Reading through financial filings can be a tedious task. American’s 10-Q for the third quarter of 2023 clocks in at 211 pages, and most of that is only of interest to the finance types. But there was something in there that Courtney Miller at Visual Approach picked up recently that I hadn’t seen elsewhere. American has quietly deferred 10 new 787s by a few years. The global US carrier with the fewest widebodies by far can’t find a place for just a few more. That’s worth a deeper look.
You can read Courtney’s report if you’re a subscriber. And if not, you should consider it. In it, he details what you can find by comparing that Q3 10-Q to the Q2 filing. In Q2, American was planning on taking 11 of those 787-9s in 2024, 10 in 2025, 4 in 2026, and 5 in 2027 for a total of 30. Now it will take only 7 in 2024 and 4 in 2025, moving the other 10 in those years to be delivered in “2028 and Thereafter.”
American notes that it entered into this agreement with Boeing in August of this year. But why? Courtney brought up a variety of ideas, but I went straight to the source. An American spokesperson gave this explanation:
We look forward to welcoming 30 new Boeing 787-9 aircraft that will introduce new interiors with more premium seating. We continually evaluate delivery schedules with our manufacturing partners and make adjustments as necessary based on our aircraft needs. Deliveries of our new 787-9 aircraft are still scheduled to begin in 2024, but we have adjusted the delivery schedule to better align with anticipated demand and our growth plans. We are proud to operate the youngest fleet among U.S. network carriers and plan to continue growing both our narrowbody and widebody fleets with more than 150 aircraft to be delivered over the next few years. [Ed note: bold emphasis is mine]
I originally had two thoughts. One was that this was American trying to defer expenses to clean up its balance sheet further. That should be a benefit here, but it apparently wasn’t the motivator. The real motivation appears to be that American just doesn’t have a place for those widebodies to make money in the near future.
This is particularly striking since American’s widebody fleet has declined since before the pandemic. Take a look.
American Widebody Fleet at End of Year
We all know the story by now. During the pandemic, American took the opportunity to eliminate the A330 and 767 fleets. It then got hit by 787 delivery delays and was constrained in its growth as demand took off. Those backlogged 787 deliveries have all been cleared, and apparently American now wants to pump the brakes.
At the end of this year, it’s projected that American will have 16 percent fewer widebodies than it had at the end of 2019. It won’t surpass that pre-pandemic number until “2028 or Thereafter” in the current plan.
Did American just have too many widebodies before? The answer is: it’s complicated. The widebodies American had before were cheap or paid off, so they could be flown differently than the ones American has now. Now, American has to pay for those expensive 787s by flying them a lot — and on higher revenue routes — in order to make up the cost of capital.
Let’s take a look at exactly how American has deployed the widebodies in terms of short-haul vs long-haul, which I divided at 2,750 miles. That keeps Miami – Seattle as a short flight but Kahului – Phoenix as a long one. It seemed like the cleanest dividing line between “missions narrowbodies can easily do” and “missions you might need a widebody to fly.”
American Widebody Fleet % Flights by Mileage
Forget about what happened during the pandemic, but before that the pattern was very clear. Take those widebodies and run them mostly to Europe in the summer. Fewer than 20 percent of departures were on short-haul then. But during winter, those airplanes had nothing better to do, so they’d fly up to 40 percent on short-haul routes.
After the pandemic, the summer saw only about 10 percent of widebody departures on short-haul and this winter will see widebodies top out around 20 percent. It’s a big shift to keep those airplanes earning more their money crossing oceans, but it’s not as big of a shift as it seems when you break down the fleets.
American Widebody Fleet % Flights < 2750 miles
I just eliminated the early pandemic entirely on the above chart, but there’s a lot to unpack on either side. Before the pandemic, those now-retired A330/767 fleets would fly upwards of 60 percent on short-haul during winter and only dipping into the 30 percent range during summer. Think about domestic flights, but Caribbean/near Latin flying were also good targets for these fleets.
The 777 and 787 fleets stayed pretty low on short-haul, at least up until the winter of 2018/2019 when the 787s starting taking over some of the flying from the dwindling 767 fleet.
Those numbers remained elevated during the pandemic recovery, but as you can see now, the fleets have settled around 10 percent short-haul during the summer and maybe 20 percent in winter which isn’t much different than before for the 777 and 787. Without those cheap widebodies lying around, that flying has been sent more to the 737-8 MAX and A321neo fleets where possible. The economics have to be significantly better.
Now that American has gotten rid of its cheap widebodies, it doesn’t really have a place to put expensive widebodies during the winter. I mean, sure, it could fill a plane to Orlando but economically that’s not a good use of an expensive asset. Long-haul is the way to go, but American’s long-haul network just isn’t close to what the other airlines have.
Let’s take a look at how United and Delta have used their widebodies in comparison.
Widebody Fleet % Flights < 2750 miles by Airline
Historically, American was an outlier in the winter when it really spiked its short-haul widebody usage. But since the pandemic, American has now become the lowest of the three. That being said, there is a huge caveat here with United. United has that fleet of 777s configured specifically for shorter-haul flying, mostly Hawaiʻi and hub-to-hub flying. So that will skew United’s numbers. (You could say the same for some of those ancient Delta 767s.) When those are retired, they will not be replaced with widebodies. In other words, none of these airlines are over-using their expensive widebodies on short-haul routes.
What’s lost in this chart is that American’s fleet is much smaller than the others. Delta has about 25 percent more widebodies than American while United has about 75 percent more. That really highlights how limited American’s long-haul network is compared to the others.
We already know that American can fill widebodies in the summer, but winter is the real issue. The key is figuring out what American could do with those planes to make them profitable year-round. To get to the bottom of this, we can look at how these airlines will spread around their widebody departures this winter.
January 2024 Widebody Flying by Region by Airline
The breakdown of flying is pretty telling. American has a much higher concentration in Europe and Latin America in the winter than the others. Europe probably has too much capacity in winter, but American has to fly those airplanes somewhere and Europe is it. Latin is good flying for American, but it has been on the weaker side than other regions. Further, American probably doesn’t have a lot of growth opportunity into deep Latin America where it would want to use those widebodies anyway. The real opportunity for American is in places where the MAX and neo aircraft can do the job.
United has pushed a lot of capacity into Oceania along with the Middle East and Africa over the last few years. (Middle East is actually depressed for all these airlines thanks to Tel Aviv suspensions.) Of course it has its Asian operation as well. Delta has Asia too. And while you’d think American would bulk up to Australia/New Zealand thanks to its joint venture with Qantas, it hasn’t put all that much in the market.
American doesn’t have that Asian option to deploy capacity, especially since it gave up on LAX as the Pacific gateway. Now it’s really just Dallas-Fort Worth for a small operation and nothing else. Nor has it done much of anything in the Middle East and Africa. The airline has instead decided to play it conservative and stick with its strengths. Draw a line from New York to LA. Anything south of that line is American’s sweet spot.
This is the safe way to run a business in the near term, and I can see how an airline that’s trying to catch up to the competition on margins might try this. But there is something to be said for trying to cultivate and develop new markets with United being the posterchild of that strategy. American isn’t thinking that way right now. It wants to keep getting bigger where it does best, and until it can figure out a good use of widebodies in the winter, it is going to keep a lid on that fleet.
