IN the course of a day and a half, this topic detoured to a discussion of sexual orientation which I will pass over in the interest of returning to the topic at hand… the beauty of internet discussions is that they will go in many different directions, all of which are perfectly valid.
There were some very insightful questions raised regarding my last mega-post and which deserve discussion. I am grateful that there are people who are thinking about what I am writing... IN THE CONTEXT of trying to figure out why AA is struggling much worse than other carriers and what can be done about it.
Once again, this is not an attempt to praise DL or any other carrier but to point out that other carriers – DL most notably has taken advantage of AA’s weakness to accomplish what DL needed to do – and there are good reasons why DL focused on AA and why DL was able to succeed at its goals at AA’s expense.
But other carriers have benefited from AA’s problems as well… and we’ll discuss those in more depth. The only bias was focusing on DL’s benefits and in not discussing how other carriers have benefitted – because they have as well.
So here we go….
Do try to remember that AA only has 135 flights at all three Port Authority controlled airports combined. How many do DL or CO offer? Something on the order of twice as many flights?? If so, I'd hope they would be carrying a larger percentage of local share...
NYC falls into the corner-post strategy, but I have never considered JFK a hub to the same degree I would LAX, which is comparable in size. LAX simply more markets served, both on a point to point basis and on a flow basis. Aside from a couple of southern Europe destinations, there's no point in connecting at JFK to Europe from ORD, DFW, or MIA.
So yes, AA's going to have a lower market share than the guys flying to 40+ destinations.
I agree AA is out for quality not quantity in the NY area. DL operates many point to point routes to Florida from JFK/LGA while AA focuses on FLL, MCO, MIA, and TPA for connecting purposes. I'd like to see AA enter some secondary European markets like EDI, NCE, VLC, etc. JFK-TLV is long overdue and would really bolster AA's position in NYC. AA is in the odd man out in this aspect since CO and DL both offer flights and they have been very successful. Does anyone have information on AA's revenue position in NYC area airports and how it stacks up against CO and DL?
Also keep in mind CO and DL operate significantly more 737s, EMBs, and CRJs while AA operates larger 757 and 767 aircraft on many routes.
Josh
Josh and E and others,
Schedule information historical and current is quite accessible.
Yes there are several ways to measure market size… boarding statistics are published by every airport and are quite public. The Port Authority which operates all three major NYC airports has boarding statistics for each one and all three together on their website. There obviously is not destination level or revenue detail in boarding statistics but there is more than enough to correlate that other statistics makes sense, esp. if you cross-reference with other airports (ie from NCE or TXL where CO and/or DL operate their only service).
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The CRS/GDS operators collect data on tickets they issue and sell it to processors which allows there to be a snapshot of both revenue and O&D (origin and destination) data that is obviously very rich data. However, it is not public. Most reputable airline industry analysts have access to this and the following type of data although most don’t have the network experience to be able to meaningfully use it – or don’t bother getting into “the weeds” of how airlines are run, leaving that to management.
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The third source of data is the US DOT which has collected lots of data on airlines for years and it is generally public. However, the data is massive and you not only need extensive data processing capabilities but also a lot of knowledge to understand what is there and how to use it. I reference some data sourced from the DOT but it really doesn’t say anything that you couldn’t otherwise confirm elsewhere – ie from overall SEC data that includes RASM performance by global region etc.
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Being able to look at all of the data gives you a richer picture and I can do that – but it would be a mistake to not believe the whole picture because you can’t see one piece.
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So…
LGA
In the summer of 2006, AA operated more flights (including AE) at LGA than DL although DL had more seats…. Remember DL was using widebodies up and down the east coast. However, the combined DL/NW schedule at LGA was larger than AA even though NW used very few regional jets.
In 2006, 50% of AA’s schedule at LGA was on RJs while it was 46% for DL. Today both carriers have a slight majority of RJs over ML aircraft.
AA’s average mainline aircraft size has gone up slightly at LGA from 145 seats/aircraft to 151 while DL’s has gone down slightly from 156 to 146.
Realistically, AA and DL both operate about half ML, half RJ at LGA and the average aircraft size is right at the average for an M80/320/738.
The difference in AA and DL at LGA is size. While AA has shrunk the number of flights it has operated and the associated seats at LGA over the past five years by 10-15% depending on the statistic you look at, DL has expanded its schedule by about 10% ABOVE the combined DL/NW flight/seat count even though DL/NW were not merged in 2006.
It is obvious that while DL grow at LGA because of the NW merger, they grew above and beyond the combined levels of DL+NW while at the same time AA shrunk at LGA.
Granted, DL was the only network carrier at LGA that did grow but why would you shrink a highly competitive business passenger rich market if you intended to be a premium business airline as AA has historically been.
UA and CO both shrunk at LGA individually and combined will still not challenge AA or DL in size … part of the reason for mergers among the network carriers is to make up for the “shrinkage” that has occurred among network carriers as they have reduced capacity to push fares up.
LGA has seen an increase in low fare carrier activity at LGA. IN four years, average revenue per passenger at the airport have grown by 7%. AA has done better than that at 12% but DL’s average revenue at the airport has grown by 18% as DL has replaced its Florida heavy focus with more business markets. AA still gets above average revenue/pax at LGA, largely due to DFW being one of the longest large markets from LGA with one of the highest average fares– and one which AA carries almost exclusively.
Still, while AA has concentrated its flying to its largest markets and hubs along with a few key regional jet carriers, DL has added not only more mainline flying because of the NW merger as well as a number of point to point markets in markets that were previously strong for other carriers.
LGA has long had a relatively low percentage of connecting passengers; AA and DL are more than 95% local (not connecting) passengers at LGA.
You still have to ask the question as to why AA chose to shrink at LGA but DL could manage to grow. You should ask the question not specific to DL but about any network carrier, the same class of carrier as AA – esp. one that has a strong business reputation in one of the key business markets in the world.
JFK
JFK provides a little different picture. The airport became fully slot controlled over the past few years so the ability to grow is now limited to the ability to use existing slots more efficiently, which generally means bigger aircraft something both AA and DL can do. B6 obviously cannot grow at JFK any more other than upgauging its few Ejet flights to 320s.
However, five years ago the airport was not fully slot controlled and DL managed to add over 60% more seats on a comparable number of flights. AA has grown flights by about 12% but seats by only about 1%.
AA’s average aircraft size went down from 215 seats/flt to 190 while DL’s went down from 196 to 187. For all practical purposes, AA and DL use the same average aircraft size.
AA’s JFK operation went from 70% mainline to 65% while DL’s JFK operation has remained virtually 50% mainline/50% RJ, a similar ratio to what AA and DL have at LGA.
For comparison, CO at EWR is about 50% ML/50% RJ with an average aircraft size of 169 seats, about average for AA and DL at LGA and JFK combined.
LGA and JFK have always operated in tandem for the carriers that have had a presence at both airports while EWR has been a one airport hub for NYC, even though LGA and JFK obtain the highest amount of revenue from the NYC local market.
Today, CO offers about 85K seats per day from EWR; DL offers about 35K from JFK and LGA; AA offers about 23K seats/day.
REVENUE
The revenue picture is what really gets interesting.
Five years ago, the combined NYC (LGA,EWR,JFK) local market was worth about $20 million per day in each direction (ie $40M combined). Today it is about $23M for a growth rate of about 20% over the 4-5 years…. Not bad in the current economic climate.
Then, CO was the largest NYC carrier with about a 28% revenue share of the market, AA was next at about 22%, followed by DL at 15%, and B6 at 10%. DL and NW’s share combined was 19%.
Today (as of last summer), CO had about a 26% revenue share, DL was at 25%, AA was at 17%, and B6 was about 11%.
If you look at the absolute revenue for each carrier, AA was the only carrier whose NYC revenue actually decreased – by about 10%. CO’s revenue grew by about 10% while B6 grew by 25% in local revenue even though their share (percent of the pie) increased only slightly.
What is notable is that DL’s revenue in the NYC merger DOUBLED if you look at DL standalone before the merger and DL today. The merger contributed about half of DL’s revenue growth but the other half was generated internally as DL gained larger shares in more lucrative business markets like LHR, NRT, and the west coast AND grew its presence in NYC as other network carriers shrank and low fare carriers grew.
DL and the low cost carriers picked up most of the revenue growth in the market and they also picked some of it out of AA’s pockets.
If you look at revenue change among regions, not surprisingly, the Caribbean which was dominated by AA went largely to the low fare carriers…. AA had more than 60% of that market and how has about one-fourth. To/from Europe, DL passed CO as the largest revenue carrier with DL just above one-third and CO just below one-third. AA dropped from about 22% to the upper teens.
If you look at the west coast, AA and B6 both lost about 6 revenue share percent while DL and VX both picked up equal amounts.
AA lost a few percent to Florida which was picked up by other low cost carriers.
You can decide which of these markets really matters but the west coast and Europe are the backbones of AA’s presence from NYC.
If you look at average fares for all tickets in/out of NYC, AA and DL are nearly at the same levels with CO being a bit higher – to be expected since they have more flights to Asia.
One final tidbit.
AA has long received about half of its revenue ORIGINATING in NYC and the other half ELSEWHERE (Destined for NYC). DL historically has been and remains the same. AA and DL both are equally strong elsewhere in the country as they are in NYC.
CO and B6 are disproportionately stronger for NYC originating traffic; neither is as effective as selling seats TO NYC as they are from selling them from NY. In B6’s case that is partly because they cater to a lot of leisure destinations which are NYC originating but CO has always been very weak outside of its hubs relative to other carriers.
UA, VX, WN and others are stronger OUTSIDE of NYC …ie they sell more tickets TO NYC than they do FROM NYC.
The risk for AA comes as CO combines with UA’s strength outside of NYC and as WN “bulks” up to the point where it becomes a bigger player in NYC which makes it easier to sell revenue in a highly competitive market.
SO WHAT does this all matter, you ask?
NYC has been and remains the largest air travel market in the US and probably still the world. It is the economic seat of the USA.
Much of AA’s historic success has come from its ability to have a premium revenue position in the NYC market.
Fifteen or more years ago, CO decided to make NYC a hub and with it became the largest revenue carrier from NYC, a position that has remain unchallenged.
Even though the majority of NYC originating revenue flows through LGA and JFK, CO’s ability as a single carrier to serve all of the top markets that were served from LGA and JFK – even if they were served by multiple airlines – shifted revenue to CO.
In the past five years, DL decided it wanted to become the single revenue carrier on the NY side of NYC… all the evidence suggests that DL is well on its way to achieving that goal.
DL has entered markets once dominated by AA and is getting its share of the revenue in those markets. AA and DL’s average fares are very similar from NYC today.
DL, like CO, has a lot of unique destinations from NYC as well as destinations that it serves competing with CO/UA but not with AA.
There are honestly few market advantages that AA has in NYC that DL has not duplicated at LGA and JFK.
The notion that AA goes after quality from a niche operation is simply not valid. CO and DL get as good as if not better revenue than AA… they are just a lot bigger and that allows them to control revenue ORIGINATING in NYC better.
When you consider that DL and now UA does as good of a job if not better at controlling revenue OUTSIDE OF NYC and they are both bigger than AA outside of NYC, the notion that AA can hold onto revenue originating outside of NYC looks very iffy.
When you look at the revenue shift, you truly have to ask about AA’s future in NYC and you also have to ask how in a highly competitive market AA mgmt has allowed its revenue and capacity to shrink while others – even B6 and CO which haven’t added much capacity – have managed to grow their revenue share.
There will be people here who will read this as a pro-DL post…. It isn’t.
It is the details behind why AA has lost revenue and DL has gained it.
Part of it is due to the NW merger.
But a lot of it is due to DL’s decision that it had to be A if not THE dominant carrier in the largest revenue market in the country.
You as AA supporters can evaluate what it means to you and your jobs personally but the implications extend far beyond NYC.
DL did the same thing in BOS as they did in NYC; the only difference is that DL left the transcon markets to the low fare carriers.
In LAX, UA becomes the largest revenue carrier after the merger and now will have nonstops from two NYC airports. The ability of AA to hold onto revenue at LAX will become increasingly difficult. That’s probably why UA didn’t think too long about sitting on top of AA’s new LAX-PVG flight.
VX has entered ORD/DFW-LAX and SFO. You can see how well they have done in the NYC transcons. UA is pulling out all the stops to protect ORD-west coast. VX and their new presence is going to inflict pain on AA.
AA’s biggest strategic asset right now is DFW and MIA-Latin America, markets where AA faces little competition. But just as other AA dominant markets have fallen to competitors, it seems inevitable that it will happen in those as well.
I think we all agree with your post above. Wish you could convince the AA's BOD of that and oust Aprey and get us some real leadership!
It is up to you at AA to decide to do something about what is happening. I am here simply to point out in detail what is happening behind the scenes to AA’s revenue – what most of you cannot see.
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What seems obvious is that AA’s idea of having five key pillar markets will not work if three of them, NYC, CHI, and LAX are highly competitive and AA is no longer the largest revenue carrier in any of them.
The notion that AA can be a niche carrier in five key markets against other carriers that are larger and/or lower cost (and in UA and DL’s case, both) is simply not supported by history in the airline industry – or by any data that would say that AA’s strategy is working.
You cannot be the airline of choice in the highly competitive coastal markets if you are #3 or 4 in the medium and small markets throughout the US in which NYC and LAX are the top destinations for travelers from there. IN other words, being dominant in LIT, MSN, RDU, and SAT makes it a whole lot easier to be the largest carrier in major markets like NYC and LAX.
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AA is about a $20 billion a year company in annual revenue…. DL and UA are $33-35B companies for comparison.
AA missed industry average RASM by about 5% in the most recent quarter (which was about half of the RASM growth of the rest of the industry).
Just five percent of AA’s revenue is $1 billion.
If just five percent of AA’s revenue is at risk of being shifted to other carriers, every other carrier in the US could be profitable while AA would lose money.
Is it a surprise to you that AA is estimated to lose $1B this year?
Is it a surprise that AA was the only major carrier that didn’t make money last year?
Here’s another 2500+ words, Mikey, but I think it sheds further light on AA’s financial situation esp. relative to its key competitors.
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It’s up to you and your peers to decide whether you want to do something about it or whether you want to berate the messenger, as if that changes the reality.
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I would hope that you and others would direct your energy to regaining control of your situation, rebuilding AA, and restoring all that AA once represented.
