American Airlines is in bullish mood, buoyed by record earnings, being ahead of the game on updating its fleet, and launching a new wave of transatlantic routes in 2024
“The summer is well underway, and the American Airlines team is firing on all cylinders,” said a confident Robert Isom, Chief Executive of the Dallas Fort Worth giant.
Speaking at the carrier’s second-quarter results in July, Isom was able to report record earnings, a rejigged and strengthened global network, a refreshed fleet and strong operational performance.
“We continue to build on the strong foundation we have laid over the past year and remain focused on reliability, profitability, accountability and strengthening our balance sheet,” said Isom.
“Throughout the recovery we have made structural changes to enhance our customers’ travel experiences and position the airline for success,” he said. “We have simplified and harmonised our fleet to create a more nimble and more flexible network that is focused on our most profitable flying.
“American’s strength is our network, which is uniquely positioned to capitalise on the demographic changes in the US,” said Isom. “More people have moved to the sunbelt region, which is where some of our largest hubs are located. DFW, Charlotte, Miami and Phoenix are very well positioned now and for the future.
“Our strong regional network provides service to smaller towns and connects them with our hubs across the country,” said Isom. “And our global partnerships are a great complement to our own flying; as a result, we’re able to offer customers the most comprehensive network of any US carrier.”
American’s performance is solid, and its management is bullish in a similar manner to the teams at United Airlines and Delta Air Lines, as they too have been raising the bar with robust results this year.
In the weeks following the publication of its results, American made further major announcements – first unveiling its largest transatlantic expansion since 2019, and soon afterwards confirming that it had ratified a new four-year contract agreement with its 15,000 pilots, represented by the Allied Pilots Association.
American is adding flights to three new European cities in summer 2024, with services from Philadelphia to Copenhagen, Nice and Naples. It is also launching new service between DFW and Barcelona and bringing back flights between Chicago and Venice. In addition, the carrier has its largest ever winter schedule between the US and Mexico, the Caribbean and Latin America.
Commenting on the background to this expansion in its results call, Vasu Raja, Chief Commercial Officer, said: “We have done a lot over the last several years to restructure our international network.
“We used to fly a lot of marginal flights, to marginal markets and they worked for three months of the year, and we had nothing to do with the aeroplane for the other nine months of the year,” said Raja.
“We’ve used the last three years to go and rebuild the foundation. The bottom 5% of our capacity is gone. The fleet that goes with it is gone. And the losses that we took from it are gone,” explained Raja.
“We continue to evolve our summer strategy as it relates to widebodies and it’s all related to wanting to find year-round homes for aeroplanes,” said Brian Znotins, Senior Vice-President of Network Planning at American, explaining the strategy on the carrier’s ‘Tell me why’ programme.
“And you might say, well, we’re going to be flying Venice seasonally and Naples seasonally, so how is that a year-round home for an aeroplane? What we’re doing is we’re taking aeroplanes that fly DFW-Auckland in the winter, and we call that a countercyclical opportunity. And then we use that aeroplane to fly to Venice or from Philly to Naples in the summer months,” he explained.
“We are pairing those aeroplanes together as much as we can so that when we buy a widebody, we don’t find ourselves flying it to Dubrovnik in the summer and then putting it in the domestic system in the winter, where it underperforms a narrowbody and has a higher seat cost,” said Znotins.
Despite the Dubrovnik element of the route making money, American ended up losing money on a year-round basis on the aircraft it deployed on that route, he said.
With the pandemic, the carrier took a number of aircraft out of its fleet and focused on finding year-round homes for new widebodies. In addition, American’s plan is to target heavy maintenance on these aircraft in the winter months so the summer route can be paired with a maintenance location in the winter as well as a DFW-Auckland route, noted Znotins.
“We have about 90 aeroplanes that run on a year-round basis to the same market. And then we have about 20 aeroplanes that pair up with a winter deployment either to the South Pacific or South America that works well in the winter months,” said Znotins.
“Then we have about a dozen aeroplanes that pair up with a maintenance opportunity in the winter,” he added.
“Last summer , with Boeing delays and uncertainty around deliveries, [although] we really wanted to add new destinations we thought there was a lot of risk,” explained Znotins.
“If Boeing further delayed aeroplanes and we had announced new affiliate-enabled service and then had to pull that flight down, it would have been hard to get those passengers to Naples that we sold tickets to. Instead, we took a lower risk approach, and we added extra flights to Rome, Athens and Paris.”
If the Boeing deliveries were delayed, American could still find alternative capacity for existing markets, but avoided the risk of launching new destinations. According to Znotins: “This summer, we’ve got the aeroplanes from Boeing, we’re ready to rock and roll, and we are excited to have new destinations in the mix.”
By offering service to Copenhagen from Philadelphia, American will provide more single connections across the US to the Danish capital than any other airline. “We are really leveraging the power of the hub there and that applies as well to Naples and Nice,” said Znotins.
American has eyed the Venice route since 2019 but did not have the aircraft to operate the service until now.
Znotins also outlined why American was expanding to Mexico, the Caribbean and Latin America with about 10% more capacity. “We had great results in our leisure flying to Caribbean and Latin America, and not only from Miami, which was our primary gateway, but from markets like Charlotte as well,” he said.
American’s operations from Miami to countries in these regions will be its largest ever as the hub there grows, and the airline adds more capacity. Other hubs will also receive greater capacity as routes shift to daily rotations or are added earlier in the season, said Znotins.
New destinations, such as the popular Tortola in the British Virgin Islands, are joining the network. “As we grow long-haul international, we’re focusing on our short-haul international market as well,” said Znotins.
One market development that American has been involved with, its Northeast Alliance with JetBlue Airways, is being unwound. In July, following a federal antitrust ruling against the partnership, the carriers terminated the alliance, which was aimed at competing with Delta domestically in the New York and Boston markets.
Asked about the role of American’s Philadelphia and New York operations in the light of the ending of this alliance, Znotins explained: “They are two different hubs for us. In Philadelphia, we can bring in 40 flights domestically all at the same time and they all connect to a Copenhagen [type service].”
This efficient funnel effect at Philadelphia is not possible in New York. “At JFK we have gate limitations and slot limitations and so we can only bring about eight or nine flights into JFK,” said Znotins.
“So, when we fly from JFK, it’s really about the local market. Can we sell to New Yorkers? And then when we fly from Philadelphia, it’s really about the entire US. For some markets, like Delhi and Tel Aviv, it’s all about the New York local market. That’s where the huge populations are that want to go to those points.
“For other markets, like Naples and Copenhagen, it’s better to be in Philadelphia. So, it’s not a trade-off of one versus the other,” explained Znotins, but more a question of what the best outcome is for each market.
American is pleased with its re-fleeting efforts in the 2014-2019 period, which were accelerated during the pandemic and are giving it an advantage today. “We are pleased we built our fleet in a low interest rate environment and at a time when the supply chain wasn’t as challenged as it is today,” said Devon May, Chief Financial Officer.
“In 2023, we expect to take delivery of 23 new mainline aircraft, which are all now financed,” said May. In its regional fleet, American has ordered seven new Embraer 175s and seven used Bombardier CRJ900s, with deliveries scheduled to start in the fourth quarter of this year.
“Where we are different from our competitors is we don’t have any fleet replacement needs between now and the end of the decade,” said May. “So, when we are investing in aircraft, that is an investment to grow the network and to grow the airline. What you’re seeing from some of our competitors who just have older aeroplanes is there’s a lot of fleet replacement capex required for them.”
In the US, there have been the first mumblings of a slowdown in growth. However: “We continue to remain encouraged by the overall level of demand we see, especially in domestic and short haul,” said Raja. To an extent, there is a “return to normal seasonality” but overall “we’re still in a world where demand is very strong,” he noted.
Looking to 2024, Isom is anticipating mid-single-digit growth. This will be dependent on the carrier bringing its regional fleet fully back to service and American achieving better utilisation for its fleet as whole, he said.
Additionally, it will also hinge on the airframe manufacturers delivering aircraft on time, said Isom, noting that “their track record hasn’t been great.”