ANALYSIS: American plays catch-up in transcon market with A321

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American Airlines has finally caught up with its competitors in the lucrative New York to California market, rolling out its new premium Airbus A321 Transcontinental product on 7 January.

“The A321T is just the latest example of American's commitment to offering state-of-the-art products, and delivering an in-flight experience our customers really value,” says Andrew Nocella, senior vice-president and chief marketing officer of the Fort Worth, Texas-based Oneworld alliance carrier, in a statement.

The new aircraft are configured with 10 lie-flat first class seats, 20 lie-flat business class seats and 72 economy seats, which is split between 36 main cabin extra and 36 main cabin seats. In addition, each passenger has personal audio video on demand (AVOD), access to a power outlet and GoGo wi-fi.

This is a big product upgrade for American. It previously flew ageing Boeing 767-200ERs with 168 passengers in three classes – none lie-flat and with no in-seat personal entertainment – on the New York JFK to Los Angeles and San Francisco routes.

The upgrades, however, are more catching up than pioneering in the industry.

United Airlines pioneered the idea of a specialised product for the New York JFK to California market with its premium service, or PS, aboard a dedicated fleet of Boeing 757-200s in 2004.

Delta Air Lines has matched United by offering its lie-flat international product on widebody aircraft and Virgin America offers its own innovative, two-class transcontinental product.

“The A321T will allow American to be a stronger competitor against its two primary competitors, Delta and United, as well as JetBlue and Virgin America,” says Henry Harteveldt, a travel industry analyst at Hudson Crossing. “This will help American rejuvenate its presence on these critical routes, importantly with the premium business traveller.”

He describes the new business class as a “solid product”, after riding on the inaugural eastbound flight from Los Angeles to New York.

YIELD BUMP?

The revenue generating equation for the A321T is complicated. American will likely generate higher yields from the capacity cuts but it is unclear whether these will offset the investment costs and revenue lost from having fewer seats – especially in economy – to sell.

The airline also stands to benefit from the efficiency improvements that come with a new aircraft, including lower fuel burn.

“It shouldn’t hurt them but the question is will it offset the lost revenue from the economy reductions,” says Savanthi Syth, an analyst at Raymond James who covers airlines, on the product upgrades on the A321T.

Each aircraft has about 40% fewer seats than the 767 that they are replacing. This is most pronounced in economy where the number drops nearly 44% to 72 seats from 128.

American aims to make up some of this lost capacity by increasing frequency. JFK to Los Angeles will increase to 13 daily from nine or 10 currently, and JFK to San Francisco will increase to five daily from four.

Overall, American’s premium capacity will fall only about 3% while its economy capacity will fall more than 27% once the new A321T schedule is fully implemented in June.

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Flightglobal

The new product will likely help American attract and keep high-value corporate clients, says Harteveldt. However, he cautions that the capacity cuts – and likely fare increases – may encourage independent business and leisure travellers to look elsewhere.

“We’ll see people seeking [the A321T] out,” Jim Carter, managing director of eastern division sales at American, told Flightglobal in December. He said that the airline expects to attract premium travellers in the entertainment and finance industries with the new product.

American has not disclosed forward booking numbers for the new aircraft compared to the 767.

SERVICE RENAISSANCE

American’s A321T debut confirms what has long been known about the New York to Los Angeles and San Francisco market – service is back.

Every major carrier is engaged in a “race to the bottom” so-to-speak in terms of offering lie-flat premium seats, a dedicated fleet and additional services in the market, says Syth.

JetBlue will follow American with the rollout of Mint, which includes four private suites on each A321 dedicated to the service, in June. The New York-based low-cost carrier also plans to undercut its competitors by selling lie-flat premium seats for up to 50% less.

Delta will follow with its own dedicated premium 757-200s on 1 July. The aircraft will be configured with 16 lie-flat business class, 44 premium economy and 108 economy seats.

The Atlanta-based carrier will also fly the aircraft between JFK and Seattle, in addition to the Los Angeles and San Francisco trunk routes.

United, the pioneer in the market, completed an upgrade of its PS fleet with its international business class product in December.

“What we¹re seeing is an emphasis now on product and the passenger experience, not just price, by all the transcon airlines,” says Harteveldt.

Recalling the premium services on narrowbody aircraft between the coasts in the past, he calls these developments a “back to the future moment”.