Boston flying is gone with the exception of a few random markets like Boston to Buffalo and Pittsburgh to St Louis. In its hubs, US Airways is the number 1 airline, so it’s playing to its strengths.
That may have made sense for US Airways at the time, but that doesn’t mean it makes sense for a larger American. US Airways was, without question, flying some really stupid routes that lost a lot of money. Cutting those routes made sense. But as Delta has shown, coming into non-hub routes from a position of strength can work quite well, at least during times when the economy is good. It’s also very low-risk.
Austin is one of those markets Delta has targeted, and it is now American’s first test market. For what it’s worth, I don’t think American’s response here is all about Delta; it’s really more about American.
Despite all the noise Delta has made about building up Austin, American has the second most flights at the airport behind Southwest. For the first half of this year, it had just about 18 percent of departing passengers. Load factor sat at around 85 percent, so those planes were full.
There are only so many flights you can run to Dallas/Fort Worth before you see little additional value. With an average of more than 10 daily flights in the market, American could grow flights to its other hubs, but the greater utility is in connecting Austin to other important spokes. The airline has contracts with some of the largest companies in Austin, and they constantly tell the airline what they want. That seems like the best place to start if you’re going to build out a network. It won’t surprise you that the tech markets of San Jose and Boston are two of the more desirable destinations for Austin corporate accounts.
New destinations that serve the needs of the Austin corporate accounts will do two things. First, they will pull some people off the nonstops on other airlines, assuming the times work. Second, they will free up seats on the flights to the hubs that those corporates are currently taking for connections.
From an airline perspective, non-hub flying should be interesting when the demand is there. It’s particularly interesting because it isn’t constrained by the hub time requirements. Think about it this way. If American is going to send a flight to Phoenix, it wants to make sure it arrives in time to connect to a bunch of westbound flights. The same goes for all of American’s hubs. Airplanes need to leave Austin at specific times in order to arrive at the hub in time for optimal connections.
That means the hubs are tightly-scheduled, and this can make for inefficiencies in the outstations. If American can find a way to slot additional flights in between hub flying without increasing gate or employee needs, then costs go up only a little while revenue opportunity goes up… somewhat more than that.
In Austin, American has more than 32 flights a day and it looks like those are spread over 5 gates, though American does share one of those gates with Air Canada. With fewer than 7 flights per gate, there is room for more. If American can fit these flights into the existing schedule without needing more resources, then it can probably also juice utilization and get the additional flying for relatively cheap.
The revenue side is all dependent upon those corporate accounts. Again, I turned to Diio by Cirium to help get me numbers. These are for the year ending 2Q 2019.
The Austin to San Jose market sees right about 400 passengers per day each way, and 335 of those fly nonstop either on Southwest, Alaska, or Frontier (but mostly Southwest). American, however is by far the largest carrier taking connecting passengers with about 23.5 passengers per day. That is a third of all connecting traffic. It runs slightly more than half through Phoenix. The rest are split between Dallas/Fort Worth and Los Angeles.
The Austin to Boston market is similar, though larger, with 500 passengers a day each way. There are 345 people on average flying nonstop on Delta, JetBlue, and Southwest each way. American again has the most connecting passengers with more than 41 passengers a day (or at least a VERY close second to Southwest), and that’s a quarter of all connecting traffic. As for routing, it’s a mixed bag with 14 going via Dallas/Fort Worth, 14 via Charlotte, 5.5 via Chicago/O’Hare, and 5.5 via Philly.
In both these cases, American is able to pull in decent connecting traffic despite a plethora of nonstops on other airlines. The math for adding nonstop flights has to rely on American both pulling most of those connecting passengers on to the nonstops and filling the rest with traffic it takes from other airlines. Assuming these are routes that are in high demand by corporate customers, this won’t need to run full to make money, especially if the variable costs are low.
Whether this works or not remains to be seen, but as Vasu explained, the airline needs to be trying things to figure out what works. He pointed to last year’s ill-fated Bologna flight. They knew it was a risk, but they thought the odds were good enough that they took a swing. It did not work, and it won’t come back again next year. But in the end, what did the airline lose? Maybe it lost a few bucks, but in the scheme of things, it didn’t lose much. It has to keep trying and fail if it wants to succeed on the whole.
In the past, when American was trying, it was only trying if a flight touched a hub on one end. It sounds like going forward, American will finally be open to other opportunities.
