CF: AA Isn't as Weak in Asia As You Might Think

[Super FLUF]

Everyone here at AA needs to know, that at the second coming of Jesus Christ, he will choose to fly on Delta because of its superiority.

I'm sorry if this hurts to hear, but people such as myself and WT need to be here to tell you the FACTS.

 

[jimntx]

Well WT, I find it really annoying that even though our minds are made up, you insist on trying to confuse us with facts. :angry2:

 

[FWAAA]

The article certainly makes it clear why Delta was so eager to lure JAL away from Oneworld and into Skyteam in late 2009 and early 2010 before JAL's bankruptcy. Had that been successful, that would have driven a stake thru AA's Asian presence. Japan is a big country, and until recently, the world's second largest economy (after the US), but it's not big enough for three full-service carriers, so one of the alliances will be left without a Japanese partner. Fortunately for DL, it has the huge NW TPAC operations that DL has nurtured and grown since the merger.

Although a lot of frequent flyers whine about the absence of AA metal from Tokyo to all of the other Asian destinations that UA and DL serve from their Tokyo hubs, the reality is that AA will never establish a hub at Tokyo on the scale of the UA or DL operations. That's what JAL is for. For those most part, those whiners are upset that they can't upgrade their cheap JAL flights to SIN, BKK, etc like they can the AA metal to NRT. Of course, neither can DL frequent flyers, since DL only upgrades on Y, B or M fares across the oceans. Over at UA, they're a little more relaxed about upgrades, but still don't upgrade the cheapest fare buckets.

Similarly, AA will never establish a connecting hub at LHR to fly AA metal to Asia and Africa from London - that's what BA is for.

One thing Brett didn't mention is the possibility that US frequent flyers comprise a fair portion of the UA TPAC passengers (as WT and I have been discussing), and if they stay with new AA, new AA might have some turn-key passengers to support some new flights to Japan, Korea and maybe HKG. Just because old US wasn't flying to Asia doesn't mean that old US didn't have any Asia-bound passengers. THAT would be a good thing for AA pilots, as more flights to Asia are substantially more desirable (for AA mainline pilots) than new flights between ORD and some mid-western Eagle spokes.

Lastly, it's apparent that Brett was responding to the frequent flyer whiners who drone endlessly on, say, Flyertalk - that AA offers nothing in the way of service to Asia when in fact, that's not the case. Even if DL is kicking UA's and AA's ass in revenue carried to Japan, the whiners to whom Brett was replying couldn't care less about revenue share - their complaints tend to be along the lines of "AA has no service to Asia" when in fact AA does.

 

[WorldTraveler]

Everyone here at AA needs to know, that at the second coming of Jesus Christ, he will choose to fly on Delta because of its superiority.

I'm sorry if this hurts to hear, but people such as myself and WT need to be here to tell you the FACTS.

If you think that Jesus Christ will be bound by the frail technology that humankind has managed to develop, then you REALLY will be in for a rude awakening.


Thanks for your insightful discussion of the issues, FWAAA. It is people like you that I look forward to "meeting" here.

Yes, DL was dead set to protect its Japanese presence and tried to not only stop AA's ability to serve Asia in any meaningful way but also to protect its Japanese franchise which is an enormous part of the company. While it may be 10% of DL's total revenues, the Pacific for NW was 25% of its business, and there were times when NW didn't have a single TPAC flight that didn't touch Japan.

The irony is that DL has continued to build its Japanese operation despite losing the JL deal, which DL certainly pursued for no other reason than to run interference with AA.

Since the merger, DL has added JFK to NRT which is one of the highest revenue flights operated by US carriers, based on the total revenue onboard.
DL managed to win two of the four HND slots and shut UA out of the competition not once but twice. Of course, HND is home base to both JL and NH and has the potential to allow AA and UA to connect traffic within Asia far better than DL can at NRT, even though DL has more intra-Asia capacity on its connecting banks at NRT than do either JL or NH.

In their spite for each other, JL put its HND flight to the mainland US into SFO where it can do little for AA (and AA can offer little help) while NH chose LAX.

Now that DL has two of the four HND flights, AA has one which they admitted does poorly and which DOT data shows is a huge lead weight, and UA has none, DL is in a very safe position to start developing its Japan overflight operation. Doing so now seems all the more prudent given that the Bank of Japan has no choice but to start devaluing the yen which will most definitely affect the ability of Japanese to travel, including to those beach destinations which DL serves so well from Japan.

When improved slots to HND become available, as they likely will, DL will get improved slots just as fast as AA and the Japanese carriers do to the US. DL's position in the US-Japan market is pretty solid and their ability to hold onto two HND flights will help ensure that.

You are absolutely right that UA is the one who might feel the greatest pain over the Pacific; it operates a number of flights to HKG and China from IAD, EWR, and ORD that are at the limit of the 777s or 744s which operate those flights. DOT data shows they carry very little cargo. CO could afford to operate those long haul flights when fuel was 1/2 what it is today and they had lower labor costs; crew costs and high fuel costs from their merger agreements will take a toll on UA's profitability in the Pacific where you burn a lot of gas and crew costs are astronomical. Moving the 744s to SFO helps but UA has a lot of Midwest/E. Coast-China/HKG flying.

Add in that NH is adding capacity in markets that might harm UA's position without UA having a place to redeploy the capacity, and Star will take a hit in Asia, just as they will in every other region of the world as a result of the AA/US merger.

I have no problem w/ anyone having loyalty to their employer or fan leaders but at least have the facts on the table enough that you can properly direct your competitive energies in the right direction.

As you note, FWAAA, US will indeed shift traffic to oneworld which will help AA. There are opportunities to grow AA in the Pacific based on US' network strength in the east and out of UA's reach which is really important since AA has unsuccessfully tried for years to develop a viable presence to Asia alongside UA.

AA/US is very unlikely to affect DL in Asia; DL already made its move with VS and Gol and Aeromexico in the global regions where it most feels it needs to beef up its presence against an expanded AA, which has been in the works for years.

 

[Silver Meteor]

WT...do you think Delta is going to apply for MIA-GRU or MIA-GIG in the Brazil allocations due March 2nd I believe?

 

[WorldTraveler]

is that an either/or question?

 

[Silver Meteor]

No I meant how do you think DL (and for that fact anybody else) is going to handle this latest allocation round, considering how strong AA is in Brazil?

 

[FWAAA]

No I meant how do you think DL (and for that fact anybody else) is going to handle this latest allocation round, considering how strong AA is in Brazil?

I would expect DL to apply for JFK-Brazil before MIA. MIA is a strong O&D market, but unless DL upsizes its MIA feed, MIA flights would have to survive solely on O&D.

 

[FA Mikey]

I am sorry is this about AA and Asia or delta and Brazil?

 

[eolesen]

I am sorry is this about AA and Asia or delta and Brazil?

It's about deflection. Instead of discussing the topic, WT would rather discuss anything else. And suddenly, Silver Meteor, who occasionally pops in to defend WT in the past, makes a surprise appearance?

As long as we're off-topic and deflecting, I do find it most curious that someone who rarely makes an appearance and says in their signature that they're an avid DL FF suddenly signed in, and decided to jump into this discussion... Posting within minutes of WT, then going away, and then posting within minutes of WT's next response... On a Wednesday, mid-morning...

Just sayin'.... on the internet, nobody knows you're a dog.

http://www.airlineforums.com/user/19149-spectator/page__tab__reputation

 

[WorldTraveler]

Deflection?
You have got to be kidding.
I hit the subject right on the head and spoke to the exact subject that you teed up; that is why you are seeing 30 shades of read.

Is it any surprise that the thread turns to character assassination and intimidation when the OP can’t keep up w/ the thread and, just like Fluf, opened the door for me to provide insight which so many here want but can’t get ANYWHERE?

Mikey,
If this forum is about AA, then why have E and Fluf tried twice this week to post articles about DL only to be trounced by facts showing that AA is in about as much condition to trounce DL as they have been in the past five years when DL has taken hundreds of millions of dollars in revenue from AA?
Five minutes before you face the judge is a little late to decide to get holy unless you intend to ask for a lot of forgiveness and demonstrate a whole lot of repentance and pay a whole lot of restitution; IOW, if you make your bed, you sleep in it.

FWAAA,
DL flies JFK-GRU and it continues to improve in performance. AA is of course stronger. Of course you would like to see DL go for JFK-GIG and they may but GRU is a far richer market from every gateway and MIA is the gateway that DL doesn’t serve and in which AA has had a protected position in terms of treaties with a number of Latin American countries for a number of years.

The Berlin Wall fell and few people regret it but of course there were losers.

Silver Meteor,
Well, let’s put it this way.
The slot that US is using for CLT-GRU is leased from UA so the chances are slim that UA could argue that they need any more frequencies to fly to Brazil; there have been multiple opportunities they could have added service to GIG or other cities outside of GRU but they didn’t.

AA, as you note, has about more than half of the flights operated by US carriers to GRU which is the most restricted and most valuable airport in Brazil, the largest market in Latin America.

The chances that they will get anymore slots to GRU rank right up there with a heatwave in Chicago tomorrow.

DL came out of BK almost 5 years ago knowing it had a small window in which it could grow its revenues relative to its competitors. It should be pretty obvious that DL focused its competitive efforts on AA and US, the former because they still have access to huge amounts of valuable revenue and US, because they are a major competitor to DL up and down the east coast and the only viable hub competitor to in ATL.
By any measurement, DL has been enormously successful in moving revenue from AA and US to DL over the past five years.

DL is well aware that Latin America is still a weak point in its network and it also recognizes that MIA is the 2nd largest gateway to Brazil (behind NYC) and AA has a monopoly on MIA-Latin America traffic. DL knows that you cannot be the dominant carrier in a region FROM the US unless you serve the largest gateway TO that region.

DL bought equity stakes in Gol and Aeromexico because Mexico and Brazil are the two largest economies in Latin America. While some would like to argue for the virtue of JVs, it should be noted that the US does not have Open Skies with either Brazil or Mexico and thus no US carrier can have antitrust immunity with a carrier from those countries.

Because DL bought equity in those companies, it has a seat on the board of both companies which means they not only have access to financial information from those companies but DL also is able to provide input into the decisions those carriers make in their home countries. In case anyone missed it, Gol just reported that its traffic for January was down about 10% which drove a 10% improvement in RASM. No one who knows anything about the industry could doubt that DL, the carrier that has been most aggressive in cutting capacity in the US in order to generate industry high profits provided its insight to Gol.

Further, Gol recently started one-stop flights from GIG and GRU to MCO and MIA via a scissor hub at SDQ. Now, I’m not sure that DL expects any of its elite passengers to be using Gol’s flights but Gol has added a lot of low-quality (one-stop service like Copa) to the US-Brazil market, and specifically to two of the 3 largest destinations for Brazilians in the US (the other being NYC). You won’t have to walk too far thru Disneyland to hear Portuguese. Guess who carries the most passengers from Brazil to MCO and MIA?

DL has been laser focused on developing its relationships with AM and Gol. K*88 noted that DL has opened a sales office in Afghanistan but DL and Gol also continue to develop joint sales efforts in Brazil and the US.

DL knows full well what it needs to do strategically in order to win the key business accounts around the world. No US carrier now or even after AA/US will have a complete network including partners.
While AA and US work thru their merger, DL/AM and DL/G3 will be working together to help strengthen DL’s position in Latin America. Since Brazil will be hosting the World Cup next year and the Olympics in 2016 and the Mexican economy continues to grow, this is as much of a time for DL to focus on its strategic needs in Latin America.

 

[Kev3188]

Perhaps you should argue it directly with Brett in his comments section, WT. That's why it is there. You can even remain anonymous.

I suspect you won't, because there's the risk he or others would actually respond to you.

Not a bad idea. Some interesting points being raised over there right now...

BTW, those looking to deride him as a sort of scholarly wannabe, might want to see what he posted in the comments thread:

"Terry – Let me make something very clear. I don’t write objectively. This is an opinion blog. If you want news, there are plenty of other places to go for that. This blog is here solely for me to give my opinion on what’s happening."

 

[eolesen]

[deleted -- simply doesn't deserve any more of my time or attention....]

 

[WorldTraveler]

Not a bad idea. Some interesting points being raised over there right now...

BTW, those looking to deride him as a sort of scholarly wannabe, might want to see what he posted in the comments thread:

"Terry – Let me make something very clear. I don’t write objectively. This is an opinion blog. If you want news, there are plenty of other places to go for that. This blog is here solely for me to give my opinion on what’s happening."

that is good to know but it wasn't posted in the OP.
And thank you, K*88, for seeking to play the role of mediator and guardian of common sense in the heated battles that often erupt here.

Again, I don't go looking for other opinions - scholarly or not - regarding the airline industry. I didn't go looking for the article or use the first sentence of the post in my own hand to state

Can't wait to hear WT's reaction to this one...

Well, guess what. I responded to it, just like I did in response to a nearly identical situation yesterday by Fluf.

In both cases I provided very compelling reasons why the whole notion that DL was going to kicked to the curb by AA is baseless.

Somehow there are a group of people who can't quite realize that after 7 years, I know what I'm talking about whether I have lunch with Jenkins or babs or anyone else.

I've sat thru meetings w/ them, read their books.

I have my own credentials and a track record too.


What is painfully obvious as much as some people want to argue otherwise is that AA had a cost problem relative to DL for at least five years and in that period, DL has had a field day targeting AA's top markets.

Horton, as much as anyone wants to trash him, came within 2% of matching DL's CASM as of the last quarter; AA beat US and UA in CASM and was as prepared as any airline could be to do battle with DL, which has long had as a core strategy to be the lowest CASM network carrier. It is precisely DL's focus on being the low cost provider among network carriers that has enabled them to continue to grow from a small regional airline to the global airline they are now.

I pushed for AA as a standalone carrier precisely because I knew that they would be much more able to compete against DL if they emerged as a standalone.
But labor at AA was so consumed by its anger for Horton and the rest of AA's execs that they didn't want to hear this and now may get pay raises but will also get a company that is just as vulnerable to competitive assaults as it has been for a decade.

The US industry is not settled, as much as some want to believe that the AA/US merger is going to allow everything to be set in stone.

The creditors made the decision to accept Parker's proposal which will add hundreds of millions if not billions of dollars in cost and will subject AA to years of painful merger processes. At the same time that DL is redoubling its efforts not only to minimize any revenue gains that AA/US might get from the merger but also to further expand DL's reach into key AA/US markets which it has not tapped. DL's focus at LHR and in Latin America has been minimal until the past year.
DL is also focusing its attention on LAX where DL wants AS to ditch its relationship with AA; AS wants both so DL is launching multiple new flights on its own equipment plus on large RJs.
DL has also committed to cutting another billion bucks in non-fuel costs out of its network this year which, combined with the refinery could very well allow DL to gain a 10% cost advantage over the new AA and UA and keep DL's costs closer to WN and AS.

It is precisely because DL's costs have been well below AA and UA for so long that DL has been able to gain so much revenue.

It is very likely that the AA/US merger will restore the same dynamic that has existed in the US airline industry since deregulation which is that AA and UA are the two high cost carriers while DL (and CO and NW before) plus all of the low fare carriers all have lower costs and have been able to handedly win revenue markets from AA and UA.

Whether I am an aviation professional or not doesn't change the fact that I have seen these trends for the better part of a decade and have been continually pointing them out.

I don't post on other sites or respond to posts outside of this aviation chat forum.

Regardless of what kind of knowledge or experience I have in the industry, anyone who wants to post something on this forum touting how certain that are about how something will shake out in the industry should be well prepared to defend it - on this forum.

BTW, opinions are not what you write when you back something up w/ data and set out very clear assumptions. The article was written as if the author was making a case and was willing to back it up w/ proof. That is not merely an opinion.

 

[robbedagain]

EVEN with the lower labor cost wt? As for the AS/AA relationship along with the US being added to it soon that should help to add more revnue to aa n as am i right? i would imagine the creditors most likely saw this scenario as you have described but they probably also saw other situations includin aa stand alone and the merger may be they felt the merger is the best way to go in order to get the most in return hint that could be why 72 to 28 for amr n us respectively