Why Is Asia American Airlines' Achilles Heel?

[chucky]

http://us.rd.yahoo.com/finance/industry/news/latestnews/*http://us.rd.yahoo.com/finance/external/mfool/SIG=13301osvc/*http://www.fool.com/investing/general/2014/01/29/why-is-asia-american-airlines-achilles-heel.aspx?source=eogyholnk0000001
 
 ...the company still has one big disadvantage in competing with Delta Air Lines(NYSE: DAL  ) and United Continental (NYSE: UAL  ) for airline industry dominance: Asia. United and Delta have both historically had larger presences on the continent.

 

[RJcasualty]

The topic has been discussed ad infinitum by the resident network experts. IMHO, the historic perspective is in jeopardy because it implies brand loyalty. Nowadays, that loyalty can be overcome by offering a product that would equal or surpass the entrenched competition through convenience, value and superior service--- not to mention pleasing the corporate travel desk of a given company. It would require at the outset, a large down payment in influence, money and assets for AA to attain parity or better. The question is whether DP would be willing to take that risk or stay concentrated in or reinforce areas of traditional dominance.

 

[jimntx]

I don't know about DL and UA, but International f/as at AA tell me they are short-staffed compared to the competing airlines--particularly the Asian airlines like Japan, Korean Air, Cathay Pacific, Singapore, etc.   One told me that where AA will put up to 11 f/as on a 772 and up to 14 on a 773, the Asian airlines regularly staff 15-20 on the same or similar size a/c.  Extra service for same or lower price?  Which would you book?

 

[WorldTraveler]

I don't think any US airline is expecting to fully compete with Asian airlines - but US airlines have the advantage of having access to a huge revenue base in the US and being able to deliver connections to its transpac flights better than the Asian airlines can.

The simple answer as to why AA struggles in Asia is because they didn't buy their way into the market via one of the two legacy/heritage US carriers that have had large operations in the region since World War II. The strongest US carriers in each region of the world can trace their strength back to acquisitions of networks from the early pioneer airlines.

Every airline has also had to build its network in some parts of the world on its own. In some cases that has resulted in comparable success to the acquired networks and in some cases it has not.

No one will argue that AA is where it wants to be to/from Asia and it is certain that AMR's new leadership will make decisions about how they want AA to serve the region.
Given that US has become very profitable in the TATL and Latin regions that it serves, they do have some insight as to what it takes to find strategies that work.

 

[AdAstraPerAspera]

AMR no longer exists… It's AAG now.

 

[robbedagain]

I had heard rumors that asia is where aa will grow but not sure what cities but as of now ual is the strongest carrier over there

 

[AdAstraPerAspera]

I think our favorable market position at LAX will be a fabulous place to start, particularly when the 787s begin to roll in.

 

[Hope777]

http://finance.yahoo.com/news/american-airlines-launch-between-dallas-153000210.html

 

[Jacobin777]

I don't think any US airline is expecting to fully compete with Asian airlines - but US airlines have the advantage of having access to a huge revenue base in the US and being able to deliver connections to its transpac flights better than the Asian airlines can.

The simple answer as to why AA struggles in Asia is because they didn't buy their way into the market via one of the two legacy/heritage US carriers that have had large operations in the region since World War II. The strongest US carriers in each region of the world can trace their strength back to acquisitions of networks from the early pioneer airlines.

Every airline has also had to build its network in some parts of the world on its own. In some cases that has resulted in comparable success to the acquired networks and in some cases it has not.

No one will argue that AA is where it wants to be to/from Asia and it is certain that AMR's new leadership will make decisions about how they want AA to serve the region.
Given that US has become very profitable in the TATL and Latin regions that it serves, they do have some insight as to what it takes to find strategies that work.

 
Not all carriers especially the US legacies can be "all things to all people". That being said, I do believe AA could become a bit stronger TPAC. I've heard DFW-ICN is doing well. DFW-HKG will be interesting. It might not be profitable from the start but I think switching to a B789 or an A359 would probably help as it will decrease fuel costs and possibly (hopefully) increase yields.

 

[WorldTraveler]

according to DOT data which covers some of the first few weeks of the DFW-ICN flight, it is doing better than some AA flights but not as strong as others. (no surprise there). The chances of AA making a flight work from its largest monopoly hub are much stronger than in other markets. The risk has always been KE's response. Perhaps that is why some AA/US employees are advocating having KE as a oneworld carrier?

not sure that there is any evidence that any of the new technology aircraft have or will increase yields.... fuel costs will decrease but ownership costs will go up because these are expensive aircraft to acquire. How it all adds up remains to be seen. No actual 787 cost data has been released by UA and it won't be terribly meaningful given the startup pains for that aircraft.

 

[wings396]

Keep in the that both UA & DL acquired their Pacific networks via a merger. Not everyone can be dominant in all areas. At this point AA has the upper hand in South America. I do believe over the next 5 years that the 3 majors will expand to an extent to give themselves better coverage in all areas.

 

[WorldTraveler]

your point is exactly what I have been saying for quite some time, wings. DL and UA do not compete in the top US-Latin America markets either since those routes were acquired by AA in an asset acquisition.

AA will have a decent presence to Asia and I still think PHL will be part of that picture but it isn't realistic to think that AA will be able to compete on the same terms as DL and UA to Asia.

AA is obviously working to overcome its structural weakness in Asia but by the same token other carriers are going to increase their presence in their weaker areas, which are also AA's strength areas.

 

[Jacobin777]

according to DOT data which covers some of the first few weeks of the DFW-ICN flight, it is doing better than some AA flights but not as strong as others. (no surprise there). The chances of AA making a flight work from its largest monopoly hub are much stronger than in other markets. The risk has always been KE's response. Perhaps that is why some AA/US employees are advocating having KE as a oneworld carrier?

not sure that there is any evidence that any of the new technology aircraft have or will increase yields.... fuel costs will decrease but ownership costs will go up because these are expensive aircraft to acquire. How it all adds up remains to be seen. No actual 787 cost data has been released by UA and it won't be terribly meaningful given the startup pains for that aircraft.

 
"Not as strong" is rather relative. At the end of the day, if the flight is becoming profitable and yields are starting to improve then it will probably be a success. There IS a reason why carriers purchase new planes. The cost of a B787 can be amorterized over many, many years but the cost of Jet-A is an upfront cost.

 

[nycbusdriver]

I had heard rumors that asia is where aa will grow but not sure what cities but as of now ual is the strongest carrier over there

 
Well, it's not really rumor.  At the January pilots Crew News meeting, the question of Asia expansion came up.  Parker said that they will definitely work to expand the Asia presence of AA, but it is unlikely that AA will ever equal the Asian networks of DL and UA since a lot of their Asian rights were legacy back to the 1950s and could never be negotiated today.
 
Parker was not any more specific than that.

 

[WorldTraveler]

Yes, I used relative terms but there is enough to say DFW-ICN has potential but likely isn't where AA needs it to be long-term either.

Again, my expectations are that AA can build a long-term profitable Asian route network from some of its core hubs to Asia.

Parker's expectations appear to be based on the recognition that AA can be a profitable but niche carrier in Asia, the same way US has operated in Europe and Latin America for years.

We have been thru the new technology aircraft vs older aircraft discussion before but the argument doesn't always say that buying a new technology aircraft is the best financial move. The US airline industry in aggregate has not covered the cost of capital from inception to date. You can't keep arguing that you can pay for increased capital costs in order to bring down operating costs and then never pay the capital costs.