Blame Southwest

Hopeful

Veteran
Dec 21, 2002
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Pressure by Southwest hurt AA
By CYNTHIA WILSON Post-Dispatch
updated: 07/17/2003 10:09 PM


Competition from low-cost leader Southwest Airlines was likely a major factor in American Airlines'' decision to cancel service to 27 cities from Lambert Field and reduce the number of flights it offers to other destinations.

Southwest, which operates 67 daily nonstop flights from the East Terminal at Lambert, offers competing service to 13 of the 27 cities where American canceled service, effective Nov. 1. The two airlines will continue to compete on five other routes, including to three cities in Florida.

American, the world''s largest airline, laid out its latest plans for St. Louis on Wednesday, when it announced it would cut service here by more than half to strengthen its Chicago and Dallas hubs. The plan, American said, is to shift much of the connecting traffic that now comes through St. Louis to those other hubs, leaving Lambert with flights mainly used by passengers leaving and coming here.

A spokeswoman for American said the 27 cities had high operating costs and low profits. The reason we picked those routes is because they were not performing well financially, said Julia Bishop-Cross.

Industry experts say American was getting hammered on those routes because it had to compete on fares with Southwest.


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Tom Parsons, chief executive of BestFares.com, said Southwest''s $34 one-way specials made it especially hard.

When they ran a deal, it was not uncommon for Southwest to run St. Louis to 10 or 11 cities for $68 round-trip - which American had to match, Parsons said.

American is forcing connections through (Dallas and Chicago) where they have more planes, and they don''t want them to go through St. Louis because they''re not making (as much) money, Parsons said.

American hopes the cuts also mean St. Louis-area travelers will fill 50 percent or more of the seats being offered at Lambert under the slimmed-down schedule, Parsons said.

Some flights, such as those to Vancouver, British Columbia; Honolulu; and Shreveport, La., probably warranted cancellation, because they likely didn''t generate enough local business, said Richard Aboulafia, senior aerospace analyst for the Teal Group in Fairfax, Va.

That''s a sign that the hub at Lambert is in decline, Aboulafia said.

But even if the St. Louis routes where American did not compete with Southwest were doing well, it might have canceled them in favor of routing passengers through Chicago, because that''s where the carrier sees growth.

Parsons said American has always played second fiddle to United Airlines in Chicago. But this may be a good time to apply pressure on its chief rival.

Now is the best time to strike, when everyone''s not sure what United''s future is, Parsons said. Business travelers are irritated with United. American is concentrating on stealing United''s passengers.

Bishop-Cross said American will add more American Eagle flights at Chicago''s O''Hare International Airport. But no other flight additions have been announced for that hub or American''s hubs in Dallas and Miami.

American has available seats on many flights at those airports, Bishop-Cross said. And the airline believes those extra seats will accommodate many of the passengers who now connect through St. Louis.

American hasn''t said if it plans to move any large jets based at Lambert to Chicago. Nor has it notified its pilots union of any planes to be reassigned to Dallas or Chicago.

But a spokesman for the pilots union said Thursday it would not be a surprise if pilots are reassigned.

Whatever happens in Chicago and Dallas, some industry experts say American is giving its St. Louis hub a chance to become profitable by cutting routes and relying more on smaller planes to the cities it will continue to serve.

Area travelers will notice the difference. Only 53 of 207 daily flights American will offer this fall will be on its own larger jets. Of the remaining 154 flights, 85 will be on regional jets and 69 on turboprop planes.

American will offer fewer flights to cities on its larger jets than it will on turboprop airplanes, but only three new cities, Cincinnati, Indianapolis and Springfield, Mo., will be moved from jet service to turboprops this fall.

Some travelers may find the ride more cramped and a little bumpier.

But American stands a better chance of improving its bottom line, Aboulafia said.

Turboprops make sense on many short routes, he said. They make a lot of sense on routes of less than 250 miles, and a fair amount of sense or routes up to 600 or 700 (miles). They''re going to have better economics than regional jets, especially since you can get used props for relatively little money.

Bishop-Cross said American hopes the new schedule will help the airline be profitable. If that proves to be true, then we look for even more opportunities to offer more flights from St. Louis.
 
SW was already entreched in St. Louis before AA bought TWA a few years ago. I think the economy and a flawed AA business model are much more to blame than SW.
 
The fact of the matter is that WN has been cutting back service in STL since 2001. I would be shocked to see any real expansion by WN in STL as I dont think they feel there is sufficient revenue base there. They may add a couple flights back, but I dont see any additional gate usage over what they use on the east terminal.

The "Post Discrace" newspaper is is rarely a source for balanced or informed airline news. The paper could be useful for wrapping fish, but then again that could be cruelty to fish.
 
I agree. Perhaps its just that STL may simply not fit into certain airlines'' business models. I have always felt that since STL is vitually in the center of the country, it would be the ideal hub. Makes one wonder why Southwest didn''t take advantage of that. With their structure, it could have been an ideal hub offering east to west connections with just STL as the one stop.
 
Maybe AA''s reduction in STL will pave the way for Virgin''s Richard Branson to pursuade the government to change foreign ownership rules so he can start his low cost carrier with STL as a hub. Stranger things have happened!
 
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On 7/18/2003 8:20:05 AM Hopeful wrote:

I agree. Perhaps its just that STL may simply not fit into certain airlines'' business models. I have always felt that since STL is vitually in the center of the country, it would be the ideal hub. Makes one wonder why Southwest didn''t take advantage of that. With their structure, it could have been an ideal hub offering east to west connections with just STL as the one stop.


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I guess at the time when SWA was building up STL, STL suffered from a similar situation that SFO did - low weather operations impacted a good chunk of their system. It''s odd that the paper would tend to blame SWA - on an afternoon talk show, the host was talking with a TV (KMOX) newsman who and who asked if they felt SWA was a reason and the guy said No, they weren''t - people who were loyal to AA (or TWA) pretty much stayed loyal. As for midwest connections, SWA has a fair share of those running out of MCI.
 
What dooms hub after hub is that you can’t make money relying on connecting traffic. Local traffic has to be the foundation if a hub is going to make money, and connecting traffic is only the gravy.

Hubs have scaled back when—

(1) The proportion of local market to total capacity is too small.
Well before 2001, hubs like MEM, PIT, and CLE were all mere shadows of what they peaked at. Even CVG has roughly 25% fewer mainline Delta departures than it once did, as it becomes more and more an RJ hub. Connecting traffic is generally *far* lower yield than nonstop traffic. By definition, connecting traffic fills up two segments instead of one. And often price has to be low-balled to attract significant connecting traffic. If you’re trying to fill up 150-seat aircraft, low-balling is almost a necessity.

(2) You’re not the #1 carrier.
It’s very hard for a market to serve two masters, and whomever struggles to get their fair share of the local market suffers. Few airports are big enough to support more than one full-scale hub operation. Low cost competitors change this equation a bit, since it would seem possible that the traditional airline could still retain the top spot but the LCC still able to make money. But historically it’s been very difficult for the second-banana hub at an airport to turn a buck. Witness all of AA’s different strategies at ORD between roughly 1990 and 2000 in an attempt to make ORD do better.

(3) Too much low cost carrier influence hurts yield on local traffic.
One of the things which makes hubs profitable is that the hub airline usually can charge a decent amount to their local market…sometimes far higher than a “decent amountâ€. Usually they have the most (or the only) nonstop flights, plus the lures of frequent flier programs and of preferred-vendor agreements with companies are strong. But if someone else with a strong presence and nonstop flights offers low fares, the hub airline has little choice but to match.

In St Louis, I think it’s more #1 than #3, but both are in play. Given the size and number of businesses in STL the relatively small size of the local market is really surprising. Even with low-fare stimulation of a significant WN operation, STL just isn’t as big as one might think.

Of course these three points are generalizations, and specifics could be debated. Can FL and DL both thrive in ATL? Would 50 WN flights “ruin†MSP for Northwest? But in general you can’t make money relying on connecting traffic, and STL was still too reliant on just that.
 
The whole story makes little sense. The original rationale stated by AA for picking up STL when they bought TWA was that it would provide an ideal reliever for ORD and DWF for connecting traffic, thereby opening up ORD and DFW to more O&D capacity. That because both airports, especially ORD were at saturation levels and couldn't handle much additional lift. Now suddenly AA sees ORD as a "growth opportunity"? Even taking 9/11 cutbacks into consideration, which are a relatively short term phenomena, there ain't much room for substantial growth at either ORD or DFW for AA.

Now the article states that competition from WN is the factor. Funny, but despite TWA's financial woes, they reportedly made money at STL, and competed successfully there for many years against WN, who was marginalized at STL by TWA's near-fortress hub status.

Let's face it folks, STL appears to be a throwaway for AA. As is the MCI MX facility, which we will probably see shortly. In fact as it turns out, ALL of TWA is a throwaway for AA. Makes one wonder why they ever bought them to begin with. They recovered a good chunk of their original cash outlay with the sale of WorldSpan. The rest bought them some marginal relief from competition on a few routes and that's about it.
 
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On 7/21/2003 12:03:12 AM MrMarky wrote:

The whole story makes little sense. The original rationale stated by AA for picking up STL when they bought TWA was that it would provide an ideal reliever for ORD and DWF for connecting traffic, thereby opening up ORD and DFW to more O&D capacity. That because both airports, especially ORD were at saturation levels and couldn''t handle much additional lift. Now suddenly AA sees ORD as a "growth opportunity"? Even taking 9/11 cutbacks into consideration, which are a relatively short term phenomena, there ain''t much room for substantial growth at either ORD or DFW for AA.

Now the article states that competition from WN is the factor. Funny, but despite TWA''s financial woes, they reportedly made money at STL, and competed successfully there for many years against WN, who was marginalized at STL by TWA''s near-fortress hub status.

Let''s face it folks, STL appears to be a throwaway for AA. As is the MCI MX facility, which we will probably see shortly. In fact as it turns out, ALL of TWA is a throwaway for AA. Makes one wonder why they ever bought them to begin with. They recovered a good chunk of their original cash outlay with the sale of WorldSpan. The rest bought them some marginal relief from competition on a few routes and that''s about it.






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(Hi), MrMarky,
Long time, no see.

This is the FIRST positive thing I''ve said about AA, in over 6 months. But I feel it needs to be said.

( I don''t want to get into what the AA(so called unions, should, or should''nt have done, or what the HORRIBLE management of this company has done over DECADES),

BUT,

I really believe that Carty, and TWA, had a genuine plan for TWA, the really great folks that worked, or are still working, and STL, "BEFORE 911" !!

It''s EXTREMELY hard for me to even utter these positive words about AA, but again, I do believe that "THEY" (AA+TWA) meant well, at that time.


Adios, and stay well.

NH/BB''s
 
Hi NHBB,

Good to hear from you. I felt the same way as you when the transaction happened. I had high hopes for the combined carriers. But time has proven otherwise and I don''t think it can all be attributed to 9/11 or the Bush economy.

Sluggo fooled us all.

Take care,

Marky
 
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On 7/21/2003 12:03:12 AM MrMarky wrote:

The whole story makes little sense. The original rationale stated by AA for picking up STL when they bought TWA was that it would provide an ideal reliever for ORD and DWF for connecting traffic, thereby opening up ORD and DFW to more O&D capacity. That because both airports, especially ORD were at saturation levels and couldn''t handle much additional lift. Now suddenly AA sees ORD as a "growth opportunity"? Even taking 9/11 cutbacks into consideration, which are a relatively short term phenomena, there ain''t much room for substantial growth at either ORD or DFW for AA.

Now the article states that competition from WN is the factor. Funny, but despite TWA''s financial woes, they reportedly made money at STL, and competed successfully there for many years against WN, who was marginalized at STL by TWA''s near-fortress hub status.

Let''s face it folks, STL appears to be a throwaway for AA. As is the MCI MX facility, which we will probably see shortly. In fact as it turns out, ALL of TWA is a throwaway for AA. Makes one wonder why they ever bought them to begin with. They recovered a good chunk of their original cash outlay with the sale of WorldSpan. The rest bought them some marginal relief from competition on a few routes and that''s about it.






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You Mention TWA made money in STL. Maybe they were but even though they were paid @ $5 to$6 an hour less than AA the airline as a whole was in deep DODO.
With all that has gone by between AA and TWA they never seem to mention their pay raise, which could have hurt the cost factor of an AA/STL hub verses WN.
 
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On 7/21/2003 10:13:11 AM NewHampshire Black Bears wrote:

----------------
On 7/21/2003 12:03:12 AM MrMarky wrote:

The whole story makes little sense. The original rationale stated by AA for picking up STL when they bought TWA was that it would provide an ideal reliever for ORD and DWF for connecting traffic, thereby opening up ORD and DFW to more O&D capacity. That because both airports, especially ORD were at saturation levels and couldn''t handle much additional lift. Now suddenly AA sees ORD as a "growth opportunity"? Even taking 9/11 cutbacks into consideration, which are a relatively short term phenomena, there ain''t much room for substantial growth at either ORD or DFW for AA.

Now the article states that competition from WN is the factor. Funny, but despite TWA''s financial woes, they reportedly made money at STL, and competed successfully there for many years against WN, who was marginalized at STL by TWA''s near-fortress hub status.

Let''s face it folks, STL appears to be a throwaway for AA. As is the MCI MX facility, which we will probably see shortly. In fact as it turns out, ALL of TWA is a throwaway for AA. Makes one wonder why they ever bought them to begin with. They recovered a good chunk of their original cash outlay with the sale of WorldSpan. The rest bought them some marginal relief from competition on a few routes and that''s about it.






----------------​

(Hi), MrMarky,
Long time, no see.

This is the FIRST positive thing I''ve said about AA, in over 6 months. But I feel it needs to be said.

( I don''t want to get into what the AA(so called unions, should, or should''nt have done, or what the HORRIBLE management of this company has done over DECADES),

BUT,

I really believe that Carty, and TWA, had a genuine plan for TWA, the really great folks that worked, or are still working, and STL, "BEFORE 911" !!

It''s EXTREMELY hard for me to even utter these positive words about AA, but again, I do believe that "THEY" (AA+TWA) meant well, at that time.


Adios, and stay well.

NH/BB''s

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You Know you are RIGHT!!!
AA did have a genuine plan for TWA at STL.
Dismantle it as soon as you can.
I''m not the only one that believe''s that AA and Carty were doing BACKFLIPS on the dreadful day 9/11. It just gave them an excuse to Wack Away sooner. Long Live the TEXAS TALIBaan as DFW is now known as.
Yes I do have a clue on this one!!!!!
 
I have NEVER said anything good about AA, but I will too chime in that their plans were not as sinister as some have portrayed. My understanding was that AA wanted to offload some Chicago flights onto St. Louis so that ORD would have more O&D.

Certainly the calculus all changed after 9/11.
 
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On 7/22/2003 5:01:40 PM AirplaneFan wrote:


I have NEVER said anything good about AA, but I will too chime in that their plans were not as sinister as some have portrayed.  My understanding was that AA wanted to offload some Chicago flights onto St. Louis so that ORD would have more O&D. 

Certainly the calculus all changed after 9/11.

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Airplane Fan,

"Correctemundo"

That was AA''s plan(plus a bargain price)

"Nothing more, Nothing less" !!!!!!!!!!!!!!!!1

NH/BB''s
 
Some posters here have said in the past that had 9/11 not occured and the economy not recessed, AA''s purchase of TWA would have been successful and profitable. Now that AA has announced reductions in STL and possibly MCI, they say this was AA''s plan all along.

MAKE UP YOUR MINDS!