Is AA deemphasizing ORD?

[737823]

Throughout the past several years, we've seen a slow but steady decline in the number of flights at ORD by AA. International routes have been discontinued BRU, EZE, FRA, GLA, and NGO to name a few. Many domestic cities have been reduced or eliminated altogether and many others have transitioned to Eagle service like Hartford and White Plains/Westchester Cty. Clearly UA has been making gains at ORD on many of AA's bread and butter routes. AA is operating fewer flights and the remaining flights being transitioned to Eagle can't be a good thing for ORD long term. Rather than battling UA, why not fortify DFW and MIA while trying to make gains in NYC?

Josh

 

[FWAAA]

You walk away from small hubs in unimportant cities like BNA, RDU, SJC and STL, not hubs in the nation's third largest metro area, one that is 50% more populous than the DFW metroplex, the fourth largest metro area in the country.

The reason AA and UA have been able to operate side-by-side hubs at ORD for more than 20 years is due to the very large number of O&D passengers, a decent percentage of which are business travelers spending OPM.

In case you haven't noticed, AA has been fortifying DFW and MIA, where it is the largest carrier by far at both. At DFW, AA aand Eagle fly something over 900 daily flights combined. MIA has grown substantially as the new terminal has been completed.

No doubt the growth of WN at MDW over those 20 years has contributed to AA losing some domestic traffic - but I see ORD being a viable part of AA until there is no more AA.

 

[BoeingBoy]

but I see ORD being a viable part of AA until there is no more AA.

I would agree.

737823,

You've got to look at the bigger picture - fuel prices and the economy. Starting in 2008, some routes that had been profitable became marginally profitable or lost money. AA has enough problems without operating marginal/losing routes just for the sake of operating them.

Jim

 

[eolesen]

Throughout the past several years, we've seen a slow but steady decline in the number of flights at ORD by AA. International routes have been discontinued BRU, EZE, FRA, GLA, and NGO to name a few. Many domestic cities have been reduced or eliminated altogether and many others have transitioned to Eagle service like Hartford and White Plains/Westchester Cty. Clearly UA has been making gains at ORD on many of AA's bread and butter routes. AA is operating fewer flights and the remaining flights being transitioned to Eagle can't be a good thing for ORD long term. Rather than battling UA, why not fortify DFW and MIA while trying to make gains in NYC?

Josh

1) NYC is NOT the center of the universe
2) ORD is the third largest OD in the country, and ain't going anywhere for AA
3) Operationally, ORD has traditionally been the most efficient hub for AA in terms of demographic reach, ontime, bags, yield, and real estate. DFW is simply too damn big and too far south, and MIA mishandles more bags than the rest of AA combined.

As a former Chicago resident, business traveler, and agent, I didn't see half of what you're claiming. Yes, some international routes were dropped, and AA now has codeshare partners who can flow traffic from some of those secondary Europe and Asia cities cheaper than AA can provide a nonstop. Eagle has stayed fairly consistent in size, too

An economist friend of mine at Northwestern has tracked AA & UA at ORD sine 1984. He will only fly UA, but readily admits AAs relative size has stayed pretty consistent over time, and AA has even carried a higher percentage of OD traffic than UA in recent years. Should UA continue to stumble on customer Day One and union issues, AA only stands to gain business share. It is AAs game to **** up until then.

What is true, and may justify ORD shrinking in size in the future, is that the State of ILL is increasingly tough for businesses, and many have fled for warmer (right to work) climates or tax friendly locations. I expect it to get worse as ILL goes bankrupt over state and city worker pension deficits. They're in worse denial than Arpey. Daley left a real pile of canine feces for Rahm to clean up, and The Gov is more of an idiot than the crook he replaced.

 

[Hopeful]

1) NYC is NOT the center of the universe

True....then why do people here keep preaching the end of AA at NYC because Delta is cleaning AA's clocks?
NYC may not be the center of the universe, but I would say that a nice chunk of revenue is derived from JFK given the key markets it does serve from there.

 

[jimntx]

Eagle has stayed fairly consistent in size, too

E, I'm not disputing this statement per se, but, when I work a trip into ORD anymore, the connecting flights list is at least 70% Eagle connections. In fact, I had one flight recently where I had 20 or 25 domestic connections. Only 1 was to mainline domestic. Unless, the connection is to an International flight, the chances are the connection is to Eagle. A lot of mainline domestic flying at ORD has been replaced by AE.

I just heard the other day that the STL-DCA service (3xdaily, almost always full--usually with govt or doing business with govt types) is being given to AE). ???

 

[WorldTraveler]

There is no spinning that NYC is the largest travel market in the US - if not the world - and AA WAS the largest airline there - and it was AA's home for many years.
A huge amount of NYC revenue has moved from AA to other carriers and it isn't just DL. AA has given up alot of markets because of competition from B6, only to turn around and codeshare on B6 flights. VX is now a solid #2 or #3 in AA's prime transcon markets and they aren't carrying trash fares... their fares are very similar to DL's and in the neighborhood of 80% + plus what AA receives at much lower costs.
Using the excuse that "we still serve all of the top markets" doesn't exactly fly when according to the latest DOT data, DL actually carries more LOCAL JFK-LHR revenue than AA carries on its own metal (yes, I know that is what the BA JV is all about).
Obviously the slot deal poses an even bigger threat to AA in NYC; DL also carries more LOCAL JFK-MIA revenue than AA and they are bound to replicate that success at LGA using their new slots.
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Turning to ORD, it is true that AA and UA have carried the majority of ORD's traffic and revenue for years and it is also true that despite Chicago being UA's hometown, AA has had a higher revenue of the top markets from ORD than UA - AA is stronger than UA in LGA, BOS, and LAX.. plus others - all key business markets. But alot is changing and very rapidly:
1. UA knows their disadvantage and part of the reason they went after CO was to gain the network strength so that they can surpass AA, if not DL also, in the 3 largest markets - NYC, CHI, and LA. DL is countering in NYC w/ the slot deal... NYC is the largest corporate market in the nation; AA's success from ORD to the top business markets is tied to their ability to get corporate deals in NYC. If AA is surpassed in NYC by DL and or UA, their strength throughout their network is reduced.
2. Chicago is engaging in a costly rebuild of ORD's runways and UA and AA's CONNECTING passengers will bear a large cost of that rebuild. Local passengers on all airlines will pay more money - but everyone will be on equal footing. AA and UA's hub operations at ORD are significantly threatened by the rebuild which is why they are fighting it and its costs so hard.... in the meantime, DL has twin hubs at DTW and MSP that are far less costly and can carry connecting passengers far cheaper. AA's ability to maintain its presence in the midwest and across the northern tier is directly tied to the costs of the ORD runway rebuild and AA's ability to carry connecting passengers at ORD. DL has built a larger Asian gateway at DTW than either AA or UA have at ORD - and DL is obtaining very comparable financial results on the segments it flies from DTW as AA and UA get at ORD.
DFW and MIA are strong hubs but they cannot geographically replace most of the flows that are carried over ORD.
3. Much of the reason why AA and UA carried so much of the traffic and revenue at ORD is because it was first slot controlled and then had significant facility constraints that limited the ability of new entrants to expand. The slot controls fell but new carriers could not find gates. The DL/NW merger allowed a number of gates to be released - and it has resulted in a number of new entrants - largely low fare carriers. DOT revenue shows that B6 and VX are very successful in their new operations at ORD. They are depressing fares which is hurting UA and AA (but AA is showing the pain more than UA) and share is shifting to the low fare carriers. B6 now has about 20% of the BOS-LGA local market. VX is having even better success in DFW... AA has lost alot of market share and fares have fallen. Since some people here don't like my long posts, I'll not provide any more detail but it is very apparent why AA's RASM growth is below DL and UA's... competitors are not going after DL and UA's key markets to anywhere near the degree they are for AA.
4. AA and UA recognize that WN is a factor in the CHI market even though ORD is the preferred business airport in ORD. AA and UA are much more competitive w/ WN's fares than they were years ago. WN is far more focused on local traffic but they have little compeittion at MDW. AA and UA are fighting for the local passengers with low fare carriers at ORD and it is reducing the historically high local ORD fares.
5. AA so far does not have the ability to use lower cost large RJs to the extent other carriers do - to allow AA to keep the local market without having to carry alot of expensive connecting traffic. AA is maintaining its share of the connecting market using higher cost small RJs and a much smaller ratio of 70 seaters than DL or UA have. Many connecting passengers are costly - if not money losing - on RJs. The power of large RJ's can be seen in the fact that DL's schedule from LGA-ORD - one of AA's key markets - is flown exclusively by Ejets yet DL has managed to obtain 15% share of the local LGA-ORD market at fares comparable to AA and UA - and DL carries almost entirely local traffic.
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Yes, AA has historically been a backbone of AA's network and they have enormous historical advantages - but a number of factors including the competitive environment are eroding AA's ability to keep ORD as a viable hub.

 

[1AA]

Throughout the past several years, we've seen a slow but steady decline in the number of flights at ORD by AA. International routes have been discontinued BRU, EZE, FRA, GLA, and NGO to name a few. Many domestic cities have been reduced or eliminated altogether and many others have transitioned to Eagle service like Hartford and White Plains/Westchester Cty. Clearly UA has been making gains at ORD on many of AA's bread and butter routes. AA is operating fewer flights and the remaining flights being transitioned to Eagle can't be a good thing for ORD long term. Rather than battling UA, why not fortify DFW and MIA while trying to make gains in NYC?

Josh

Some of the mainline flying went to Eagle because we sold the Fokkers and AA has no equipment that can fly into some of the smaller airports that the Fokkers did. I did say some not all. Hopefully with the new Airbus A319 we can get back some of the Eagle routes that AA flew in the past.

 

[tom barry]

Take a look at the new schedule for 11/17, which is available (reading between the lines) in the OCT schedule, and look at BOS/ORD-BOS/DFW. You'll see a significantly reduced schedule to both cities (DFW + ORD), yet ORD has as many mainline departures as does DFW(8) , plus A/E is for the first time 99% GONE for good from BOS. What I'm seeing is a strict management of the airlines (schedule) assets going forward, NOT "punking" ORD Hey, I remember in the early 80's they cut BOS to " 1 1 " flights a day, and this was coincidently, the same time a skinny new Chain-Smokin' BOSS arrived upon the scene !!

 

[FWAAA]

Some of the mainline flying went to Eagle because we sold the Fokkers and AA has no equipment that can fly into some of the smaller airports that the Fokkers did. I did say some not all. Hopefully with the new Airbus A319 we can get back some of the Eagle routes that AA flew in the past.

Exactly. 20 years ago, the ATRs and the F100s began arriving at ORD, replacing many 100 seat 727s. By 12 years ago, the ATRs were leaving ORD in favor of 50 seat RJs. And then nine years ago, the F100s were retired, leaving just 50 seat RJs and 129-140 seat MD-80s (and larger planes) to serve ORD.

Management failed on the 50 seaters by being so late to the party by not reaching agreement with APA on the 50 seaters 6-8 years prior to the 1997 agreement that finally allowed RJs at Eagle. Management has yet again failed on the issue of 90-100 seat large RJs by not reaching agreement with APA to allow them at Eagle or flying them as mainline at rates that APA and management can both live with. Some blame may rest with the APA - as it has been plenty stubborn over the years.

Not only might A319s or 73Gs help at ORD, but perhaps the new AA-APA agreement will finally permit AA to fly something with 90-100 seats (either at mainline or at commuter partner) to serve the medium-sized cities where the superATR was too small but the MD-80 was too large (like IND-ORD, CMH-ORD, GRR-ORD, etc).

The OP mentioned NGO. That route was begun in an attempt to win a corporate contract with Toyota, IIRC. Toyota awarded the biz to UA, and from that date on, the ORD-NGO route made no sense for AA. BRU? A star alliance city. Same with FRA. GLA? That was cancelled a long time ago.

Today, AA flies to LHR, NRT, DEL, PEK and PVG from ORD. That's a lot more Asia than DFW could possibly support (it just doesn't have the O&D) and it's a lot more Asia than AA will probably ever fly from JFK. Although the numbers may be changing now, for quite a few years, only JFK had more AA LHR frequencies than ORD. Even with Open Skies, ORD has more AA LHR frequencies than DFW. Or MIA.

 

[Jacobin777]

Throughout the past several years, we've seen a slow but steady decline in the number of flights at ORD by AA. International routes have been discontinued BRU, EZE, FRA, GLA, and NGO to name a few. Many domestic cities have been reduced or eliminated altogether and many others have transitioned to Eagle service like Hartford and White Plains/Westchester Cty. Clearly UA has been making gains at ORD on many of AA's bread and butter routes. AA is operating fewer flights and the remaining flights being transitioned to Eagle can't be a good thing for ORD long term. Rather than battling UA, why not fortify DFW and MIA while trying to make gains in NYC?

Josh

Both AA and UA have downsized ORD and have shifted flying to Eagle/United Express over the years.

I think once AA solves its labor problems (especially scope), it will once again increase mainline flying.

VX is now a solid #2 or #3 in AA's prime transcon markets and they aren't carrying trash fares... their fares are very similar to DL's and in the neighborhood of 80% + plus what AA receives at much lower costs.

VX still can't make a profit though...

 

[WorldTraveler]

Exactly. 20 years ago, the ATRs and the F100s began arriving at ORD, replacing many 100 seat 727s. By 12 years ago, the ATRs were leaving ORD in favor of 50 seat RJs. And then nine years ago, the F100s were retired, leaving just 50 seat RJs and 129-140 seat MD-80s (and larger planes) to serve ORD.

Management failed on the 50 seaters by being so late to the party by not reaching agreement with APA on the 50 seaters 6-8 years prior to the 1997 agreement that finally allowed RJs at Eagle. Management has yet again failed on the issue of 90-100 seat large RJs by not reaching agreement with APA to allow them at Eagle or flying them as mainline at rates that APA and management can both live with. Some blame may rest with the APA - as it has been plenty stubborn over the years.

Not only might A319s or 73Gs help at ORD, but perhaps the new AA-APA agreement will finally permit AA to fly something with 90-100 seats (either at mainline or at commuter partner) to serve the medium-sized cities where the superATR was too small but the MD-80 was too large (like IND-ORD, CMH-ORD, GRR-ORD, etc).

The 319 and 73G share the same vulnerability as the large RJs - they are higher CASM aircraft that full size - 320/738/M90 - size aircraft or higher density aircraft as the 73G is for WN. If other carriers can compete with full size, larger CASM aircraft and AA or UA uses large RJs or higher CASM mainline aircraft, then other carriers will set the fares that make sense on their aircraft and in their networks and if AA or UA can't carry passengers at competitive fares, then AA or UA has to make the decision to abandon that flow traffic or take a loss - a long term unsustainable solution.
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The City of Chicago's move to rebuild ORD's runways could very well have the effect of significantly diminishing the amount of connecting traffic that ORD handles and in the process weaken the hubs that AA and UA operate; many routes are highly dependent on large numbers of connections... which is part of why AA has shifted so much of its TATL operation to JFK.
NYC is a larger local market, AA operates more mainline flights, and JFK is a more strategic location for a TATL gateway... if you had to pick just one city for your TATL hub, you would pick NYC over CHI.
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DFW is the best hub in AA's network from a standpoint of size, greatest number of mainline aircraft, and low airport costs.
DFW just isn't in the right place for the majority of network flows... a longer elapsed time will work for some but not all of them.
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Keep in mind that the costs on UA will be just as real and their best alternative for connecting traffic - IAH - is even further south, assuming they continue to downsize DEN.
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Being able to use 90-100 seat jets at mainline will help maintain connections as will larger RJs flown by regional carriers, but any of those options are going to be more costly than lower cost airports elsewhere or connections on mainline full size jets.

VX still can't make a profit though...

absolutely true... but it shows how dangerous irrational pricing can be. VX should be pricing higher in order to make a profit. Right now they have deep enough pockets to lose money on the operation while they build their network.

AA's bottom line is hurt regardless of whether AA has to match VX fares so they can make money or whether they lose it... and if AA doesn't match VX' fares, it just allows them to get an even bigger portion of the pie.
Given that VX now has 20% or more market share in DFW-LAX, you can't pretend they won't harm AA's business.

 

[Jacobin777]

absolutely true... but it shows how dangerous irrational pricing can be. VX should be pricing higher in order to make a profit. Right now they have deep enough pockets to lose money on the operation while they build their network.

AA's bottom line is hurt regardless of whether AA has to match VX fares so they can make money or whether they lose it... and if AA doesn't match VX' fares, it just allows them to get an even bigger portion of the pie.
Given that VX now has 20% or more market share in DFW-LAX, you can't pretend they won't harm AA's business.

Of course going from 100% to 80% is going to hurt but carriers adjust. VX have also been known to cut routes where they can't compete, especially against hub carriers (such as YYZ). I've flown AA SFO-DFW-SFO 4 times (8 flights in total) the past 14 days. Nothing less than 99% l.f. (can't say about fares though) Only one SFO-DFW flight had about 3-4 seats empty.

VX's pockets are eventually going to run out if they don't start showing profitability. VX's costs will go higher as well.

More than VX, I'm more curious how WN is going to attack DL. Make no bones about it, Gary Kelly has stated that WN is going to be driving "walk up fares" down by quite a bit to/from ATL - especially in J (he specifically mentioned J-fares being too high in ATL). Don't forget, while DL is strong in ATL, places such as PHX, MDW, etc. where DL flies to out of ATL will be vulnerable against WN. In fact, MDW-ATL is one route where DL currently flies 7x/daily A319's which will be challenged by WN. I wouldn't be surprised if DL cuts flights considerably or possibly even cutting this route. SJC-ATL is another route. The list goes on and on.

 

[WorldTraveler]

Of course going from 100% to 80% is going to hurt but carriers adjust. VX have also been known to cut routes where they can't compete, especially against hub carriers (such as YYZ). I've flown AA SFO-DFW-SFO 4 times (8 flights in total) the past 14 days. Nothing less than 99% l.f. (can't say about fares though) Only one SFO-DFW flight had about 3-4 seats empty.

VX's pockets are eventually going to run out if they don't start showing profitability. VX's costs will go higher as well.

More than VX, I'm more curious how WN is going to attack DL. Make no bones about it, Gary Kelly has stated that WN is going to be driving "walk up fares" down by quite a bit to/from ATL - especially in J (he specifically mentioned J-fares being too high in ATL). Don't forget, while DL is strong in ATL, places such as PHX, MDW, etc. where DL flies to out of ATL will be vulnerable against WN. In fact, MDW-ATL is one route where DL currently flies 7x/daily A319's which will be challenged by WN. I wouldn't be surprised if DL cuts flights considerably or possibly even cutting this route. SJC-ATL is another route. The list goes on and on.

AA didn't really have 100% of the DFW-LAX market before even though they were the only nonstop carrier. IN fact, they went from 77% to 62% market share; while VX took the majority of its share from AA, they also took share from other carriers that carried the market on a connecting basis. Overall though, AA's revenue in the DFW-LAX FELL as it lost share and the average fare declined by 20%. Those are very dangerous dynamics to be occuring in any airline's top markets- but that is what AA has been up against for several years now. Competitors prey on the weakest players in the industry and AA still carries alot of prime business traffic making them highly vulnerable to competitive attacks.
Yes, AA's LFs will go up as they are forced to compete w/ new competitors - but because average fares are going down faster than the revenue can go up, then market revenue will go down and that is what is happening to AA in DFW-SFO/LAX.
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The competitive assaults on AA at ORD cost them more in terms of revenue and share than any other carrier.
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Briefly on DL vs WN, WN has no choice but to raise the AVERAGE fares that FL was receiving from ATL in order to bring them up to levels at WN, which is a higher cost airline than FL was. FL carried more connecting passengers than WN does. The way FL ran its network won't work at WN which is why WN is shrinking the size of FL's current operation and is trying as hard as possible to keep FL's employees at their current wages rather than bring them up to WN pay levels - because WN needs time to get the revenue up to WN levels.
Compound the network/revenue integration process w/ some nasty labor integration issues (see the WN forum on this board) and the fact that WN's RASM on its entire system has been one of the slowest growing in the industry and it says that WN has enormous tasks in front of it. Dumping a lot of capacity into a new market (ATL) and being aggressive with a competitor who has showed incredible staying power against low fare carriers and WN knows the worst thing they can do financially right now is get into a nasty fight with DL. DL and WN coexist quite well in a number of markets - they are #1 or #2 ahead of or behind each other in many markets.
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DL is not brushing off WN, however. DL has been upgrading its product, attempting to add more value - reducing the amount of fees for top fliers, lowering their cost base by replacing higher CASM RJs w/ mainline aircraft etc (ATL is the ideal place to do this because of the size - for the same reason that DFW is the best place for AA to use this strategy to compete w/ low fare carriers). DL's decision to add Economy comfort to domestic says that DL will continue to enhance its product in an attempt to keep WN from pulling passengers from DL.
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We'll see next week now DL does financially but analysts are expecting them to have a very good quarter.... far ahead of WN's operating margin of 5%. DL is well positioned competitively.
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In the meantime, the competitive battles AA is facing are very real and mgmt recognizes they must stop the erosion of AA revenue to other competitors.
The urgency to get labor deals is absolutely tied to AA's revenue position.

 

[Bob Owens]

1) NYC is NOT the center of the universe

Ok. Please oh wise one tell us, where is the center of the Universe?