Armed With Tortured Data, American Takes Its Old New York Strategy Systemwide


American Airlines held its first investor day in years yesterday, and while several execs did a good job highlighting many of the changes going on around the airline, it was the commercial strategy that I found to be wild. American didn’t talk at all about its product. Instead Chief Commercial Officer Vasu Raja spoke about the only two things the airline thinks matter on the commercial side: the network and the AAdvantage frequent flier program.

The good news here is that American does now seem to have a coherent systemwide strategy. The bad news is that it either doesn’t understand its own strategy or it’s just playing coy about it. Either way, it’s going to be a lot tougher to make work than American is letting on.

If I had to sum up the strategy based on the presentation, I’d say it is to use the network and AAdvantage to avoid competing and cater to those small city folks who don’t have other better options. If this sounds familiar, it should. When American didn’t know what to do with its remaining LaGuardia slot portfolio right after the US Airways merger, it used this exact plan. Instead of trying to cater to New Yorkers with their plentiful alternatives, US Airways was trying to cater to the people of Charlottesville (VA) or elsewhere who didn’t have other options. This is apparently now American’s strategy systemwide.

We already know that American is most interested in the southern half of the country where it has the biggest presence — primarily on domestic, short-haul flying — and that it will lean heavily on partners for long-haul flying. This has been very clear for quite some time. But what American showed yesterday is that it doesn’t want to focus on big cities in general, at least not outside of its fortress hubs.

Why on earth would American prefer smaller cities? People in those cities are generally held captive by fewer airlines. Less competition and higher fares is the norm, and that has only accelerated as of late. In American’s view, this is being exacerbated by both Delta and United opting to upgauge their fleets to larger aircraft. With larger airplanes, unit costs go down, but of course, the number of people you need to fill an airplane goes up.

With Delta and United going to the bigger end and investing heavily in the customer, American thinks it should go the exact opposite way. It is proud to say that it wants more regional aircraft, focusing on lower trip costs instead of lower unit costs. Though it is retiring its 50-seaters by the end of the decade, it wants more 65-76 seaters in a dual-class configuration that it can use to better serve these smaller markets and get all that high-dollar flying

On the surface, this doesn’t sound like a bad idea. If Delta and United are going to zig, then American may be better off zagging. My two issues here are 1) I don’t think the opportunity is as big as American suggests it is and 2) Business travel is key for this market segment, and American has a self-inflicted disadvantage in competing for that traveler.

American isn’t wrong that smaller cities have suffered since the pandemic with dwindling service, but some of that is due to structural issues that American can’t overcome. For example, pilot costs have gone through the roof, and when you only have 65-76 seats to spread that expense out, unit cost problems creep up quickly. Also, smaller aircraft are just not being made, and 50-seaters are on their way out. (American says its will be gone by the end of the decade.) With that in mind, American needs mid-size markets with high fares to make this work.

The way American pitches its plan, it’s not clear that the airline understands that to be the case. Just look at this chart it provided with a deceptively-designed Y axis.

slide via American Airlines

This chart shows that in the top 25 markets, capacity has more than recovered to pre-pandemic levels. But in the smallest 200 markets, it’s not even close. This is where American wants to live. This is a bad idea.

Bad news for American here… it says in the mice type that this is using market data for the top 11 US carriers based on number of seats using Cirium data. Because of that, I can recreate the data myself, and this data doesn’t show what American wants it to show.

No matter what I did, I could not make this work using 2022 vs 2019, so I’m thinking this is a mistake and it was actually 2023 vs 2019. If not, I’m at a loss. I also think that we are looking at Continental US origins only, because if you include international and all those piddly places in Alaska, then it doesn’t make sense.

With all those assumptions, the top 25 markets do come in exactly as American said:

Data via Cirium

Overserved! These are terrible places to fly! With 200 markets that are underserved at the bottom of the list, why bother with these big places? I can at least tell you why those bottom 200 aren’t a good idea. If we are looking at Continental US origins with service in 2019, there are 312 markets. And, well, just look how this breaks down.

2023 Seats as % of 2019 By Continental US Origin Grouping

Data via Cirum, based on Continental US departing seats worldwide for 11 largest US carriers, ranked by 2019 seats

Using the bottom 200 markets, then yes indeed, 2023 is at 89 percent of 2019. But most of these are markets American will never serve and never can. To give you a sense, the largest of the “bottom 200” markets is Tallahassee followed by South Bend and Charlottesville (VA). Those are decent targets. But at the bottom end you have all those essential air service markets and other abandoned little markets that simply are not ever going to be viable. The idea that there are 200 markets with endless opportunity for American at the bottom end is silly and overstates the actual opportunity… mid-size cities.

All those mid-size cities fall into the top-125. And believe it or not, the 100 markets after the top 25 have more service as a percentage of 2019 than those in the top 25. This completely refutes American’s rationale for going smaller. But with the bottom end far too small, it’s that mid-size world where American could potentially live. It’s not because there aren’t enough seats in many of those markets. The opportunity is for a different reason, and that can be explained using El Paso, the market American highlighted in its presentation.

American fawned all over El Paso as being one of those underserved markets where American’s hub structure gives it a unique ability to best serve the population. El Paso, if you’re wondering, falls at number 55 on the top market list, so it is firmly in that second tier of markets in my chart but outside of the bottom 200. El Paso’s 2023 seats are actually at 115 percent of 2019, so this is not a generally-underserved market as American suggests.

This is a market with growing competition. In fact, Frontier just announced two new routes — Ontario and San Diego — from El Paso recently. These are the kind of markets that will get more service as the ultra low cost operators move away from the largest leisure cities to try and find new opportunity. These are also the markets that Southwest will defend to the death.

In El Paso, American says it has a “unique network advantage” because of its hub locations. That is true to some extent. Here’s a look at May 2024 routes by airline.

Data via Cirium

With service to LA, Phoenix, Chicago, and DFW, American can take people in all directions. This is certainly a strategically-picked market to show the dominance over Delta which only serves Atlanta. United has Chicago, Denver, and Houston, so it really just lacks something going directly west. But that’s what Southwest is for. Southwest is and remains the most dominant airline in the market by far.

But there is more going on under the surface here. Though coverage is generally good, markets like El Paso have seen an erosion in network connectivity as Delta and United upgauge. They have less frequency and bigger airplanes instead.

2023 vs 2019 El Paso Departures and Seats per Departure

Data via Cirum

Southwest has more than restored 2019 levels and has bigger gauge. The legacy carriers, on the other hand, are well down on departures but with a higher number of seats per departure… by a lot.

This means El Paso isn’t hurting for seats, and it has ample service to mid- and large-size markets on Southwest and others. But there could be a needle to thread that would fly people from El Paso to cities that are too small for Southwest with greater frequency since Delta and United have upgauged and pulled back. This is a real struggle to see how much opportunity really is there, because for American to make this work with those higher unit costs on regional aircraft, it has to keep fares high and still attract a decent number of travelers.

Where frequency and small market connectivity matters is to the business traveler. But as I’ve exhaustively covered here over the last year, American is busy trying to upend business travel and remove agencies and other intermediaries from the process. In other words, American has already tied one hand behind its back as it enters the ring to win the fight. But the other hand is dangling something tempting.

This is where we get into the AAdvantage side of the equation. The mantra for the airline as repeated more than once yesterday is now “Life is better as an AAdvantage customer.” And really what that means is that travelers that they can lock in to be AAdvantage members and ultimately credit cardholders will be stickier and more profitable.

To achieve this, American says it’s providing great value for AAdvantage members, but really what it’s doing is taking away value from non-AAdvantage members. For example, it has now reduced the length of credit validity for those who aren’t members. Also, only AAdvantage members are allowed to stand-by for an earlier flight. You get the point. Joining AAdvantage is free, so American can make even the casual traveler agree to join just to avoid the annoyance.

Once American has people trapped in its web, then it will start to push hard on those credit card signups. That’s where it makes really good money, and it spoke a lot in the presentation about how that part of the business is going to grow.

With AAdvantage members, it can also focus more on the upsell. American says that 55 percent of its customers do not buy the lowest fare and instead pay up for refundability, extra benefits, premium seating, etc. Making up the remaining 45 percent, American says that 25 percent are AAdvantage members while the other 20 percent are not. And then somehow, American makes the jump to saying that those AAdvantage members want to be upsold, but they just haven’t been given the right offer yet. I have absolutely no idea how they get to that point, but ultimately there is apparently magical opportunity that is yet untapped with those people. All American needs to do is get them signed up for AAdvantage.

All of this is pitched as a consumer benefit, and oh, it’s so easy! But it’s not. I think this slide might be my favorite.

What exactly is easy about this? There are six different categories of earning, and three of those are ranges. This is not easy. This is confusing and annoying for travelers to try to navigate. But maybe that’s the point. Once people are locked in to a more complex system, that makes them stickier as well.

My takeaway from all this is that American seems to have a strategy, but it either doesn’t understand it or doesn’t want those outside the company to understand it. What American has pitched sounds like a slam dunk if you listen to the presentation, but the reality underlying the strategy is far more tenuous. It seems clear that American doesn’t think it can compete with Delta and United in a fair fight, so it is going to focus on those places where it can use the network to win in an unfair fight and use AAdvantage to get them locked in if they think about straying.

The size and potential of this opportunity isn’t clear to me. This requires people who need high frequency in smaller markets and are willing to pay good money to overcome the higher unit costs of operating the small regional aircraft.

Beyond size of the opportunity, there’s also the question about what competitive response will occur. If I’m Delta and United and feeling bold, I’m offering huge raises to my regional pilots. I am relying on them less and less, but it’ll reset the market and sink American’s strategy. If I’m Southwest, I’m going to sit on American in mid-size to large- and mid-size markets, making sure that it really can only win in mid-size to small-size or mid-size to long-haul markets that I don’t serve.

This doesn’t seem like the kind of positioning you’d expect from — as American describes itself — a global network carrier. But it is the opposite of what Delta and United have been doing, so it may very well be American’s best shot. It doesn’t seem nearly as promising as the airline would have us all believe, but that doesn’t mean it can’t work.

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90 comments on “Armed With Tortured Data, American Takes Its Old New York Strategy Systemwide

  1. These two strategies from American don’t really line up either, because you can’t get anywhere with AAdvantage status by flying AAs local routes.
    I fly American a lot for work in small cities and appreciate their focus on them, but I fly 8 times for work to say, Monroe, LA from DC, and still get more miles from One way on a flight to Europe on United.

    So at the end of the day, unless American is going to change that structure, I look at my end of year balances and won’t be sticky with my loyalty

  2. “American thinks it should go the exact opposite way. It is proud to say that it wants more regional aircraft, focusing on lower trip costs instead of lower unit costs”

    It’s interesting, if you look at slide 32 it says that their 76 seat regional aircraft have 60% lower trip costs than the 737/321. If true, it puts the 321 at about the same unit cost as the CR9/E75 (76 seats is 60% lower than 190) and the 737 about 10% higher unit costs (76 seats is 56% lower than 172). I would love to see what they are excluding to come up with these numbers, as that simply does not make sense to me, even considering the regional pay differences.

    1. Ben – It’s another tricky move by AA there as I see it. Assuming they’re only looking internally, you have the 737-800, 737-8 MAX, A321, and A321neo, all with potentially rather different economics. This feels like a broad generalization to me that they can argue is “close enough” to try to make their point.

  3. With regard to El Paso, Southwest COO stated at Cranky Awards that Southwest is going to focus on profitability this year. If all the service out of El Paso doesnt generate yield, I can see Southwest redeploying its assets. Unfortunately for AA, WN has a strong Texas presense too with its focus at Love Field.

  4. Holy using charts and graphs to lie about the situation! Like that is right out of the worst practices of data communication playbook. Kudos to AA for going above and beyond with that, haven’t seen such egregiously adjusted Y-axes in quite some time.

    1. I was thinking the same thing. Shareholders should be suing AAL for misleading them. What a sick joke

    2. Agreed. I haven’t seen charts that misleading since the charts that were featured as examples of what NOT to do in my Statistics textbook in colleage a few decades ago.

      If I were an investor or key stakeholder at American, those misleading charts alone would have been enough to make me assume that management lacks credibility & integrity, and would have caused me to ignore most of what else management said in the presentation.

  5. They could have done that presentation about CHS too, my home airport. To some extent, the strategy they described is already what’s happening here (with the major caveat that, anecdotally, I find their fares are often substantially lower than UA & DL).

    CHS meets all the criteria for their target market; mid-sized southern city, and their network is hard to beat. Lots of frequency (albeit on smaller aircraft) and good connecting options to MIA if you’re going south, DFW west, CLT & DCA north / mid-west, PHL to Europe… and ORD if you want to catch a Cubs game. Interestingly though, no NYC or BOS direct… they’re leaving it to B6 & DL to fight it out for the direct traffic in those markets (hint: DL is winning that one).

    Again, that caveat though, its not just that their network is better from here (to everywhere except NYC & BOS), their fares are cheaper too. To my chagrin too (I’ve had a lot of bad AA customer service experiences that made me swear off the airline forever only to come crawling back because its the best combo of schedule AND price). The minute they start having higher fares, I’ll happily switch over to the DL connections through ATL on the 739s/321s no matter which direction I’m headed.

    1. CHS also has *tons* of competition for VFR and leisure travelers, with Breeze, Allegiant, Avelo, Frontier, Spirit, and even Sun Country all flying there at least seasonally. And it’s not all flights to Florida, either – the LCCs have flights to the midwest, northeast, etc.

      If there’s substantial point-to-point demand it’s hard to imagine that it won’t get picked off by one of the LCCs.

  6. Congrats on a brilliant analysis. Investor presentations should be designed to be ironclad and encourage investors to support an organization. This one has clearly failed thanks to your analysis. AA has lost their way, has lost many of us as customers who avoid their product and policies at any cost and apparently is not likely to succeed with this plan. AA does not understand that their reluctance to treat their customers as people (personal experiences) and not just a seat filler has led many of us to abandon, even avoid at all costs using an airline that does not value the customer. The detailed and wonderful analysis and their seemingly obsequious and what some might consider to be deceptive messaging makes that even clearer. I would rather walk than fly AA. Shame on their leadership.

  7. How much of this is American compensating for having two hubs (LGA and DCA) that are slot restricted, mostly non-international, narrow-body airports in cities where United has true international hubs (EWR and IAD)?

  8. Cranky, that El Paso slide reminds me of your old “best slide ever” post arguing for the AA/US merger. There is great value in blanketing the growing south.

    Interestingly the slideshow notes numerous times that AAL is a changed company with a refreshed management team. This “new” company appears to not realise that you need to *actively* *give* customers a reason to use and pay for your product.

    Take all the little things United/Delta have. OTP, technology, people who smile, good lounges, better catering, etc. These things add up.

    UAL and DAL pulled in $1B and $2B more in profit respectively. They are investing in the customer experience for a reason.

    It appears that the only “change” to American is forgetting to put the word “product” in their slideshow.

      1. If that was the case they wouldn’t have cut back in LAX/ORD/NYC, some of the biggest spend markets in the country

        1. So what? ATL is the world’s most-traveled airport, yet no one who has to endure it says that it’s great.

          1. Off topic, but…

            I agree that ATL isn’t “great”, but I will argue strongly that it is one of the best (I would go so far as to argue the VERY best) “very large”/hub airports in the US, at least in my experience. If you have a different opinion, feel free to share.

            ATL definitely has many of the usual “big airport” issues, especially at peak times (such as traffic backups for dropping off & picking up pax on the curb). While DFW’s design (and even ORD’s design) offers faster curb-to-gate times for O&D pax, the overall design of ATL’s parallel terminals connected by underground tunnels & trams is VERY efficient for a big hub airport and connecting pax (much more so than, say, DFW, ORD, CLT, or JFK).

            In terms of convenience & curb-to-gate time for O&D pax, ATL certainly isn’t great, but it’s not as bad as the size of the airport might suggest; with PreCheck I can usually get from curb to gate in < 30 minutes, including security wait times, even for gates in the D/E terminals.

            ATL has an easy connection to Atlanta's city train/public transit system, which is extremely rare in the South/Southeast part of the US. (though the MARTA stop at ATL is used mostly by airport employees, not pax, as is often the case in more less densely populated cities).

            1. I’ll take the stance that Atlanta is a spectacularly good and efficient airport. Think about the throughput at that place. They run over 1,000 commercial flights from that place every single day. Connections are easy with the way the airport is built. There are issues with security lines for locals, but it’s still a very impressive operation compared to other airports.

  9. I think it was Frank Lorenzo who said it best, ” Airline business is a race between technology and bankruptcy”

  10. It was interesting watching the presentation yesterday. Like their quarterly financial announcements, I fully believe the only ones that believe what they are saying is themselves. I feel that their belief is that if they continue to say it enough others will start believing it with them. The only ones buying their strategy is themselves. I enjoyed them talking about new management, like that is going to make things better. It has worked out so well historically when airlines bring in “new management” that are going to change and fix the industry. (note the sarcasm!) AA is acting out of desperation, their debt and costs are too high. They cannot make up the revenue off of leisure and small markets since they no longer value corporate travel. They will keep shouting what a great strategy they have though until someone besides themselves believes it.

  11. We don’t “have to” fly a particular airline, we choose to based on our personal or company criteria. AA’s newest strategy fails to take that into consideration. And you can begin to lump DL into that basket as well. I think that they’re beginning to experience that many loyal customers are going elsewhere because DL dictated their new strategy that didn’t align with their personal criteria.

  12. I have a question for you, Brett, and I want to be respectful about it.

    Are you a journalist? A media member? Or are you a travel agency owner?

    We all know your feelings about American, and how they are attacking your business as a travel agent. But then you come on a blog, and report on airlines in a supposed unbiased manner?

    I don’t know that you can be both. I don’t know that you can act like an unbiased media member or journalist while you crusade against American because they’re taking money out of your pocket.

    I just wonder if you see that there is an innate conflict of interest for you here.

    1. How much are you paying for his (excellent) content? What is he doing to force you to read his (excellent) analysis?

    2. I see Brett as a consultant on the client side of air travel. When you read his blog in that context, it seems consistent and appropriate.

      1. Totally agree. Which is the perspective of nearly all air travel blogs. Attack the messenger when you don’t like the message, all too common these days.

    3. Are you a journalist? A media member? Or are you a travel agency owner?

      All of them to one degree or another.

      We all know your feelings about American, and how they are attacking your business as a travel agent. But then you come on a blog, and report on airlines in a supposed unbiased manner?

      He has been doing this for more than a decade & a half with well researched pieces, interviews & fun elements for all of us to enjoy.

      I don’t know that you can be both. I don’t know that you can act like an unbiased media member or journalist while you crusade against American because they’re taking money out of your pocket.

      When American does something great that is worthy of a post, rest assured he will wright about it. Problem is that is not what has been happening lately & that is why he has been critical of them.

      I just wonder if you see that there is an innate conflict of interest for you here.

      Not really. Some of those people he is being critical of came out of America West who he personally knew, met in his time in the industry or worked with. So I don’t see any conflict of interest here, so I suggest you read more of Brett’s work over the years & learn a few things before accusing him of being biased.

    4. I’m a big fan of CF and have been for years, but have noticed a ramp up in articles of AA’s treatment of travel agencies. Those posts do over index on this blog because it personally and financially affects the author, even if not particularly interesting for the reader. It’s a free blog which frequently produces great content and CF is free to write whatever he’d like so I usually just skip the article when I see its another AA travel agency related post.

      1. How many airline (or travel) blogs use Godzilla in some of their examples? CF, you’re doing a great unbiased job.

    5. John G – If you’re here looking for reporting, then you’re in the wrong place. This is and has always been an opinion site that’s based on my experience and data. If you’re treating it otherwise, then that’s on you.
      But I would suggest that if you have a problem with the data that I’m presenting, you’re better off arguing against that than attacking my credibility.

    6. Brett is a comentator, like someone you would read in the opinion/editorial section of a newspaper. I dont think he ever claimed to be unbiased or not has his own opinion.

    7. Frankly, John, if that’s your real name, I enjoy the op-ed here far more than any so-called aviation news site. If you really want to look at a “news site” that’s been bought and sold so many times it’s ridiculous, look at Simple Flying and have your head explode from the outright love they give to their secret sponsors Airbus, Delta, JetBlue, and Breeze.

      1. Simple Flying is a joke. It has all the editorial integrity of a high school book report. They get their hands on some generic Diio data and write an unnecessarily lengthy commentary summing up the data.

  13. This move by American is puzzling at best & ultimately destructive at worst for not only the customer, but the shareholders as well.

    In the end American will end up isolating itself in Charlotte, Miami, Dallas & phoenix leaving the rest of the country to United, Delta, Southwest & the smaller players as they crouch on as many markets as possible. Their long term survival should be questioned at this point.

  14. Also the way the data is tortured for the bottom 200 markets is quite a pick up, and I think the way AA tortured it may even be understated.
    Consider a place I’ve flown on United: Kearney, Nebraska (EAR). EAS market with service in 2019 on UA on CRJs, but dropped in 2022 (EAS bidding, fleet/pilot challenges). It is now flown by Denver Air Connection.

    Denver Air Connection (Key Lime Air) won the EAS contract for EAR and flies ERJs in there now. Which is great for Kearney, but that should show up in the top 11 airlines as a United market abandonment, and bring down the % of air service restored to the bottom 200 markets by top 11 airlines.

    AA is not going to fly to Kearney anytime soon with their strategy. I just… don’t understand.

    Big picture it logically makes sense. Small aircraft at the top 11 have been retired and reduced in the US market. Those aircraft were the primary flying machines at small airports. Some would be replaced, but the upgaging throughout the industry logically concludes that not all of them were. Naturally one would expect to see a decrease in seats in long-tail markets between 2019 and 2023. That doesn’t make them underserved.

  15. I don’t mind flying on E75s, but if AA is going to retrench from larger markets that aren’t their hubs, I’m going to get less chance to do that.

    I’m also not playing their AAsvantage game thanks to the DL/AS status match + AS CC that somehow got me top tier OW status…but that merely puts AA in the running a little more because all else isn’t equal when choosing where to fly where AA goes nonstop (if I’m connecting I’d marginally rather do so on another airline).

    Going back to the smaller markets, it sounds like AA thinks they’ll be able to get people to pay higher fares for connecting flights on E75s when ULCCs, including Breeze and Avelo, will swoop in with sub-daily point to point service on bigger planes for anything that looks like it might have 50 PDEW. You could say that these are 100% leisure travelers but those folks could have connected on AA metal.

    Also, AA’s latest aircraft order belies this strategy, as it’s all 321neos and MAX-10s. Those are 190 seat aircraft, so maybe that will clean up hub to hub routes or something, but you aren’t going to fill one of those multiple times per day to a bottom 200 market. The -800s/MAX-8s are already pushing it.

    1. So true regarding the aircraft order this week. Completely at odds with their own strategy. But hey, it doesn’t really matter, they’ll have had 3 new strategies by the time any of those planes arrive.

  16. Back to the future! Greater frequency on smaller planes to middle tier markets (not top 25 but not bottom 100-150 either). It’s the 90s all over again!

    Somebody tell CVG to dust off the old comair terminal and CLE to take the wraps off Concourse D, it’s just a matter of time! Hahahaha.

    Not only that but, as shown in their own hand picked example, WN is all over those markets already. ELP, STL, MCI, etc. F9 and NK have built up substantial presence in other similar airports like CLE, BWI, etc.

    This plan is almost completely reliant on getting enough rubes to sign up for their credit card. I hate that I have to use them because of their presence at DCA. No innovation needed at the world’s largest airline, just retrograde thinking combined with eradication of existing sales channels. What’s not to like?

    Sell, Mortimer, sell!!!

  17. OK, I am going to be a partial contrarian. I am not sure if the strategy is sound or, indeed, will work. But I do think that opting NOT to be DL/UA is probably a good idea. It is clear that AA is choosing to be a domestic first carrier (including the Caribbean). Sure, they fly internationally, but they have clearly far less interest in connecting their hubs to the world, and far more interest in connecting CAE to the rest of the US.

    That was also abundantly clear with their big plane purchase announcement earlier this week. There was no word about about replacing their aging B777’s and no word about their plans for expanding their B787 network. It was all about Embraer and B737’s and A321’s.

    The challenge with being domestic first, is that you will need to compete with Southwest and a growing fleet of ULCC’s who target exactly where AA hopes to thrive. AA obviously has deeper pockets, and can perhaps sucker punch a Breeze or Allegiant. But Spirit or Frontier might be tougher nuts to crack.

    “But what about business travelers?”

    The news here is that many of these business travelers do not fly out of the smaller airports but mostly out of the Top125 markets where they have lots of choice, as you indicated. And they typically do not fly a lot TO smaller airports either, but the major commerce centers (T125). Business travel policies have tightened by about a LOT. Few companies allow for buying the seat upfront, even on long haul (premium economy is more likely). This is where miles become important. If my company pays for economy (or prem economy), can I use my status/miles to upgrade?

    So I can sort of follow the idea, and can sort of agree to the AAdvantage component. I think CLT (my captive home town airport) is a good example of the strategy at work. You can fly to here from almost anywhere in the south/east, and the middle and western side of the US is also pretty well covered. CLT is 70% transfer passengers. They come in on a regional, and transfer to an A321 or B787 to fly somewhere else. If you’re going in the other direction, you will transfer to a CRJ or Embraer on a regional.

    Is it glamorous? No. Is it profitable? Somewhat? Is it differentiated from UA and DL? Somewhat. I think AA are placing their bet on expanding this approach instead of trying to “me too” UA/DL. That is why I said I sort of get it, as an idea. Whether or not it will actually play out as they strategized, remains to be seen.

    1. Leaving aside the point that the world’s largest airline is deciding to not focus on the “world,” what you outlined at CLT is exactly what DL does in ATL, DTW, MSP, SLC and what UA does at EWR, IAH, IAD, DEN, SFO so I don’t see any differentiation except perhaps in absentia; they are differentiating by what they are NOT doing.

      1. First of all – I said I was going to be contrarian ;-)

        I asked Google’s Gemini to create a list of transferring vs originating passengers for all the airports you mentioned, and there was no readily available data for any of them, except ATL (I also threw in DFW, MIA, JFK and LAX for good measure – with no success). ATL has 60% transferring vs CLT’s 70%. My guess is that all other airports mentioned also score lower than CLT.

        I think the difference between CLT and the other airports as mentioned, is that AA/CLT has successfully created a bank strategy that connects anywhere, USA to CLT and then beyond. Currently, American Airlines operates nine banks per day at CLT, with each bank handling around 70 arrivals and 70 departures. Best I can tell from public data is that DL at ATL operates fewer banks, although the exact number is not readily available. It is between 5 – 7 says the internet.

        DL and UA are operating and focusing on fewer departures/larger planes/mainline and a strong global network, as Cranky outlines in his post. AA is expanding with regionals, which connect to domestic mainline B737/A321. Not saying that you can’t connect from CHS or AGS to ATL and beyond. But AA makes that type of connection its mission, whereas DL and UA make it their mission to focus on 75 largest airports first. The smaller stuff is secondary, while AA says it is their primary.

        Again, I am not here defending this strategy. All I am saying is that I kind of get the differentiated strategy vs DL/UA, and how driving people into the AAdvantage membership plays into that.

        1. Thanks for those details. I actually like contrarian arguments (everybody agreeing is so boring) so I wanted to understand yours. I do see the point that AA utilizes its biggest hubs for connectivity moreso than United and even Delta (which I found surprising).

          However I still feel the rest of their differentiation has more to do with what they aren’t doing than any unique strategy.

        2. You’re right about AA having very convenient connecting banks out of CLT. I’m CHS based and do a lot of business travel around the southeast… the best price/schedule combo is almost always AA through CLT.

          That said… man, I wish it wasn’t. AA is noticeably less customer friendly than just about any other airline, and CLT is by far the worst connecting option in the southeast (there’s a whole bank of evening flights that come & go after the food & bev options have closed and the gate areas in those B&C Piers simply were not made for mainline aircraft that hold 160+ people).

          So, basically I’m forced to fly them now, but if/when the day comes that Southwest or Breeze start (or just add a little frequency to) CHS-RDU/MEM/BHM/BNA/RIC… I cannot wait to shred the AA credit card :)

      2. FWIW the UA hubs you mentioned have a lot more connecting competition, either on-site or cross-town, than the DL hubs, or CLT (or PHL for that matter). So effectively UA may have the weakest hold on “fortress hubs” when you consider metro areas, while DL is strongest, since the four you mentioned don’t have alternate airports, and don’t have a strong head to head competitor (sorry Sun Country…and WN in ATL doesn’t count for much either).

        But AA isn’t in a great spot for fortress hubs either. You basically have CLT and maybe PHL, as everywhere else has Southwest or another network airline, if not more than one. When the competitor is WN, maybe you can hit smaller markets between regionals and connections, but as the article mentions…is it enough?

    2. CLT Flyer – I’m not sure that this is being contrarian! I don’t know that I disagree. The AAdvantage move is certainly smart. Try and get people locked in any way you can, and this creates a funnel to the credit card which is the most profitable thing American does. As usual, I don’t like the implementation. Taking things away from travelers is generally not the right move. Trying to add value to the program by addition is a better idea. But that’s almost always my problem with American… it’s not the idea, it’s the execution.

    3. > The news here is that many of these business travelers do not fly out of the smaller airports but mostly out of the Top125 markets where they have lots of choice, as you indicated. And they typically do not fly a lot TO smaller airports either, but the major commerce centers (T125).

      It depends a lot on the type of business traveler. Consultants and some finance professionals do a ton of flying from their office locations in top 25 markets (NYC, ATL, LA, etc.) to meet clients with locations near smaller airports. Clients are very widely distributed, and business travelers will pay a premium to fly into e.g. LFT while VFR travelers might be more willing to drive to MSY for cheaper fares.

      With the increased adoption of fully-remote work, I’d also expect to see more business travel from regional airports to central offices or internal conferences in top 25 markets, as remote workers travel for periodic gatherings with coworkers. I personally fly from an airport in the 50-100 range to NYC 2-4x/year for meetings and events with my coworkers, and I expect this is much more common than it used to be.

  18. This airline has WAYYYYY too many hubs in the mid-Atlantic (PHL, NYC, DCA, CLT) that are not additive to the bottom line.

    American – it is ok if you back out of one (or more) of these hubs. You will be better off in the long run. No airline has this much redundant / wasted resources, but they just do not want to face this reality.

    1. AA has to maintain a cursory level of service in NYC to maintain relevance with CC holders as the largest spend market in the country. A unprofitable as that operation is, they’re glued to it to keep those AAdvantage members and CC holders on the hook. I’m sure they would have dumped NYC, at least JFK, a while ago without that. They’d certainly be better off selling JFK slots to UA and redeploying those aircraft to other hubs if network was all that mattered.

      1. Not dumping NYC is not for lack of trying (NW Alliance). Seems like they might try again, even, thanks to the DOA NK/B6 merger.

      1. Because in totality, they are financial burdens to the bottom line.

        The reason they keep them is the thought process you are using. However, hubs are extremely expensive to operate and having 4 of them so close in proximity is not an efficient use of these expensive assets.

        1. It’s the most populated part of the country, by far, and each of those hubs has a unique purpose within the network. Why would they get rid of one?
          It’s a tired assumption that having those four hubs is redundant. They’re all quite unique in what they do.
          Dca and nyc — pretty obvious why you’d want to serve these two markets as much as you can
          Clt is great at se connections but doesn’t have the international gates to do a full TATL network like atl does. And the geography isn’t as good either
          Phl is a great spot for TATL where aa doesn’t have competition and it allows it to do as much of a Newark like mission as it can if you can’t have Newark itself

          1. the reason for overhubbing is because there is only so much connecting traffic that a carrier can compete for in hubs that are basically in a north-south line.
            LGA, JFK and DCA are slot-controlled so provide some competitive protection but the NYC hubs are very competitive and AA’s smaller size puts them at a disadvantage. It isn’t a surprise that AA says that DCA is its most profitable hub in the NE.
            CLT is geographically well-located but the airport is not at all adequate for the amount of flights and passengers that AA pushes through it.
            PHL pulled from other hubs and AA has seen significant domestic competitive increases as it shifted international flights to JFK.
            Even DFW, the 2nd largest hub, is inefficient from a labor cost perspective because of the sprawling terminal complex with AA operating from all terminals.
            AA’s southern hubs, like most southern hubs, are efficiently managed and have low costs compared to northern hubs in general, esp. ORD.

  19. What was not said in AA’s presentation is whether they actually have higher share in those markets they are targeting. DL and UA do have significant share in the small cities that are in those market groups.
    DL serves more cities with mainline jets than any other airline primarily because of their 717s; they trade off frequency across multiple hubs for mainline service, heavily to ATL but AA and DL do have similar shares in small cities across the Eastern US.
    UA competes in many of those smaller markets using smaller regional jets.
    I’m not sure the data says that AA has a share advantage or just that they are trying to gain one using their strong southern US hubs.

    The real issue behind this strategy is likely that they have more large regional jets at their disposal because their scope clause is different from DL and UA’s. Those RJs are suitable for small city flying to multiple hubs.

    As others have noted, trying to be a network carrier to small cities is not likely a winning strategy IF they can’t also compete in the largest markets in addition to their hubs; everyone has their hub dominance plus a certain share of small city strength. The differentiator is really how well you compete in large markets which are up for grabs for everyone.
    In the sense that AA doesn’t lay out a plan to improve its performance in competitive large city markets, that is where their strategy is lacking.

    1. UA is by far the weakest of the big 4 at outstations. UA flyers overwhelmingly live in their hub cities.

      1. It is certainly true that UA has the lowest share of the big 4 outside of its hubs but UA actually serves more domestic cities (214) than DL (207) but both are less than AA (222). DL serves the most US cities (144) with mainline aircraft which is a bigger gap with #2 AA (125) than RJ coverage.

        and the basic assumption that AA tries to make is that their powerful CLT and DFW hubs give it an advantage esp. in the southern US but both of those hubs trail the percentage of mainline aircraft compared to DL at ATL esp. by a wide margin. And DL does connect a number of cities to DTW and/or MSP although either with smaller mainline or RJs than DL uses to ATL. DL also serves a larger number of cities than AA from LGA, JFK and BOS and while those hubs have lower value for domestic connections, they do boost total size in many cities. AA offsets that with MIA which has similar characteristics to JFK for DL.

        I am not convinced that AA has really articulated that it has a unique advantage by high frequency service for connections that is heavily driven by CLT and DFW.

        as for the comment below, the entire article – including by the author – is a comparative assessment of AA’s strategies relative to DL and UA. As much as some people might bristle, DL has arguably the best balance of serving a large number of cities across the US as well as having a strong presence in major markets esp. on the coasts.

    2. You can always count on Tim Dunn chiming in with a “what about Delta” comment. You’re right, why didn’t AA spend more time talking about Delta’s market share in their investor day presentation?

  20. Given the pilot shortage, I wonder how much of AA’s strategy is even doable. How much of the up-gaging on UA/DL’s part is due to pilot shortages and the inability to operate many, smaller capacity flights?

    1. Eric – I think the pilot shortage was likely a moment in time that will pass. That’s especially true since airlines can’t even get the airplanes they want due to manufacturer delays. This means fewer pilots are needed anyway. It may still be a problem in the near term, but it shouldn’t be for all that much longer from what I’ve been hearing.

      1. agree. and the chances that the return to normality for regional carriers comes sooner than even predicted is enhanced now that the big 3 are essentially the only large jet airlines hiring. WN’s decision to stop hiring in 2024 on top of similar decisions among the LCCs/ULCCs means the RJ staffing situation is certain to improve. The big 3 can’t get the planes to grow as much as they want and pilot training that stopped during the pandemic is now restarted and beginning to bear fruit.

        AA’s decision to buy a bunch of Ejets is as much about upgauging their 65 seat RJs to the more efficient and passenger preferred E175s and to buy as many 1st generation E175s since they supposedly will not environmental standards for much longer.

  21. The El Paso map appears to have two lines connecting Southwest to Ontario (I don’t think they fly there nonstop), and is missing Southwest to Las Vegas.

  22. Frankly, I don’t see a hill of beans worth of difference among any of the airlines. The airport and travel experience is a total hassle and the service overall is mediocre at best. The only true bone of contention among the commentators on airline blogs seems to be over the presence or absence of personal TVs – not much of a differentiator in my opinion, as I tend to look out the window, and want to get away from everything when I travel (I don’t travel for work, since I’m happily retired). I see the main function of airlines as transportation – to get me safely from point A to point B. They do that well. To me, airlines aren’t hotels, restaurants or movie theaters. That’s probably good, since airlines don’t do very well in any of those areas. The food on airlines is bad on balance. The seats tend to be about as comfortable as a wooden park bench, and I don’t like to watch movies on tiny screens. I grew up when TVs had tiny screens, and I like big screens now that they’re readily available. I’m pretty fed up with air travel across the board, but the machinations of industry are fascinating.

    I know I’m a curmudgeon. LOL

  23. Public service announcement… the small airport codes on the bar graph:

    FCA: Kalispell/Glacier Park
    RAP: Rapid City
    HVN: New Haven
    RDD: Redding, CA
    HYA: Cape Cod/Hyannis

  24. A few comments:
    AA has a tremendous Capacity Plannign department that is firmly based on sophisticated forecasting and optimization of frequency/gauge/timing/point-of-sale/etc. It’s hard to second guess them. Still…

    o Capacity (seats) in a city can be used for both local and cxt. Most of the top 25 are hubs that may have 60%+ flow — to a variety of markets. Thus, “overserved” isn’t really valid unless you account for where the flow is going.
    o The flow from the smaller markets is disproportionately to the larger markets. Everyone wants to go to NYC, Chicago, and Atlanta. You can’t properly service the bottom 200 without corresponding capacity to the top 25!
    o AA appears to have a competitive advantage in the southern half of the U.S. (CLT, MIA, DFW, PHX) with UA only at HOU and DL only at ATL. Focus on this region, as you point out however, pits AA largely against WN, something AA has had to deal with for decades. Steering clear of UA and DL is obviously attractive since AA/DL/UA have historically operated similar business models.
    o The attractiveness of smaller gauge (<100 seats) in the '90's was built on lower wages for regionals along with high yield business traffic, advantages that have diminished significantly. Arguably, the economics of smaller aircraft is much less attractive today. I imagine, nonetheless, that AA's plan for small aircraft is not at all as large as it was back then.

  25. Meanwhile AA is alienating its Customers in major markets by using RJs, while shifting M/L aircraft into smaller markets. They have also eliminated frequencies in some major at the most desirable departure times as they move M/L aircraft to smaller cities.

    This leaves those major markets open to invasion by the ULCCs like NK/F9 etc.

    What could possibly go wrong……..

    1. > Meanwhile AA is alienating its Customers in major markets by using RJs, while shifting M/L aircraft into smaller markets.

      If I’m in economy, I would rather fly on an E175 than any mainline aircraft. No middle seats, wider seats, better seat pitch, faster boarding and deplaning. It’s all upside.

      1. But they’re using CR7’s from PHX & LAX to cities like SEA, PDX, SJC, SMF, SLC etc. Flight’s from LAX use the bus in satellite terminal too. Then you have CRJ’s doing the same thing out of ORD & PHL.

        Meanwhile DFW has E175’s to the smallest towns in the county.

        1. Part of the news is that they’ve ordered 90 new E175s, which I assume will gradually replace some of the CR7s and CR9s.

  26. First off, I retract anything I said about Brett earlier. That should’ve been done in private and I apologize to Brett.

    With regard to American, I don’t think that a lot of you understand there strategy, here.

    American is setting themselves as the airline to get you everywhere you want to go. Frontier is great… If you’re trying to fly to Vegas or LA or Orlando. America is saying we will get you to El Paso, if you need to go there from New York or Des Moines or Pensacola.

    And the regional Jets they have purchased are E175s, which are just as comfortable as any mainline out there.

    Look at the Jets they are buying. Max10s… 321s… 175s. All of these have a fairly high percentage of first class seats. There are 321s have 20 first class seats, and I expect the max 10s will as well also.

    The 175s actually have the highest percentage of first class seats.

    The ULCCs and southwest cannot compete with that. And they figure in their fortress areas, they can hold off United and DL just fine.

    Seems to me, they know their niche, and they are sticking with it.

  27. The entire presentation is an inwardly focused exercise. Not a single mention of what the consumer needs/wants or a plan to deliver on that. Rather, just make the system grind better. The other standout was the multiple references being “uniquely positioned” to deliver…. Ok.

    1. It reminds me of Mad Men when they sold Sterling Cooper to the British firm. During the presentation discussing how the combined firm would operate, Bert Cooper frustratedly exclaimed, “I don’t think I heard the word ‘client’ mentioned once!”

  28. Annual Investor Presentations are carefully crafted-&-curated to share a set of messages with The Street.
    I don’t think the AAL Annual Investor Presentation intent was the same as DAL or UAL have for their similar Events.

    I sense this was LARGELY about establishing New Management Credibility with The Street.
    I assume more “color” will come AFTER AAL closes some of the 100-250 basis point “gaps” across the various margin, expense, income, and debt metrics.

    While I prefer the much more explicit “$X.XX/share EPS in 2026” type Key Messages, I don’t think AAL is there yet.
    Nor is AAL at the point of “Showing The Gaps” and setting Targets (Goals, Timeframes) on how and when then close them.

    Tim Dunn and others can comment on where each of DAL, UAL, and AAL are on their Financial Pathways, but it is clear that DAL is furthest along.
    Each of AAL, DAL, and UAL are >$50B/year firms, so they clearly have “offers” (network, loyalty, etc) that attract revenue.

    Every firm has unique strengths, weaknesses, opportunities, and risks so little surprise they have different priority-&-pace and strategy-&-tactics.
    The transformation of the LGB offer across the JBLU to LUV transition is a great illustration of this.

    I am certain the New AAL Management Team has a roadmap of messages that they will tell at their future Annual Investor Presentations.
    Until them, the real job #1 is to “close-the-gaps” across all the Top-line (customer-focused) and Bottom-line metrics as neither DAL or UAL are resting.

  29. Thanks for putting together this thoughtful analysis. I believe this strategy is necessitated by the lack of widebodies in thier fleet, They chose to retire 330s and 767s and now the backlogs on Boeing wont let them get widebodies anytime soon.

    The Aadvantage side is necessitated by two factors. They are badly trailing peers in card productivity among Aadvantage members. Secondly, it is needed for the full fledged attack that they have unleashed on distribution costs. When mgmt teams run short of creative ideas to expand the top line they focus on the cost side. The top execs at AA have built their career on controlling costs and they are leaning on that to carry te day here.

    AA was never the leader in new ideas but always a fast follower. Seems like they have given up on being the fast follower as well.

    1. That actually is not accurate. Up to and through the 1990s AA WAS the leader. But then Robert Crandall retired, and it hasnt really been ever since.

  30. How has Vasu not worn out his welcome and been shown the door yet? He’s a revenue guy through-and-through and doesn’t understand the network part of the business. For him to tout the network side as a key pillar is great, but he has no clue what he’s doing there and has actively been making poor decisions since before Covid. The AAdvantage piece of the business is the most lucrative part of AA and always will be. He’s smart to include it, but if he’s going to add even more complexity to an already complex web of earning/burning, then there’s no point. I think he needs to be shown the other opportunities around the back of building sooner than later. I can’t see how the investors and board will put up with this ridiculous path forward (into another bankruptcy)?!?

  31. It seems like at this point the market is concentrated enough that only WN and UA are actually trying to compete. Delta and American’s strategy appears to be dominating certain markets so that passengers have no other choice. Hence DL’s decision to stop competing for loyalty and AA’s seeming disregard for product quality.

  32. Awesome analysis, Cranky. Appreciate it.

    I do see this playing out if you look at a market like CID. Not sure what number CID falls in the data, but it’s a city of ~250k MSA.

    DL flies mainline to ATL and rj to MSP.
    UA flies mainline to DEN and mainline/rj to ORD.
    AA flies mainline and rj to DFW, CLT, ORD, DCA, PHX and seasonally to MIA.

    Pure frequency advantage not to mention all the additional nonstops. If I live in CID and travel for business, I’m likely going to fly AA.

  33. Great article, but an added bonus would be a link to market rankings so we see where our local airport falls (i.e. PVD). Could you provide that?

      1. Thank you for replying. Yes, it is lumped in with Boston and I was wondering where the airport falls in the rankings. We have seen a large drop in service from UA and others. As someone who flies every week, I’m trying to figure out if I would be better off moving to AA. Your article gave we a lot to think about.

        Love your service and the information you provide to those who spend so much time in the air.

        Best regards, Steven.

        1. I think the lumping of airports in a market might hide some of the advantages of the AA network.

          Take Manchester, NH – MHT. No service from Delta. United only to EWR, 2x day with either 50 or 76 seat RJ. AA has PHL, DCA, CLT and seaonsal ORD. AA wins on schedule for most markets unless you are flying to EWR or a southwest market like MCO.

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