WorldTraveler
Corn Field
- Dec 5, 2003
- 21,709
- 10,721
According to the latest DOT data which is the 3rd quarter 2012, AA and US were #5 and 4 respectively behind B6, DL, and UA for passengers at BOS and #4 and 5 in revenues behind UA, DL, and B6 who all are very close in terms of revenue. The combination of AA and US based on 3Q2012 data says that AA and US would indeed be #1 at BOS based on passengers, a couple share points larger than B6, and #1 in revenue, about 43% larger than UA based on revenue.
Note, however, that all these calculations are based on last summer’s data; competitive changes since that time and into the future will affect how large AA and US actually become relative to other carriers, and any changes that AA and US make to its current network may also change the outcome. Although AA and US serve BOS from several cities besides their hubs and the Shuttle, the vast majority of their traffic is to/from their own hubs, just as it is with other network carriers at BOS; closure or downsizing of one of those hubs could well affect AA/US size.
Before drawing a conclusion about whether AA and US will remain the largest carrier at BOS – and a lot of other cities, there are some key dynamics of the airline industry to consider. You then also have to ask the question of how big of a difference in size in any market is sustainable in order to retain your market size against other competitors. It may well be that each of the network carriers is capable of serving enough of the key markets to gain corporate business since none now or in the future may be large enough to be called a true hub – a point at which size difference between network carriers does make a difference in the ability to gain corporate revenue.
First, BOS is a spoke city for every US carrier, or at best a focus city – although that term has little consistent definition.
What is true is that the network airline system was designed by the CAB during the regulated era around the principle that legacy carriers built their networks around the largest local markets as well as interior hubs where connections could be made throughout the US. Most coastal cities, including BOS, became spoke cities for domestic travel and also had a limited amount of international service. Some of these cities had services to the region; the majority of US’ current non-hub, non-Shuttle flying from BOS goes back to its roots where US’ predecessor airlines provided regional service from the larger cities in the NE.
Various airlines have tried to build BOS into a larger international operation than any US carrier has today without success. DL today is the only US carrier that has long-haul international service from BOS on its own metal which is due in part to DL’s historic strength in BOS that goes back to its merger with BOS-based Northeast Airlines; Northwest also had a fairly large international operation in BOS at one time and managed to retain the loyalty of a lot of international passengers which they passed on to DL.
Because the east and west coast’s major cities were almost entirely spokes for legacy carriers before deregulation except to feed international operations and for the largest local markets (the transcons and Florida from BOS), the low fare carriers focused not on building entire hubs but instead to serve the largest local markets on a point to point basis. People Express built EWR, B6 built JFK and then later BOS when they had maxed out JFK, and WN grew up and down the west coast because the network carriers left most of the point to point markets to them.
All of that discussion lays the basis for the reality that there are markets where low fare carriers have demonstrated more success and there are markets where legacy/networks do better. LFCs generally do better in point- to- point, high density markets while network carriers have the advantage in markets where they have the potential to connect large amounts of traffic – such as international flights and to smaller markets via regional jet connections.
It is also true that LFCs and network carriers typically do not thrive in the same market; there are very few examples of LFCs and network carriers both having large operations at the same airport.
BOS, if for no other reason than geography is a market best suited for point to point traffic and it is a large enough market to give LFCs an advantage by nature of their lower cost structure.
Add in that B6 already has a substantial size at BOS as well as a cost advantage (it is the lowest CASM large jet operator in the US) and it is doubtful that any network carrier could grow sufficiently large to challenge B6. Further, B6 is already feeling pressure in NYC because of DL’s growth at LGA and JFK; geographically as well as because of slot restrictions, B6 has fewer options to sustain its presence relative to DL. While B6 is still firmly established at JFK, BOS is a necessary strategic relief valve for them.
Given that B6 already serves the vast majority of markets in BOS which could sustain nonstop domestic service and AA/US has no int’l service on its own metal from BOS, the chances are very unlikely that AA could grow in BOS alongside B6.
Further, there are unique factors in the AA/US merger which make AA’s ability to keep costs down in the future even more questionable. First, the AA BK will probably be the first major BK in the US in which employees will receive pay raises before the company leaves BK; correct me if I am wrong but I can’t think of another case like it. Parker was so determined to get his hands on AA that he was willing to force up not only many of the costs that AA had just cut in BK but also add costs to his own workforce. At this point, no one really has any idea how much Parker is willing to spend in labor cost increases to win AA employee support, but the total will be very large. Add in that AA is gaining a lot of the non-labor costs (as well as some of the labor cost gains esp. in maintenance) thru the acquisition of new aircraft, and even under AA’s standalone plan, AA was going to cut costs in the short term by adding on much more debt and increased aircraft ownership costs down the road. The difference in ownership costs for AA’s fleet vs. DL’s could easily amount to more than $1 billion per year within the next 3-5 years.
Thus, AA’s ability to compete against low fare carriers, and esp. B6 which is the lowest cost of them all except for the ULCCs, is highly doubtful.
Perhaps someone can show me why this logic won’t apply to BOS – but way too many people are dangerously failing to acknowledge some of the most significant factors that will determine how effectively AA will compete and expand while equally being enamored by the sheer size that AA will gain; while certainly significant, size alone has never been shown to be an effective barometer of success in the airline industry.
Note, however, that all these calculations are based on last summer’s data; competitive changes since that time and into the future will affect how large AA and US actually become relative to other carriers, and any changes that AA and US make to its current network may also change the outcome. Although AA and US serve BOS from several cities besides their hubs and the Shuttle, the vast majority of their traffic is to/from their own hubs, just as it is with other network carriers at BOS; closure or downsizing of one of those hubs could well affect AA/US size.
Before drawing a conclusion about whether AA and US will remain the largest carrier at BOS – and a lot of other cities, there are some key dynamics of the airline industry to consider. You then also have to ask the question of how big of a difference in size in any market is sustainable in order to retain your market size against other competitors. It may well be that each of the network carriers is capable of serving enough of the key markets to gain corporate business since none now or in the future may be large enough to be called a true hub – a point at which size difference between network carriers does make a difference in the ability to gain corporate revenue.
First, BOS is a spoke city for every US carrier, or at best a focus city – although that term has little consistent definition.
What is true is that the network airline system was designed by the CAB during the regulated era around the principle that legacy carriers built their networks around the largest local markets as well as interior hubs where connections could be made throughout the US. Most coastal cities, including BOS, became spoke cities for domestic travel and also had a limited amount of international service. Some of these cities had services to the region; the majority of US’ current non-hub, non-Shuttle flying from BOS goes back to its roots where US’ predecessor airlines provided regional service from the larger cities in the NE.
Various airlines have tried to build BOS into a larger international operation than any US carrier has today without success. DL today is the only US carrier that has long-haul international service from BOS on its own metal which is due in part to DL’s historic strength in BOS that goes back to its merger with BOS-based Northeast Airlines; Northwest also had a fairly large international operation in BOS at one time and managed to retain the loyalty of a lot of international passengers which they passed on to DL.
Because the east and west coast’s major cities were almost entirely spokes for legacy carriers before deregulation except to feed international operations and for the largest local markets (the transcons and Florida from BOS), the low fare carriers focused not on building entire hubs but instead to serve the largest local markets on a point to point basis. People Express built EWR, B6 built JFK and then later BOS when they had maxed out JFK, and WN grew up and down the west coast because the network carriers left most of the point to point markets to them.
All of that discussion lays the basis for the reality that there are markets where low fare carriers have demonstrated more success and there are markets where legacy/networks do better. LFCs generally do better in point- to- point, high density markets while network carriers have the advantage in markets where they have the potential to connect large amounts of traffic – such as international flights and to smaller markets via regional jet connections.
It is also true that LFCs and network carriers typically do not thrive in the same market; there are very few examples of LFCs and network carriers both having large operations at the same airport.
BOS, if for no other reason than geography is a market best suited for point to point traffic and it is a large enough market to give LFCs an advantage by nature of their lower cost structure.
Add in that B6 already has a substantial size at BOS as well as a cost advantage (it is the lowest CASM large jet operator in the US) and it is doubtful that any network carrier could grow sufficiently large to challenge B6. Further, B6 is already feeling pressure in NYC because of DL’s growth at LGA and JFK; geographically as well as because of slot restrictions, B6 has fewer options to sustain its presence relative to DL. While B6 is still firmly established at JFK, BOS is a necessary strategic relief valve for them.
Given that B6 already serves the vast majority of markets in BOS which could sustain nonstop domestic service and AA/US has no int’l service on its own metal from BOS, the chances are very unlikely that AA could grow in BOS alongside B6.
Further, there are unique factors in the AA/US merger which make AA’s ability to keep costs down in the future even more questionable. First, the AA BK will probably be the first major BK in the US in which employees will receive pay raises before the company leaves BK; correct me if I am wrong but I can’t think of another case like it. Parker was so determined to get his hands on AA that he was willing to force up not only many of the costs that AA had just cut in BK but also add costs to his own workforce. At this point, no one really has any idea how much Parker is willing to spend in labor cost increases to win AA employee support, but the total will be very large. Add in that AA is gaining a lot of the non-labor costs (as well as some of the labor cost gains esp. in maintenance) thru the acquisition of new aircraft, and even under AA’s standalone plan, AA was going to cut costs in the short term by adding on much more debt and increased aircraft ownership costs down the road. The difference in ownership costs for AA’s fleet vs. DL’s could easily amount to more than $1 billion per year within the next 3-5 years.
Thus, AA’s ability to compete against low fare carriers, and esp. B6 which is the lowest cost of them all except for the ULCCs, is highly doubtful.
Perhaps someone can show me why this logic won’t apply to BOS – but way too many people are dangerously failing to acknowledge some of the most significant factors that will determine how effectively AA will compete and expand while equally being enamored by the sheer size that AA will gain; while certainly significant, size alone has never been shown to be an effective barometer of success in the airline industry.
