American’s Domestic Shift

Edward Russell

September 26th, 2022

Post-pandemic American Airlines will get travelers everywhere they need to go around the world, as it did before the crisis. But the carrier will do so more and more with the aid of its global partners — and loyalty program — as it emphasizes North American growth for the foreseeable future.

“Increasingly, where we choose to go and fly our flights, will realistically be probably a lot more heavily in the domestic system,” American Chief Commercial Officer Vasu Raja said at the Skift Global Forum last week. “[It] probably will be for a while due to nothing other than the fact that right now the North American demand base has recovered at a far greater rate than the rest of the world.”

That shift is part of a larger trend where travelers are increasingly blurring the lines between leisure and business trips, Raja said. Revenues from these so-called “blended trips” have doubled since before the pandemic to nearly half of American’s take, and are powering the “real revenue growth” at the carrier.

During the first nine months of the year, American’s U.S. domestic capacity had recovered to 94 percent of 2019 levels, according to Diio by Cirium schedules. International capacity, excluding Canada and Mexico, had recovered to just 81 percent. There were similar splits at both Delta Air Lines and United Airlines, though neither flew as close to 2019 levels as American did.

The difference is the outlook. While Delta and United also see U.S. domestic strength, they are also eager to resume — and add new — international points. Both carriers have expanded to Africa while the latter is also adding new destinations in places U.S. carriers have historically had little or no presence, like Amman, Jordan, and Tenerife in the Canary Islands.

American has doubled down on rebuilding and expanding its domestic footprint, particularly by adding depth in lucrative — in other words, higher fare — smaller markets. Executives argue that the airline can more profitably offer better, multi-direction connectivity to travelers than either Delta or United. This is one of the reasons that American signed Air Wisconsin, and its fleet of Bombardier CRJ200 regional jets, as its newest regional partner beginning in March 2023. But this does not mean American is out of the international game. The airline continues to offer extensive schedules to places like London, São Paulo, and Tokyo; it is just that future growth likely looks more like Bozeman, Mont., than the Canary Islands.

Case in point: American’s seats to Bozeman — a market Raja cited repeatedly as popular for blended trips — were up 40 percent year-over-three-years in the first nine months of 2022, Diio shows. Seats to Kalispell, Mont., were up 102 percent, Austin 97 percent, and Sarasota-Bradenton, Fla., 56 percent. These are all U.S. destinations that benefitted from the pandemic surge in travel to leisure spots where people could get outdoors and, in some cases, live and work remotely.

“If you’re a member of the AAdvantage [loyalty] program, you’re a member of the world’s largest and best travel rewards program,” Raja said. He added that members can get anywhere they need to go around the globe across American’s network of partners, including British Airways, Japan Airlines, and Qatar Airways.

But focusing future growth on domestic, or at least North America, flying is still a big change for American. Prior to the pandemic, executives billed the carrier as the “largest global network airline in the world.” A fair label for the carrier that, while maybe not as large as its competitors in some longhaul markets, certainly measured up in its offerings. Fast forward to this week and Raja made the same statement but with a key difference, saying the carrier offered the “largest global network in the world.” The omission of that one word — “airline” — suggests a potential change in identity for the airline to something more akin to a travel company that includes an airline.

“American Airlines does everything,” he said, referring to the company in the broadest sense. “But American Airlines also runs an airline, that happens to be called American Airlines too.”

Edward Russell

JetBlue Has International Ambitions With Spirit

JetBlue Airways plans to expand in Latin America, and potentially add new destinations in Africa, following its $3.8 billion takeover of Spirit Airlines.

Joanna Geraghty, JetBlue’s president and chief operating officer, said that there is scope in the deal for the resulting airline to expand internationally. Domestically, the planned acquisition will give it more scope in the U.S. Midwest and other states it traditionally flies over.

Speaking at Skift Global Forum on September 20 — the day that JetBlue launched its long-awaited Boston-London Heathrow route — Geraghty said she wanted to leverage Spirit’s international network, a third of which includes the Caribbean. More routes in and around Latin America are possible, including beyond Cancun in Mexico.

“There are destinations we’ve wanted to serve, but we haven’t had the aircraft to do that,” she said. “We’ve had to prioritize. [The takeover] will absolutely accelerate our growth plan.”

There were also some parts of western Africa that its new Airbus A321XLR aircraft could make from the East Coast of the U.S., she added. “It’s not on the radar right now, but I hope to see it happen some day.”

However, in the more immediate future is a date in court. On September 26, a trial begins following the U.S. Justice Department’s bid to block JetBlue’s Northeast Alliance with American. The regulator claims that the pact will lead to higher fares in Boston and New York.

And JetBlue’s winning bid for Spirit — it beat rival Frontier Airlines in July — is round two with the DOJ. A lot of lawyering lies ahead, and JetBlue says it might be mid-2024 before it closes the Spirit deal.

“It’s been quite the journey,” Geraghty said. “It’s been challenging. We recognize it may take longer than usual.”

However, she’s confident the DOJ will understand that “JetBlue just wants to compete,” and sign off on the takeover.

Overall, the combined JetBlue and Spirit would serve 125 destinations, and Geraghty said it would also allow other airlines, such as Breeze and Frontier, to grow as it would divest slots and gates in Boston, Fort Lauderdale, and New York.

Matthew Parsons

Delta CEO Speaks at Detroit Autoshow

Delta CEO Ed Bastian delivered a speech at the Detroit Auto Show, an event the airline sponsors as Detroit is a major hub. He acknowledged significant macroeconomic risks, from inflation to rising interest rates to Europe’s energy crisis. But does he see the onset of a global recession? “I see no evidence of that.” Though the goods economy appears to be in retreat, something FedEx is now telegraphing, demand remains robust for services like air travel.

As for operations, Bastian said that in the first two weeks of September — including the busy Labor Day holiday — Delta flew more than 35,000 flights and canceled just 25 of them. The on-time rate exceeded 90 percent. His underlying message to travelers: this summer’s operational mayhem is a thing of the past, at least for those flying Delta.

Looking ahead, bookings for the Thanksgiving and winter holiday periods remain strong, though “pricing is, candidly, higher than we want to see pricing.” He said that is simply the result of such an eagerness among people to fly, causing demand to outpace supply. Even business traffic is “coming back strong” but will look different given new “alternative forms of work” driving new patterns of travel. The naysayers about business travel, he insists, are simply wrong, and that includes “a certain business gentleman in Seattle, Washington.” He’s referring to Bill Gates, who in 2020 said half of all business traffic would be lost forever.    

Amid much chatter in the business world about remote work, Bastian said Delta has been 100 percent back-in-the-office for 18 months now. The majority of Delta’s workers, of course, work in operational jobs — think pilots, flight attendants, mechanics, and airport customer service workers — where remote work is not an option. It would be wrong for the minority of management workers to not show up at the office.

Jay Shabat

In Other News  

  • Air New Zealand pleased investors last week with updated guidance. Bookings during July, August, and September — for travel through January — have been strong. As a result, pretax profit for the second half of the calendar-year 2022 should register between $125-170 million (all figures in U.S. dollars). But do not, Air New Zealand cautioned investors, extrapolate what’s happening this half to what might happen in the first half of 2023. (Note that the carrier uses a fiscal year that runs from July to June). The new guidance is of course subject to revision, particularly if fuel prices rise or fall significantly in the coming months, or if competitor capacity levels change. The company also warned that the demand outlook beyond January appears “highly uncertain.” Air New Zealand is currently operating about 70 percent of its 2019 capacity. It did, however, launch new Auckland nonstops to New York JFK on September 17.
  • VietJet, Vietnam’s largest low-cost airline, earned a 6 percent operating margin in the June quarter. The carrier, celebrating its tenth anniversary this year, flies neck-and-neck with state-owned Vietnam Airlines for dominance of the country’s domestic market. Other players include Bamboo Airways, and newcomer VietTravel. Note that Vietnam Airlines also operates a low-cost carrier called Jetstar Pacific, at one time linked to Qantas. VietJet is an international player too, hoping to wrest business away from not just Vietnam Airlines but also from foreign players like Singapore Airlines and AirAsia. Korea’s airlines have a major presence in Vietnam as well, catering to Korean tourists and Korean corporations, most importantly Samsung. VietJet carried 9 million passengers in the first half of 2022, down from 11 million three years earlier. Many more planes are due to come, given large outstanding orders with both Airbus and Boeing. The LCC ended the second quarter with 77 aircraft. Importantly for the high-potential Vietnamese airline market, Ho Chi Minh City (aka, Saigon) will open a new airport in 2025, addressing congestion concerns. The Vietnam market stands to grow substantially as multinational firms diversify production away from China, often enticed by Vietnam’s large, young, and low-cost labor force. With 100 million residents, only 15 countries in the world have a larger population.
  • Norse Atlantic, which only began flying in June, booked a $51 million net loss for the first half of 2022. It generated just $3 million in revenue. Startup losses are normal for airlines. The question is whether Norse Atlantic can ultimately profit with a low-cost longhaul business model that failed to gain traction with Norwegian Air before it filed for bankruptcy. On a promising note, the new airline is using ex-Norwegian Boeing 787s (it will soon have 15 of them) obtained on much more favorable terms than Norwegian ever paid. Norse Atlantic began with Oslo-New York JFK flights, followed shortly thereafter by Oslo-Miami. It’s now flying transatlantic journeys to and from London Gatwick, Berlin, Los Angeles, and Orlando as well. Generally speaking, Norwegian’s old longhaul network tended to work best from London Gatwick, a large point of both origin demand and destination demand.
  • Arajet is the industry’s newest scheduled airline, debuting with high-density Boeing 737-8s last week. The carrier has charter roots but now seeks to compete with an ultra-low-cost business model. Doing so won’t be easy. The Dominican Republic is a large destination market for Americans, Canadians, Latin Americans, and Europeans. But airlines from those markets serve it extensively, armed with large loyalty programs, economies of scale, and other formidable advantages. There’s a reason, in other words, why the Caribbean has never produced a financially strong airline. The only exception is Copa Airlines, if you want to take liberties and call Panama a Caribbean country. In any case, Arajet is undeterred, with more Maxes on the way and a network that already covers multiple destinations in Colombia, along with Aruba, Cancun, Guatemala City, Lima, Mexico City Felipe Ángeles, Monterrey, San Salvador, and St. Maarten. Before long, it will enter the U.S. market, jumping into the ring with muscular players like JetBlue and American — JetBlue is the Dominican Republic’s largest carrier by seats, according to Diio by Cirium. Ultimately, Arajet wants to turn Santo Domingo into something akin to another Panama City, connecting points in the Americas but in its case as an ultra LCC. 
  • United told pilots last week that it expects the new $2.7 billion Terminal A at Newark Liberty International Airport to open on or around November 1. The Chicago-based carrier will initially use 12 gates in the 33-gate facility, and eventually 15 gates. United plans primarily narrowbody operations from Terminal A to 23 U.S. domestic destinations when it opens. Air Canada, American, Delta, and JetBlue are also expected to use the new terminal when it opens.
  • American unveiled new premium suites for longhaul planes, specifically future Boeing 787-9s and Airbus A321XLRs when they start arriving in 2024. The carrier will add the new product to its Boeing 777-300ERs as well. At the same time, American will remove lie-flat seats from its current subfleet of A321Ts — for A321 Transcontinental — deployed on U.S. transcontinental routes. It will thus have a standardized A321 fleet. “With the introduction of new interiors on its long-haul aircraft, premium seating on American’s long-haul fleet will grow more than 45 percent by 2026,” the airline said. American also reminded customers that they will still be able to get lie-flat seats on transcontinental routes operated by partner JetBlue.

Edward Russell & Jay Shabat

Edward Russell

September 26th, 2022