thank you for the correction about the timing of the intended 20% increase in capacity. But even by your statement, it wasn't driven by market realities but by a need to be a certain size - and devoid of a realistic plan to successfully add that capacity. More significantly, it means that AA didn’t use bankruptcy to get rid of the parts of its network that didn’t make money – and every airline has them – but continued to hope that it would turn itself around and could make it on its own.
It is precisely because AA's network is built around the largest and most competitive markets that it will have the most difficult time adding int'l capacity, not only because it has to compete against foreign carriers, most of which are far stronger financially than their US peers, but also because AA was the last going into and coming out of BK and thus has a lot fewer options to grow left to it.
I'm reluctant to even mention DL, but since you asked, I will speak about their strategy and I will also point out your quote asking about their strategy to anyone who even thinks of accusing me of hijacking the conversation.
DL's strategy has long been to be the lowest cost legacy carrier; as much as anyone wants to think otherwise, the airline industry is largely a commodity business which means that the lowest cost provider ends w/ the largest share of the market and the highest profits. While every carrier tries to differentiate its product, there is no evidence yet that in the US airline industry, anyone but the lowest cost provider wins.
You are correct that AA gained a lot of revenue against UA but you also fail to note that UA’s operation was in complete meltdown mode for much of 2012 because of its botched merger. It isn’t surprising that AA’s RASM growth early in its BK – which you were quick to point out (and rightly so) – came to a halt not only when AA’s own operation went thru the operational meltdown of last fall but which also coincided when UA began to get its act together operationally.
It also doesn’t change that UA and AA have been longtime direct rivals – which is a unique relationship that doesn’t exist between any other two US airlines. AA and UA have long directly competed in some of the US’ top markets and felt they each had to “one up” the other. AA and UA don’t have identical route systems but the whole LAX-PVG saga shows that neither one is going to cede anything to the other.
As much as some predicted otherwise, WN backed down its presence in ATL because it has thrived precisely because it has not tried to compete directly with other airlines. As DL has become much more aggressive in NYC, B6 has looked for growth elsewhere.
And as you well note, CO grew at EWR largely because AA and DL didn’t do anything to challenge them for an important ten years. And as you also note, CO’s cost advantage began to disappear by the mid-2000s which is why it became increasingly apparent they could not remain independent, esp. because DL came out of BK with intentions on being much larger in NYC and DL was larger and had better alliance connections.
Note also that even though DL and NW were the last going into BK, they were the first to merge. UA and US both talked about mergers with other carriers but DL moved first. There is always a first mover advantage in any major strategic initiative and DL gained that with the NW merger. It is precisely because DL gained enough mass in NYC and then turned its attention to the slot deal and now the Virgin Atlantic ownership deal and JV that it has now pretty well wrapped up what it needs to do in NYC, and has gained significantly against AA over the past 10 years.
Remember also that DL tried JFK-EZE, AA doubled capacity, and DL decided it wasn't that strategically important to serve two destinations in S. America from JFK. UA moved their EZE flight up to EWR recently where they stand a much better chance of competing in the NYC-EZE market. Both DL and UA recognize AA's strength in Latin America and will grow where they can but they aren't going to fly routes that can't make money.
UA gave up nothing to AA at ORD and has kept AA looking for a place to profitably operate int’l flights from Chicago other than to its alliance partner hubs.
It is precisely because DL and UA went ahead of AA in the BK and merger processes and because they built out their networks in the areas that would make it hardest for AA to grow that it now makes it much more difficult for AA to find clear air for int’l growth from its own network.
Remember also that DL and UA both grew into Africa and the Middle East, markets that aren’t big enough to support much of presence by all three carriers. Even with its lack of presence in Asia outside of Japan, DL has grown its Asian network from DTW, where no other Asian carrier flies, and SEA where DL has been able to use the lower cost 767 and the AS codeshare to fill its flights – and where there is little US carrier presence.
Given that AA significantly underperforms both DL and UA to NRT from LAX, it’s not likely that AA could have found any place to grow from LAX to Asia that would not have resulted in a competitive response.
But AA could very well have chosen any other route to Asia besides ICN from DFW and we probably wouldn’t be having this discussion. AA talked for years about flying DFW-China and presumably could have gained the support from the pilots to do so now – or could have had it forced upon them in BK. AA could have also started ORD-HKG where AA has an alliance partner. But AA started DFW-ICN, the only other East Asia route served from DFW by a competitor and LAX-PVG where UA has long been the dominant carrier, even if it didn’t fly it nonstop. Further, DL and UA have much stronger alliance presences in China.
Specific to Brazil, AA already gets half of the market or more from LAX to both GRU and Brazil as a whole. AA also gets a revenue premium compared to other carriers at LAX to GRU and Brazil. DL and UA perform relatively better but in many cases AA still is the largest carrier in other west coast markets such as SAN, SFO, and SEA to GRU and/or Brazil as a whole. A new AA route from LAX-GRU isn't likely to change AA's market position in SAN, SFO, or SEA and it also isn't likely to improve AA's market position in LAX where AA already has a significant market share and revenue premium. The question remains why AA feels a need to add a lot of costs to a market where they already do very well, aren't likely to see much improvement, while being unable to gain a significant advantage in markets like SEA and SFO where other carriers already have a much larger int'l presence - and thus marketing clout to counter AA's growth at LAX.
The two biggest areas that will be strategically important competitively in the industry in the next couple years are the opening of Dallas Love Field to domestic competition which will disproportionately impact AA and the opening of WN's int'l ops at HOU which will impact UA. Once again, it will be AA and UA who will have to battle low fare carriers more so than other carriers over the next couple years.
As hard as it is for you or others to hear, those are the kinds of decisions that AA mgmt has made (and int’l route decisions typically go to the top of the organization) are the ones that the creditors have to look at and ask how AA mgmt has used its resources.
As I have noted before, AA could easily add PHL to a number of points in Asia and likely find little to no competitive resistance. PHL is geographically positioned such that AA could serve a large chunk of the eastern US. While the future of PHX is not as certain, there is no reason to think that the addition of a couple Asian routes from PHX could easily improve the economics of that hub. Strategically, new AA may not be in a position to serve all of Asia from all of the US on its own metal but neither are DL and UA trying to serve all of Latin America from all of the US.
It’s about doing what you can do well and know that there are limitations to your network; use alliance partners to round out the shortcomings – and AA’s alliance partners have a large enough presence on the west coast for AA to have a network presence.
As hard as it may be for you and others to believe that me saying that AA can’t grow in some of the top industry markets to Asia and continental Europe, the reality is that the new AA has ENORMOUS growth potential – but it will come based on the strengths of the combined network and in the case of Asia and continental Europe, that will probably be from current US hubs.
I appreciate the honest and candid discussion. You have long set yourself apart from the rest of the AA fan club in your ability to engage in difficult but respectful discussion and I wholeheartedly commend you for that quality.