AA seeks new service to Brazil

FA Mikey

Aug 19, 2002
American would change its daily one-stop service to Recife and Salvador to individual nonstop flights five days a week between Miami and each of those destinations starting Nov. 15 and add a second daily flight from Miami to Rio de Janeiro in December.


Read more here: http://www.miamiherald.com/2012/05/16/2802898/american-seeks-right-for-additional.html#storylink=cpy​
Makes sense, or as much as any decision does when it's never quite clear what next year will bring. Right now - meaning the last 6 months or so given the lag in reporting such info - Latin/South America is the shining beacon for traffic/revenue in the world, Some in the recent past have tried to make much hay from AA's earlier guidance saving that after an initial slight shrinkage in capacity they would add 20% over 5 years. The cry from some was along the lines of "how dare they add that much capacity when everyone is trying to keep capacity under control." But adding trans-Atlantic/Pacific routes adds a lot of capacity per flight just because of the distances involved. And currently there's no better place in the world to be adding capacity than to Latin/South America.

AA's Latin America network has long been a natural seasonal counter to its European flying.

Latin America has done well for years because Latin economies are growing rapidly and the middle class is growing rapidly -and they have an insatiable desire to experience the United States, including cheap shopping which is in contrast to the taxes in many parts and relatively limited availability of consumer products in Latin America compared to Europe, the US, and East Asia.

AA is growing its presence in Latin America just as Brazil devalued the Real and the US Dollar has strengthened against global currencies because of Europe. AA may be able to sell seats to Latin America for more than they can to Europe in the northern hemisphere winter but demand will most certainly fall off driven by a 15-20% difference in the value of the real vs. the dollar year over year.

Add in the fact that TAM is also increasing frequencies and the Brazilian market could well move into a position of overcapacity very quickly, esp. to/from MIA which is the US gateway for a large part of US-Latin flying. US carriers are still limited in their ability to add flights to GRU due to airport constraints and AA is creating new slots at GRU only by transferring its MIA-GIG flights - which could be used for flights to GRU - by requesting new slots at GIG since GIG and the rest of Brazil is essentially Open Skies now; there are more US carrier frequencies available outside of GRU than have been requested to be used. DL did the same thing to expand its DTW-GRU flight to daily service.

Since AA and JJ are trying to move into the same alliance and both are adding capacity at such high rates, it might make it impossible for them to ever obtain anti-trust immunity or participate in a joint venture. AA may be counting on the same situation as occurred at LHR - they got ATI by arguing that slots were available - but AA/JJ will still control such a high percentage of flights between the US and Brazil that competitors and governments may be far less likely to agree that the market is served when one alliance can control 75% of the seats in the market. Latin governments, esp. in Brazil, are far less convinced of the merits of unbridled free markets than the US and some in Europe are.
looks like the DOT is awarding AA its requested LAX-GRU route while DL gets ATL-GRU #2 this year while US gets assurance that CLT-GRU will continue after the lease ends with UA and DL is assured that DTW-GRU will continue with an award in 2014.

Meanwhile, the Brazil Real is at its weakest point vs. the US Dollar in more than 3 years which weakens demand for travel to the US from a country where shopping excursions are a major driver of tourism.

I still contend that LAX-GRU won't last more than a year. KE doesn't do good on it at 2x a week, and DL failed at it as well just around 2 years ago. I hope to be wrong, just personally can't see it working. I see it being moved to ORD later or hoarding it In MIA and switching it with a dual GRU-GIG slot. I don't think there is enough demand for any of these 4 new flights.
I've said it before... GRU is home to one of the largest Japanese populations outside of Japan. Throw in the JV with JAL, and TAM's inclusion in oneworld, and, well, you've got a lot of feed that KE and DL couldn't generate if they wanted to.
Assuming that new AA does not have to give up any of the Brazil frequencies held by US or AA, new AA will have plenty to inaugurate service to PHL and ORD. US currently has 14 weekly frequencies and DL will transfer 7 more as part of the slot swap. US was awarded 7 more today for CLT-GRU to replace the 7 that will be returned to UA in 2014, leaving US with 21 weekly frequencies. That's enough for ORD-GRU and PHL-GRU and PHL-GIG.
US has 7 weekly frequencies for CLT-GRU which are leased from UA. Their CLT frequencies are restricted. The DOT is simply ensuring that US will be able to retain the CLT service. Their request for PHL was part of the proceedings but was not awarded.
UA's 7 weekly frequencies remain unaccounted for... what they will do with them remains to be seen. Not sure if US can walk away from the lease but US' award is not effective until next October.
Also, there is nothing that improves US' slot times to/from GRU for the near future which means they will likely lose lots of money arriving at 4 a.m. and leaving by 8.30 a.m. or something similar.

Lest you get too excited about all of these new routes, the Brazilian Real has deteriorated even further compared to what I wrote even earlier today. The Real is now more than 10% weaker than it was just a few months ago and that will have a significant effect on tourism to the US from Brazil.
Add in that several other carriers are adding flights and it is not uncommon to see fares below $1000 RT between the US and Brazil... far lower than it has been before.
The economic viability of these awards is a whole lot less than it was when the proceeding started. Everyone will likely start the routes but don't be surprised if there is a desire to push them back.

And don't forget that the US and Brazil are supposed to have Open Skies in 2 years anyway based on completion of the new terminal at GRU. AA can't add that many new flights before Open Skies w/o tanking their financial performance - and they will be hard-pressed to continue w/ their Brazil expansion based on the currency changes.

Finally, the DOT already collects data on transiting int'l passengers on US airlines and AA and DL right now have very similar shares of the Japan-Brazil market. DL benefits by its presence in Japan while AA benefits based on its presence in Brazil but the new routes don't change that Brazil - Asia traffic is increasingly moving via the Gulf carriers who are adding flights to Brazil. There are no visa issues and the times aren't that much different.
Further, AA and JL cannot have a JV on Japan-Brazil traffic because Brazil doesn't have Open Skies with the US which means that there really isn't much that will change with respect to Asia-Japan traffic as a result of these awards. AA also has to compete with KE which offers the only single carrier service from Northern Asia to S. America. The majority of the Brazilian population in Japan IIRC is in Nagoya, not Tokyo, so they have to change planes and stop once no matter what route they take except for DL's NGO-DTW-GRU service.

Don't forget that Japan has devalued its currency so US carriers trying to compete in the Brazil-Japan market are going to be hit on both ends trying to sell tickets in a market that the Gulf carriers have pushed into anyway

also, we have had the discussion before but DL has an exclusive US carrier partnership with Gol which has the largest domestic Brazil presence at both GRU and throughout Brazil. DL has no shortage of feed to push passengers onto its flights and they both continue to add enhancements to their partnerships. Correct me if I am wrong, but AA and JJ are not codesharing now.

BTW, E, I see you and your little buddy Veritas still can't stand for anyone to say anything even the slightest bit negative about AA and thus use the post voting system not only as a means to beat others but also to elevate your own self-image.

WT, you'll need to find someone else to hate on. I don't waste my time secretly voting down your posts. It's more rewarding to simply call you out in public.

The JV may be an issue for the time being, but the alliance benefits will still be a positive, even moreso than what Skyteam provides, since DL now offers partial credit with its alliance partners (good luck keeping track who gives full, half, or quarter miles for elite status...).

The economy is indeed a problem, but I suspect these routes will be launched just in time for World Cup. I'm sure you're more than aware that it's being held in Brasil. Isn't Curitaba one of the host cities?

The options on EK and other carriers in the Gulf are about 1000 miles longer flying, and offset by lower fares I'm sure, but don't overlook how much the issues of language and culture come into play.
Yeh those Brazilians are lining up already to purchase AA tickets.
MIA is all 777-200, JFK is 777-200 and 777-300 and DFW is 767-300 ( I think ). NO 767-200's to anywhere in South America. That would be US Air.