American Begins to Look Beyond Its Rigid Hub Strategy With New Austin Service

American

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.

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18 comments on “American Begins to Look Beyond Its Rigid Hub Strategy With New Austin Service

  1. It’s not just the America West/US Airways management team at American that has been incredibly hub-focused. The pre-merger American had the cornerstone strategy, with a similarly high fraction of flights touching one of NYC, MIA, ORD, DFW, or LAX. So I think it was a merger of the two most hub-focused of the final six legacy airlines (with the possible exception of Continental).

    Major difference was that I think you could make a better business case for pre-merger American having more non-hub flying, especially to joint venture hubs

  2. Given that American has watched Delta overtake American in RDU and SJC, both former AA hubs and at JFK, American has no choice but to fight back, esp. given that RDU is in AA’s CLT hub backyard, just as AUS is to DFW.
    Given that DL made announcements of three new focus cities at BNA (also a former AA hub), AUS and SJC at the same time, DL was probably stretched a little thin in doing much even while continuing to build up BOS and SEA and its announcement regarding Latam and the implications for raiding AA’s Latin America business esp. in MIA.
    AUS, BNA and SJC are both very hot markets and, AUS and BNA esp. have little current excess gate capacity for anyone to grow while SJC’s newer concourse provides some near-term growth capacity.
    I’m not sure we can definitely say that AA is going to start building its own focus cities or if their growth of AUS is intended to match DL’s focus city growth but AUS should be the easiest market for AA to grow, within AA’s gate capacity.

  3. I hope this is a broader strategy of going outside of the lines. AA should be defending their historically strong positions in AUS, BNA, SJC, RDU, BOS, JFK. I’d also build up FLL (to capitalize on S. Florida strengths). There are also cities that could use some strengthening including SFO, DEN, SAT, STL, PIT, CVG, CMH, and LAS to name a few.

  4. “Despite all the noise Delta has made about building up Austin, American has the second most flights at the airport behind Southwest.”

    True, but Delta had to wait to get gate space and they’ve already overtaken United. They’ve also built a spectacular club and despite American’s dubious claim in their press release of having renovated the Austin club they’ve just crammed new seating into the entryway of the club and the former conference room, they haven’t greenlit the club expansion they’ve been talking about doing for years.

    1. Delta is also adding AMS service – just doing it through KLM since they could get the new carrier incentives for international service while Delta could not. Since Delta operates AMS-MCO and AMS-TPA which were both added in recent years, it was probably time for KLM to open AUS to balance the new flying out anyway.

      AUS does have plans for a lot more gates so whatever anyone has in terms of gate space is not going to last for long.

      1. Those gate space plans are a ways out I think, given that they just got done with the eastern expansion this past February…and given that the proposed second concourse is a completely new building that’ll be a bit less convenient than the current gate arrangement. The airport is, again, technically over capacity though, so maybe stuff’ll start rolling sooner than expected.

    2. Flip side of that is Delta hasn’t launched flights to anywhere other than hubs and “real” focus cities (as opposed to what their PR calls focus cities). Yes, the only hub or focus city without a flight from AUS on DL is LGA (yay perimeter rule), but Delta should’ve been the next airline to run AUS-SJC and AUS-BNA, rather than American and Spirit, respectively, if they’re serious about the whole focus city thing.

      Interestingly, Delta has just about as many flights per day as American does (before AA adds these four daily flights), but other than ATL (where they’re all-A321) they run smaller aircraft. That’s changing a bit, as DL is down to two regional flights daily, one to CVG, the other to RDU. MSP and DTW run A319s now when they ran on 717s a year ago. That’s how Delta can put 13-16% more butts in seats year-over-year. That said, AA is running 319s and even 737s to MIA when a couple years ago that was an E75 route.

      It’s entertaining to see AA build out a couple of true point-to-point routes…with mainline aircraft and usable schedules…before DL does. I’m not complaining though…this is a huge capacity bump for those routes so we’ll see a nice fare drop. It’s nice living in a city that isn’t beholden to a single airline (and my travel history this year shows this).

      1. given that AA has flown both of these routes before and that they have virtually no development of their network outside of their hubs, I’m not sure there is really any long-term trend or any certainty that AA will retain these routes.
        Yes, AA might have gotten a jump on point to point routes from AUS but it is far from clear that DL is not going to add more routes anyway.

        And AA and DL have both been upgrading flights from other cities to their hubs including BNA in part because there are so few gates for expansion.

        I would bet that AUS is taking steps to make sure they do not allow expansion gates to be controlled by one or even two airlines but rather so that there are gates for newcomers as well as gradual growth by multiple carriers – if they want it.

        And the big takeaway in AUS is that DL has moved into a market where AA and UA were both larger and yet DL is adding seats faster than both combined.

        And even though DL is the fastest growing of the big 4 including WN, NK is adding more seats than the other four COMBINED and most of NK’s routes are in markets WN serves.

  5. Dear Brett: Excellent article and I read every word you write and many thanks for that.

    Let me pose a question: Are there destinations that airlines avoid?
    Specifically, Delta, United and American seek out new new international destinations and embrace service to places most Americans can’t even identify on a map but no American Airline flies to Vienna, a major capital, a cIty with a greater population base approaching 3 million. And none has, I believe, since the demise of Pan Am. Yet Austrian Airlines flies 5 or 6 non-stops a day from Vienna to North America (code shares with Umited) to JFK, EWR, ORD, IAD, MIA and sometimes LAX or Toronto.

    Are there others?

    1. I don’t think airlines are avoiding Vienna. Austrian is a joint venture partner with United, so it’s really the same as United serving it as far as they are concerned. The other airlines probably just don’t see enough opportunity to bother. But it’s not an explicit avoidance of the city.
      Other than places like Caracas or Damascus, I don’t think airlines are really looking to actively avoid places. They are just looking for those places where there’s the best opportunity to make money.

      1. Cranky- Thanh you. United Code Share is such a weak service that seats are not assigned until airport checkin and then at the gate even with higher fares. This makes groups and families of code share passengers treated as standbys where they are separated even when booked months in advance and thus assigned the worst seats available.

        In our case we have learned the hard way after two trips. We now use DL over AMS for 7 trips or AMR over LHR. Of course, with United in Vienna and 5 international departures from VIE to North America daily there are no United Employees. United is represented by Austrian Airlines only. So user beware.

        What I don’t understand is why DL or AMR don’t seek market share against UA’s poor service. There must be a larger reason to avoid such a major market and world capitol.

        Thanks again. Probably there is no good answer.

          1. Nope. Still no assigned seats on code share. Tried to book on UA TPA-IAD-VIE Next week and return a week later. Pick an itinerary, go to select seats and you get a message to select seat upon airport check-in. At that point I backed out.

  6. What’s old is new again.

    AA had both BOS and SJC service from AUS prior to the 2008 recession. But, since it was before anyone in Tempe was around, it qualifies as new?….

  7. @cranky : “Despite all the noise Delta has made about building up Austin……” : this really sums it up all the online bluster.

    DL spends their time shouting from the roof top of ATL control tower to remind everyone how much they care about Austin ….. 14.2% market share.

    UA never bothers to even mention AUS, hasn’t announced any major strategy for AUS (or even *any* specific strategy, for that matter), is at 13.9% market share.

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