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.
I don’t understand why the percent of uncontested routes is a very important metric for an airline that operates with hubs. For example, AA flies Boise-Dallas, which Delta doesn’t. But most of the Boise-originating traffic isn’t going to Dallas; it’s connecting through. And Delta flies Boise-Salt Lake, which AA doesn’t. So unless you’re actually traveling to Dallas or SLC, booking with either airline will give you a 1-stop itinerary.
Seems like a much better yardstick (if a much more miserable one to calculate) would be the number of city pairs, scaled by demand, available with 1-stop itineraries.
I am wondering the same thing and would love any insight folks can share.
Grichard – Right, but how many corporate opportunities are in Boise vs DFW? American is focusing on the corporates in its hubs where it has the most flights and most staff to focus on sales and it is saying… who you gonna fly if not us? Sure, in Boise there is competition, but there isn’t much to fight for. Still, as I say in the post, “The risk here is in the small/mid-size markets where there is real competition.” We’ll see if share moves there, but it would have to move a lot for AA to even notice.
No argument with your point, but it’s not really related to the question. I’m not arguing that hubs aren’t a good strategy for designing a network. I was asking why 32.5% -> 36.6% of city pairs having no competition was meaningful. I assume that for AA, DL, or UA, most routes that don’t have competition are between a hub and a small-to-medium city. But most of those customers could connect through another airline’s hub elsewhere.
The customers based in the small markets are used to connecting, it’s just when their travel happens to be to a hub that they get the option of a nonstop. American isn’t going out of their way to target those customers. This is about the hub-market customers. If you’re based in Charlotte, and time is money, are you really going to pick the option of a connection at another hub when American offers nonstop flights? That’s what American is going for.
grichard – I don’t think I really understand your question then. Reducing the overlap you have by 4 points means you have fewer routes on which you’re competing so you have more control. Some of those may be small city to hub but many will also just be dropping of competitive routes from places like LA and Chicago where American isn’t interested in fighting that fight. Instead, it can put its airplanes on routes with no competition.
Now now Crankster
I would just love to of seen the Delta map next to united and American. I bet they have fewer blank spaces than American especially since they started kicking Alaska‘s butt up in Seattle.
Agree. Omitting Delta from this comparison is a bit shortsighted, especially if you’re referencing shared hubs and including NY. I don’t know of anyone who considers JFK or LGA as hubs for American when you compare their market share with that of Delta. At best its a gateway but if the NEA is dismantled, it will be interesting to see how they fare. The fact that they lost so much of the market and can’t make a go of it on their own says something about their strategy.
My company as well as those of most of my colleagues also high travel organizations switched from AA to DL years ago and have no desire to go back. While I get American considers their network as their “product” high yield corporate travel road warriors factor reliability and level of service into the equation.
When you give this some thought this is a very risky move on American’s part on several fronts.
1. Seeding O’Hare to United & allowing them to gain even more strength in the market.
2. Focusing your operation more or less through three hubs & two of them are a short hop away.
3. The risk the NEA could be scaled back or be grounded all together depending on what happens with the JetBlue merger with Spirit.
4. Both Delta & United have hubs spread across the country in a way making going just about anywhere far easier & as noted that American is abandoning such a strategy.
5. Let’s not forget about Southwest as we need to give them some LUV as well. They too need to be factored in as they provide competition in numerous American markets including Dallas.
It’s hard to argue the power of network and schedule for an airline in any particular city and it seems like a good strategy to me to step back from bruising competitive battles (esp on international service) at places like LAX where it seems like everyone has service but no one carrier can gain an advantage.
I do think that any carrier with a fortress hub needs to work to avoid people in the market resenting them. I recall a lot of grumbling in Pittsburgh, Memphis, and Cincinnati about being held hostage to one carrier. That said, all of those cities would probably prefer to still be a hub over being a spoke. Even if there is only one main option, customers prefer to not be taken for granted.
The hubs serve different purposes for each. With AA’s DFW hub, they can feed much of their east/west and north/south routes through DFW. Houston doesn’t accomplish this for United. ORD will always be a hub for AA…just in a different way versus United. The bottom line is that Houston and Denver don’t equal the value of DFW.
The problem that Southwest has is…it’s product. It’s as expensive if not more for a business traveler as the legacies, but for a business traveler the product is significantly inferior.
No upgrades, very limited interline connections, very limited international routes.
They have no “change fees” but if you change a flight they will charge you the maximum walk-in fare, which will be more than the other legacies’ maximum fare.
Gonna take more than bubbly flight attendants and a gung ho sales department to make that airline attractive to business travelers.
Completely agree. I know of certain business travelers prefer SW for it’s consistency but as someone who is 6’5″, reserving seats with extra legroom ahead of time, having the massive *A network to work with on UA, upgrades, etc. It all matters. SW simply cannot compete with that.
I agree that the Southwest product is inferior. However in some important markets – California – they have so many flights that a person can fly in the morning from SF, Oakland, or Sacramento, to LA/Orange County/etc., have meetings, and fly back the same day. SW is popular with business travelers in California for this very reason. This “frequency effect” also applies to Portland (OR), Las Vegas, and as far East as Phoenix.
Also agree that bubbly flight attendants who crack jokes, add zero value to the travel experience. So a short flight on SW because the large number of flights allows a “there and back same day, no hotel needed” business trip – OK. Cross country on SW? No way, would fly Jet Blue, Alaska, United, or other carrier instead.
Great point about the value of Southwest’s frequency. I know Southwest doesn’t really have “hubs”, but for those travelers where Southwest tends to have significant operations (Denver, Kansas City, Baltimore, etc etc), the frequency of flights and breadth of destinations makes them harder to ignore, just for the convenience factor, even if the product isn’t to a person’s liking. However, that’s true for any airline.
I agree with others in this thread… I don’t live near an airport where Southwest has a huge base of operations, and while I check Southwest’s options when searching for flights, their schedule and price are rarely competitive for most of the routes that I fly, even during “sales”. My view of Southwest’s product is such that I’ll gladly pay $20 or $30 more for a basic economy seat on Delta, AA, or JetBlue than for a regular seat on Southwest. Rightly or wrongly, however, for many infrequent flyers & leisure flyers there still seems to be a “Southwest halo” effect, with Southwest (even after the holiday meltdown) seen as the “consumer friendly” airline.
One more…Southwest’s fares are considerably more expensive than the basic economy fares on the other guys.
You don’t save money on them much anymore, unless you buy a ticket like three months out.
In a lot of these intra-California markets that do not involve SFO or LAX, Southwest is the only game in town and there are a bunch of these routes.
You left out American’s massive pullback in Long Beach.
AA had 3 daily flights on a crappy run down Mesa aircraft no one will miss them.
AA is clearly counting on massive strength in the local O and D markets at a few key HUBs to drive profitability versus relying on connecting traffic, which is what they tried to do in ORD years ago versus United. BUT, they never succeeded in beating United. Yet with this new plan, and much less competition in CLT, DFW and MIA versus having another HUB carrier on sight, they think they can win. It makes sense, yet has the feel of “retreating” to it. Kind of like American taking defensive strategy versus anything else.
As a short term response to the pilot shortage, it makes sense to focus on the cities where AA has the most pricing power. If it continues any longer than that, UA and DL should see it as a tacit admission that AA knows it can’t compete with them on a level playing field, and should move aggressively to take market share away from AA in competitive markets like New York and Chicago.
@ Happy Flyer,
We’re on the same page. See my comment above. It will be rough flowing your passengers through three hubs as a national carrier, especially with bad weather events that are occurring at increasing rates & in places you wouldn’t expect them.
Really two hubs, because MIA is basically a hub for Latin America, which makes it worse. Not many mainland passengers are routed through MIA.
Exactly. The other airlines have much better hubs for routing:
DL – ATL, MSP, DTW, SLC, SEA (sorta)
UA – EWR, IAD, ORD, DEN, IAH, SFO
Compared to CLT, DFW, MIA, PHX ) sorta) and PHL (sorta).
United clearly has the best hubs for high value O&D traffic. American’s fortunes are basically tied to Charlotte Dallas and Miami. Okayyyyyyy.
Of course that would be a good…if UA and DL weren’t dealing with the same shortage.
This is all part of AA’s statements that they have moved 5% of their lowest performing capacity to their top performing markets -and that is why their margins jumped dramatically in the 4th quarter of 2022 and is closer to being in line with DL and UA than has been the case for years. From an investor standpoint, that is good news.
Given that AA has the highest concentration of hubs in the Sunbelt, they have enormous capacity for growth even while staying in strategic markets like ORD which undoubtedly don’t contribute to AA’s bottom line like its southern hubs do.
AA is certainly looking at what DL has done for years – which is have a very strong position in its core interior hubs while having a presence (growing for DL) in major coastal markets. DL and UA are growing their global networks and will with their widebodies on order – while AA is slowing its new deliveries to a crawl in order to clean up its balance sheet. and focusing on its core partner hubs for connections.
if there has to be a dividing line across the US for route networks, I would say that AA probably has the “better half”
Look at all that open space in the PNW ;)
It’s open space on the map because hardly anyone lives there! Aside from the Puget Sound and Willamette Valley regions, the Pacific Northwest is extremely sparsely populated. And what market there is there is largely dominated by Alaska, and to a lesser extent Delta.
Open until you factor in AA’s one world and west coast international alliance little buddy, AS. With AS’s market share in SEA and the greater PNW they are in pretty good shape. So far AS has done a pretty good job of keeping DL at bay.
Haven’t seen any traction, whatsoever on the AS/AA alliance and have a difficult time ever seeing anything significant ever coming from it.
Seems like a one-sided relationship with AA gaining far more than AS. Kind of a shame, considering AS is such a well run airline as compared to AA.
I’m not sure how you can say that. DL is attacking AS at its SEA home hub by offering a national and global network that AS can’t, but it *can* with AA and OneWorld as partners. It makes DL’s attack on SEA much weaker, especially against a hometown airline with a local HQ. What’s too bad is that AS didn’t see the threat sooner and join AA and OW years ago – DL would have never been able to get traction then, just like they can’t now at AUS because they let AA ramp up there ahead of them.
Isn’t Alaska getting a huge network to the Americas, Europe, and Asia (eventually), not to mention east of the Mississippi–all flying they couldn’t accomplish on their own (at least not in the near-term future.)?
Putting it in simpler terms: there is a large swath of the country – basically the DFW-ORD-MIA triangle including mega-state Florida – where DL can’t really take you west and UA can’t really take you east (without some backtracking or going way out of the way thru a hub). But AA can take you thru DFW to go west or CLT to go east. They can “own” that part of the country for loyalty fliers that need to go both directions.
Wow, those networks are pretty amazing, if the merge with Alaska, they would pretty much will in the PNW gap.
Alaska doesn’t fit American’s fortress hub concept.
Alaska’s hub operation is in Seattle and a major two-hub airport is what American is trying to de-emphasize at Chicago O’Hare.
Delta is beginning to build a fortress in Seattle and that’s going to be a bloodbath in the years to come.
AA has too many hubs. They never rationalized their hub structure post merger. At some point they need to make the difficult decision to cut one or two of their existing hubs. This will help reinforce / sustain the remaining hubs.
Four late comments regarding this thread:
1. With increased DOJ/FTC/DOT Agency review (NEA, B6/NK) of this industry, the use of “Fortress Hub” as a core and key strategy (AA, DL, UA) is equally worthy of review and scrutiny. Assuming the existing regulatory principles in the joint DOJ-&-FTC Horizontal Merger Guidelines (https://www.justice.gov/atr/horizontal-merger-guidelines-08192010) remain unchanged, then “Relevant Market” should be easy to define and “Concentration” even easier to calculate (Cirium, DDS). I sense the Airlines are exposed given that all imply that Profitability follows “Fortress Hubs”
2. I ask this esteemed audience if AA’s improved margins relative to UA and DL illustrates primarily UA’s Scott Kirby’s view of “Cost Convergence” or instead primarily by capacity reallocation (Competitive Hubs to Fortress Hubs)? Which is primary? Which is secondary?
3. Tim Dunn is always worthy of praise for the quality-&-quantity of his contribution, analysis and commentary, especially when his tone is neutral relative to DL’s industry leading performance.
4. Agency Policies change with Administrations and it is very public information that the DOJ-&-FTC are revising the Horizontal Merger Guidelines per their January 18, 22 Press Release (https://www.ftc.gov/news-events/news/press-releases/2022/01/federal-trade-commission-justice-department-seek-strengthen-enforcement-against-illegal-mergers). This alone puts the NEA and B6/NK reviews in a different light (..”pause prior to new Guidelines”..) but as a reminder The Courts interpret and enforce The Law and The Guidelines are simply Policy. Increased Agency Reviews (eg China) and changing Agency Guidelines (eg DOJ-&-FTC) both combine such that M&A takes MUCH longer to both review and close.
The area where AA is really weak is the inter-mountain west. For most of us, Delta’s SLC or United’s Denver hubs are the best connecting points for these markets. AA doesn’t really offer much.
With AA shrinking LAX, they are running a lot of Asian and NZ flights via DFW, which basically makes them the airline of last choice for those of us out west. Instead, it’ll be flying on Air NZ or United.
It feels like they are going back in time when there were six network carriers and they each had their strengths and weaknesses and no one really served the entire country well. United and Delta seem to do a better job at this. Granted DFW is a large market, but it can only do so much.
talking about this monopolistic/fortress objective of AA, following the DL example our friends at the Airlines confidential talked about this this week… Ben Baldanza compare the table game “monopoly” to the airline business in the US: check it out: https://airlinesconfidential.com/3-15-23/
I live in NYC and my company (which is a massive corporation) doesn’t require us to choose certain airlines but does rank them. American is “most preferred,” Delta and JetBlue are “preferred,” and United is “not preferred” (but still allowed). Despite that, most of us choose to fly Delta because of the superior network out of NYC, operational performance, and on board experience.
I’m curious to see how this changes as American’s sales strategy changes.
Wasn’t Philly a fortress hub? Surprised that’s not in the mix along with DFW, CLT and MIA both as a high margin O&D hub along with significant x-atlantic service in an area of the country where they are weakest (NEA notwithstanding).
Bill – Good question. There’s a lot going on in Philly that makes it far less good than DFW or CLT. First, it is mostly a Transatlantic hub, and during the pandemic that flying was decimated. (Hell, PHL wasn’t even one of the approved gateways during the early days of international flying.) Second, AA is really focusing on NYC instead for some strategic reason that doesn’t really fit with anything else AA is doing. But that alone makes PHL too close and not helpful in building up New York. Philly was always really seasonal with far less in the winter, so it just has a lot more nuance.
AA’s schedules from PHX feels even worse than your data shows. I’m frequently frustrated and have had to give business to other carriers due to no late afternoon or evening flights back into PHX. The evening banks feel gutted which might be an interesting aspect for an article.
As an example, I’m flying PHX-IAH/HOU tomorrow.
AA 2x daily both on 319s with a last flight at 1:37p
WN 5x daily
UA 7x daily mostly mainline but the CR9 is on a few legs.