Gone are the days when American Airlines would fly marquee international routes to keep a dot on its map, in what executives call a more "nimble" network with no room for unprofitable flying.
The latest casualty is the Oneworld Alliance carrier's flight between Chicago O'Hare and Beijing Capital, which it will suspend on 20 October with hopes of resuming it when the new Beijing Daxing airport opens in 2019. Its equity partner China Southern Airlines is planning a major hub at Daxing.
The news on Chicago-Beijing, which was American's first route to the Chinese capital in 2010, follows similar announcements of exits from a number of other long-standing international routes earlier this year, including between Boston and Paris, and Miami and both Belo Horizonte and La Paz.
"We’re out to go and create the kind of long-term profitability in our international network that we have enjoyed in our domestic network," said Vasu Raja, vice-president of network and schedule planning at American, in a podcast for employees released on 2 May.
To create long-term profitability, the airline will cut unprofitable routes like Chicago-Beijing, try more "frontier" markets abroad like Cordoba in Argentina and Prague, and add services to partner hubs like London Heathrow and Madrid, he says.
ZAI JIAN, BEIJING
Airlines have piled capacity on the US-China market in recent years. Available seat miles grew 9% in 2017, and were up 38% since 2014, FlightGlobal schedules data shows.
American grew capacity to China by 33% from 2014 to 2017, the data shows. Beijing saw much of that growth, where capacity more than doubled with the addition of service from Dallas/Fort Worth in 2015 and Los Angeles in 2017.
This growth has put pressure on yields for carriers on both sides of the Pacific. Air China and Hainan Airlines have reduced frequencies in some markets, and United Airlines has discontinued service to Hangzhou and Xi'an. American, however, is the first carrier to suspend a route entirely between Beijing or Shanghai and the US mainland.
"We often don’t earn enough cash to cover the cost of the fuel on the flight," says Raja, adding that it has faced "perennial" losses in the Chicago-Beijing market.
In addition, rapidly rising oil prices and increasing trade tensions between China and the USA were likely factors in American's decision to end the route.
"With jet fuel where it is right now, you can't be as risk taking as a few years ago," says Henry Harteveldt, president and travel industry analyst at the Atmosphere Research Group.
Brent crude prices were up 51% to $73.72 per barrel late in the day on 3 May compared to the same day in 2017, Bloomberg and US Energy Information Administration (EIA) data showed. American forecasts a roughly one-third year-on-year increase in average fuel expenses in the second quarter.
Doug Parker, chairman and chief executive of American, said in April that the airline could re-evaluate its 2.5% capacity growth target for 2018 in its winter schedule that begins in late October.
"While it is easy to rationalise suspending flying in unprofitable markets… what is viewed as 'nimble' and 'opportunistic' by airline network planners, is viewed as 'uncertainty' and 'volatility' by the marketplace," says Robert Mann, an industry analyst with RW Mann & Company and former airline executive, highlighting some of the larger macro concerns in the US-China market.
American plans to seek a dormancy waiver from US officials for the frequencies it uses for the Chicago-Beijing flights, although there is no guarantee that it will be granted. Delta Air Lines, which lost a fierce fight with American for the Los Angeles-Beijing frequencies, could object to such a waiver, as could Hawaiian Airlines or United Airlines if either wants to grow to Beijing or Shanghai.
American is adding a number of sun runs, as well as less traditional international markets, as it adjusts its international network. Charlotte, Chicago, Dallas/Fort Worth and Miami will all see a number of new leisure routes, particularly to the Caribbean and Latin America.
"These are clearly defensive moves on American's part," says Harteveldt on many of the Caribbean additions. JetBlue Airways and to a lesser extent, Spirit Airlines, have grown rapidly to the region, which American has long dominated.
In addition to the leisure focus, many of the new routes are sub-daily and seasonal. This is similar to what American's competitors Delta and United have increasingly done in recent years – strategic seasonal additions, even to Europe, during peak travel periods.
Budapest, Georgetown in Guyana, Pereira in Colombia, and Reykjavik are among the less traditional – or "frontier" as Raja puts it – international markets that American will add this year. These are more gambles but ones where the airline faces less competition than in the ones it is dropping.
The third aspect of American's newly nimble international network strategy are partner hubs. It is not adding or dropping any routes to those hubs, particularly British Airways' home at London Heathrow and Iberia's at Madrid, but it is shifting some flights to better match demand.
American will shift its second daily Miami-Heathrow flight to Dallas/Fort Worth, with BA adding a third daily Miami-Heathrow flight on 28 October. The joint venture partners will operate combined six daily Dallas/Fort Worth-Heathrow flights, up one from last year, and four daily Miami-Heathrow flights with the changes.
Raja says the changes are part of an effort to match capacity to demand, with the additional Dallas/Fort Worth frequency playing to American's strength in capturing connections from western USA and BA's Miami flight capturing more European traffic headed to South Florida.
He calls the shifts a trial, adding that if they work, American would consider more seasonal route changes into its partner hubs.
“We could go and start a route from Heathrow to hubs that don’t have it for a season and come out of it," says Raja.
American serves London Heathrow from all but two of its hubs, Phoenix and Washington National, although the latter is limited to domestic flights. BA serves Phoenix and Washington Dulles from Heathrow.
Beijing Capital, where American is suspending Chicago service, is a hub for its codeshare partner China Southern. However, it is well documented that the connectivity benefits of a joint venture partner hub, like London Heathrow or Madrid, outweigh those of just a codeshare or alliance partner.
Source: Cirium Dashboard