Yesterday I wrote about American’s big change in its sales strategy. One key component that enabled this change is what American sees as a big improvement in its “product.” The key strength in American’s product comes from not from warm nuts or comfortable seats but rather the airline’s network. American has taken strides over the last few years to get it closer to being a fortress network, and that has clearly emboldened the airline. Let me explain what I mean.
The difference between American and United has been described to me as a matter of which side of the line you’re on. That “line” is one that bisects the country, drawn from New York to LA. Take a look for yourself.
The water has been muddied a little for United with the addition of that Houston hub from the Continental merger. But that Newark-Chicago-Denver-San Francisco line is pretty powerful. And for American, it’s the Charlotte-Miami-Dallas/Fort Worth triangle that works (though really, Miami is more about leisure and Latin America and isn’t the same). Only Chicago is really the outlier for American.
So what has happened over the last few years?
1H 2023 vs 1H 2019 (and 1H 2015) Percent Change in Seats
It has not been a secret that through the pandemic, American has focused its growth on the places where it has the most strength. Those efforts have zeroed in on Charlotte and Dallas/Fort Worth. (Miami too, but that was a nice leisure balance during the pandemic.) Washington/National has grown thanks to the ability to use larger regional aircraft now that the new terminal has been built, but there isn’t much more that can be done there. And the New York growth is thanks to the Northeast Alliance with JetBlue.
The big losers are Philly — thanks to the shift up to New York and the fact that it’s more of a long-haul hub which is slower to recover — and American’s two most competitive markets: Chicago and LA. There’s also Phoenix, which I still don’t quite understand considering what worked well during the pandemic, but in that market, Southwest is a very significant competitor so that could have been a motivation for shrinking. (And yes, Mesa and its operational issues have hurt there.)
The LA story is well known. The airline has abandoned the idea of a Transpacific hub in LA and it has pulled back significantly on the domestic side as well. But the Chicago story is probably more important.
American and United have long had a tug-of-war going in Chicago, and though there have been times historically that American has come out strong — like during the United pilot slowdown in 2000 — it’s been a steep downhill slide for American in recent years as it redeploys capacity to more profitable hubs.
American vs United Seat Share at Chicago/O’Hare
It appears that American has all but given up on Chicago playing a starring role in the network as it continues to shrink while United takes full advantage in its hometown.
All of these changes together have had a pronounced impact on American’s network. Looking at the total domestic network in the first half of 2019, it had 36.6 percent of seats that were on routes also flown by either Delta or United. In the first half of 2023 (yes, I know that’s not entirely flown yet, but it should be pretty close to accurate), the number is 32.5 percent. Sure, nearly a third of American’s domestic routes still have competition, but shifting 4 points is no small feat.
The more American can shift its network to uncontested markets, the more comfortable it can be slashing its sales team and scrapping what it had built to remain competitive over many years. For the companies in Charlotte and Dallas/Fort Worth, who are they going to use if not American? You’re a company with “only” a million dollars in annual travel? Too bad, you’ll fly American anyway because of the huge network advantage. That’s just reality, and American knows it because it has built the best “product” around for people in those areas.
In places like New York, American can still be more generous and try to gain more share through traditional sales tactics and strategies. Same goes for what’s left in Chicago. It just doesn’t need as large or as generous of a team anymore to serve the rest of the network where it has you cornered.
The risk here is in the small/mid-size markets where there is real competition. Southwest has really stepped up its game over the last few years, creating options for companies and their agencies to book through any channel they want. They’re bulking up sales staff as well. Of course, they don’t have a global network to compete with American and its partners, but United and Delta do. Between the three of them, they will now undoubtedly being pushing hard to make inroads and improve their own share.
If American loses enough high dollar business and can’t replace it, then it will have to rethink this whole plan. But having reoriented the network makes it less of a concern that companies will walk away in American’s strongest cities.
If this strategy is going to fail for American, it will have to be in the few battlegrounds that remain. That’s why American has worked hard to shift its capacity away from those cities.