American cuts Chicago to Delhi service as of March 1, 2012

American announced earlier today that they’ll be cutting their daily service between Chicago and Delhi as of March 1, 2012. When I first heard this I checked my calendar to be sure it wasn’t April 1.

Given that they cut the route, I think it’s safe to assume American was losing money on it, not to mention they’re in bankruptcy which means that unprofitable routes need to be cut sooner rather than later. Nonetheless it’s surprising to me that the route wasn’t profitable, given that Chicago to Delhi is probably the toughest route in their network when it comes to upgrades. Of course that doesn’t in and of itself make the route profitable, though the fact that most of the premium seats are being paid for would generally suggest so (though I guess the yields weren’t good). Beyond that, the route apparently had a load factor of over 85%, which is extremely high. As always it comes to show you that a full flight doesn’t translate to a profitable flight. Lastly, given that it was their longest flight, they probably had to forgo quite a bit of cargo in favor of fuel, which doesn’t help in making a route profitable either.

Let’s talk for a second about American’s bankruptcy, and my two cents. I’m not trying to be an armchair CEO here, I swear. American isn’t just performing poorly due to high labor costs and inefficient aircraft, but I think more than anything it’s because of their truly crappy route network. Seriously, they should be a global airline, but they’re not. As of March 1 they won’t have any flights to the Middle East, India, Africa, or Australia. They fly only to three places in Asia (Tokyo, Shanghai, and Beijing). They have a lackluster route network to Europe compared to Delta and United — they don’t even fly to Munich and Amsterdam, for example, and only fly to Frankfurt out of Dallas, alienating everyone on the east coast. On the plus side, they do fly to just about every city in Central and South America.

But the losses for cutting a route like Chicago to Delhi go beyond the direct operating loss of the flight. Customers don’t choose airlines just based on availability for a specific flight, but rather based on the overall route network of an airline. If a business traveler needs to fly several times a year to Delhi and Tokyo, for example, you think they’ll still choose American for their Tokyo travel when they could fly a different airline that meets all of their needs? Doubtful, I’d say.

I think American would be very wise to add a Europe tag flight to India, like London to Delhi, for example, which would perform better for a couple of reasons. First, it would translate to better aircraft utilization, since that India “tag” flight isn’t taking nearly two 777s to operate. Second, and more importantly, they could carry more cargo since they wouldn’t need to sacrifice it in favor of fuel given how much is needed for a 15 hour flight.

Either way, this cut is sad news, given that it makes American’s route network even more unappealing (and I thought that wasn’t possible before today).

Comments

  1. If AA is losing money on full flights that are tough to upgrade, it’s because they’re not able to set price high enough (due to competition) to cover the costs which are driven by fuel but of course also the heavy utilization needed for ORD-DEL.

    But I don’t think a tag flight is the solution. They’re not going to get MORE revenue by making ORD-DEL one-stop. They’ve ALREADY got one-stop service via their Joint Business Venture partner British Airways. They DO need to connect better to BA at Heathrow, of course…

    AA was profitable without a Pacific presence pre-9/11. And they’ve got increasing partnerships in the Pacific, which should help. JAL survived. Adding to Cathay is also Malaysia. Kingfisher was SUPPOSED to help with the India market…

    They’re cutting their Europe routes because they have a revenue problem. They were BLEEDING on the Chicago flights especially. They’re in no position to ‘expand to profitability’ they need to do this via partners. That’s the point of the JBV and alliances.

  2. Well, I’ve never been a big fan of AA, especially their international service. Their BKY certainly demands some cuts, but… do they want to play with the Big Boys or not? As for the award availability, of course it costs them! That said, they don’t seem to sell (hard revenue) many seats up front on those long-leap routes and the reason must be service-related. Those paying hard cash for front seats on very long flights are looking for superior product and service – and American simply does not deliver to industry standards.
    As a side note, you’ve just got to do something about the writing. As a ‘college graduate,’ as we are often reminded, the bar is set a little higher. You might consider a temporary coach or editor to give you some suggestions. WHile the content is there – and it remains as interesting as ever, the over-fluffed, redundant style would benefit from a few updates. Why not make a goal for 2012? Best wishes, -C.

  3. @Cook
    This “college graduate” has never had a problem with Lucky’s writing. This is a blog, not the SAT.

    For someone who begins comments with “Well,” and ends them with “-C.”, you toss around some pretty aggressive criticism of others’ writing…

  4. I wholeheartedly agree with the route network problem. After reading about your experiences with AA as an ExPlat, and especially when AA laid down the DEQM promotion, I kept thinking, “Jeez, why don’t I jump from UA to AA?”

    And then I looked at the route network, and remembered why I fly UA in the first place. AA doesn’t fly anywhere I need to go in Asia except NRT… UA goes practically everywhere. On a more local scale, UA serves six useful destinations out of my small-city airport. AA goes to… Dallas. And occasionally LAX. I’d love to feel that AA was competing for my business, but with this network they just can’t.

    @Cook: As a guy with a college degree in English, an M.S., a Ph.D., and a dozen or so publications, I politely but firmly disagree. Lucky does not need to do anything about his writing. It’s quite good.

  5. Route Network! The primary reason I flew with Delta for so many years. What good are the SWUs if you can’t use them on places you are actually going? Over the years I was able to use my SWUs on Delta to go to JNB, TPE, BKK, SYD, and SIN. However, recently the Y, B, M fares have gone too high and as a result I have switched to AA (I also don’t do nearly as much long haul travel anymore). There was a reason some of us were loyal to Delta…

  6. I am in the middle of a mileage running mayhem precisely because of their flight to DEL. direct flight, all the better if I get upgrades. Not anymore

  7. @Cook – Seriously!? This was a well written and thought out post that this college student has no issues with.

    :rolleyes:

  8. There is absolutely zero value in having AA operate LHR-DEL (or anywhere else in India) as a “tag” flight. There is already a decent amount of competition on the route (7x daily widebodies from 5 carriers) so they’re not going to drive yields.

    And it doesn’t really help the fleet utilization all that much. You save maybe a half day or so worth of time on an airframe (~36 hours total turn time on the ORD-DEL-ORD plane versus ~20 hours to add on the LHR-DEL turn) but the fleet doesn’t really have such high utilization demands that I’ve seen.

    No value at all is such an operation.

  9. @ Gary — I think Chicago to Delhi is one of the few markets where a US airline would actually be considered the premium product (compared to Air India, at least!). Yes, you can connect in Europe and fly a better carrier, though I’d think that most business travelers would prefer a nonstop flight over a connection halfway through the night.

    Sure, you’re right that they won’t make more money by connecting in London, but the issue isn’t necessarily just yields, but also high costs. There are lots of routes that are profitable almost exclusively because of cargo, with passengers being a bit of extra revenue on the side. Hell, on the Los Angeles to Sydney flight, United often bumps passengers in favor of fruit.

    So if they could substantially reduce the operating costs while increasing the ability to carry cargo, I see no reason the route couldn’t at least be breakeven or better, at least in theory.

    Yes, alliances are important, but to the frequent traveler you have to deliver a route network and product that’s competitive, and American is no longer able to do that compared to their two biggest rivals. As a frequent traveler your experience on a partner airline is nowhere close to that on your “native” airline.

  10. @ Cook — Thanks for the feedback. I’ve already posted on Craigslist lucking for a righting couch.

  11. @ Seth — It boggles my mind that you always make such blanket statements without being anymore “in the know” than the next person. “No value at all in such an operation?” Are you talking about for the customer or for the airline?

    If you’re talking about for the customer, obviously that’s not the case. I think most frequent flyers would much rather fly their “native” airline all the way to the destination as opposed to switching airlines, because it’s a much more seamless process.

    As far as for the airline, how do you know it wouldn’t make sense? If they could replace fuel with cargo, why couldn’t it be profitable? Yes, there are lots of airlines flying the route nonstop already, but what if they weren’t looking for O&D traffic, but rather connecting passengers? American has around a dozen flights a day to London, so one connecting flight to India couldn’t be that bad. It’s the same thing Delta does at Amsterdam.

    I’m not saying it makes sense because I don’t claim to know their financials. But I think it’s ridiculous to outright say there’s “no value at all in such an operation.”

  12. lucky,

    There could actually be *some* merit to your position. You briefly mention it in your post, but ultra long-haul flying does some particularly nasty things to fuel requirements, because fuel needs are not linear with respect to time. 14 hours of cruise fuel is actually more than double 7 hours of cruise fuel. A stop at LHR also gives you a chance to “refresh” your revenue (I don’t know the right term.) It’s the same theory on why WN backed out of most of its longhaul flying. They committed an aircraft to 6 hours of flying, but they probably weren’t making what they could make with 4 1-hour flights, allowing for ground time and what not. (Say they could get $100 one-way for a one-hour flight. They probably weren’t getting $400 one-way for the transcon.)

    As per the argument that AA might be the best carrier on the ORD-DEL route… well, at some point, if the connections are good enough, you’ve got to figure the high spenders will suck up a connection for a better experience. 15 hours of flight time is a lot of time in the air — with proper logistics, I could put up with some ground time to fly a truly great carrier’s premium cabin.

  13. Ben,

    Was planning on taking family of four to Delhi from LAX in Dec 2012 and buy early and use Evips as Explat. Now my choice to fly business for family is 400K AA miles on BA or 400K on USAIR. What would you fly?

  14. Well, some of us *do* choose airlines based on availability/price for a specific flight. And I haven’t been on American in years since they just don’t go to anywhere I’ve wanted to go.

    Those ultra longhaul flights are very uneconomic fuel-wise. Wasn’t Singapore’s JFK all business class?

  15. While US-India route(s) may have their special quirks, we should note that other carriers do manage to fly them. Moreover AA also steers shy of Australia, South Africa, Hong Kong, all of Middle East, areas well served by many carriers. So I have to go with the common sense here and suspect that AA is the problem.

    I have another thought. Most countries have one national carrier and in many cases it is truly a global airline. While the USA is a bigger country/economy, maybe it is not big enough to have 3 global carriers. If so, one hopes the market will consolidate in future into 1-2 global carriers and the rest domestic ones.

  16. @Ciaran: SQ still flies ultra-ultra-long haul from EWR and LAX to SIN, and they are all-biz on an A340, for precisely the reason being discussed here. You can’t fly a fully loaded jet for 19 hours (pax + cargo + fuel + diversion fuel), so something has to give. SQ used to run a premium economy cabin in that flight, but decided it was more profitable to sell more business seats and carry more cargo. However… they have zero competition on that route (North America to SIN nonstop) so they’ve got some leeway to set their price.

  17. So true about AA’s route network. When US Airways flies nonstop to more destinations in Europe than you do, you know you’re in trouble.

  18. I surmise that most people posting here do not fly to India very often, but the reality is that routes to Delhi and Bombay are hyper-competitive. Round-trip business class fares from New York/JFK to DEL/BOM are regularly around $4,500, *on Emirates*. Often even less than that on Swiss (right now family has gotten tickets for $3,800). These are extremely good fares for such a distance.

    The reality is that the wealth in the USA is concentrated in California and in New York; there exists relatively little O&D traffic from Chicago and the surrounding states. In that sense, US-India passengers all have to take a connection (excepting EWR-BOM direct on CO, which is the same price as on Swiss via ZRH). As a resident of San Francisco, I’d much rather take a routing via ZRH or DXB, on a new EK or LX aircraft, than on dumpy old AA — even with the mileage accrual benefits, etc. Also, Air India isn’t that bad of a business class (I’ve taken the flight via FRA) — definitely a better product than what AA is offering at least.

  19. Seth – not to pile on here… But, please. You have an amazing amount of knowledge and wealth of experience. Rather than just dismissing something out of hand, I would much more appreciate if you would offer a detailed and reasoned response on why you think a statement is incorrect (or do you just share your good stuff on your blog? 🙂 My kids loved the elephant ride video, by the way.

    (Or, the conspiracy theorist in me thinks that you and Lucky are about to ‘Blog Battle’ just like he and Gary did. Drives Ratings!)

    I would love to understand the dynamics behind why AA would cut this route with it’s apparent performance and relative lack of competition. Obviously, something wasn’t adding up. But what are the factors? (cargo, the SW utilization model, lack of pilots, or what?)

  20. I wonder whether the AA pilot contract factors into this discontinuance. Doesn’t the AA pilot contract have very onerous work rules for ultra long hauls? Maybe AA is cancelling this to send a message to the pilots about the kinds of things that have to change

  21. @ Michael — Unfortunately both American and British Airways charge a bit more than 100,000 miles per person, though I’d book through US Airways. If you fly British Airways you’ll pay exorbitant fuel surcharges and more miles, so it’s really not worthwhile when you could fly flying Lufthansa or Austrian without paying those surcharges.

    @ SeaGuy — Ouch! I’m sure they’ll be rebooking you soon via somewhere in Europe.

    @ Carl — That may very well have factored in, though even in the past that route was an “exception” to the pilot contract, and it wasn’t profitable then either. This does raise another interesting point though regarding stopping in London. If they flew New York to London to Mumbai they would need just three pilots, which, under their new rules, would save about 30 hours of “captain’s pay” (roughly $6,000).

  22. I think most frequent flyers would much rather fly their “native” airline all the way to the destination as opposed to switching airlines, because it’s a much more seamless process.

    No doubt there are some folks who care more about carrier than price/schedule, but they are not those who dominate the markets. That’s why “direct” flights got into the GDSes in the first place. More to the point, however, I have no doubt that every customer would love non-stop flights from their home airport to wherever they happen to be going that day, preferably with multiple frequencies on wide-body aircraft. That doesn’t mean it is a rational move from either side.

    Put another way, just how many terribly successful 5th freedom routes are there operating where the “extra” segment is more than 3000 miles? Even more than 2000? There aren’t many at all. The costs to operate them are generally too high and it is too hard to compete against local carriers. United has realized this and significantly downsized their 5th freedom operations in Asia. It would be somewhat shocking for American to buck that trend, particularly when they are struggling financially the way they are.

    As far as for the airline, how do you know it wouldn’t make sense? If they could replace fuel with cargo, why couldn’t it be profitable?

    I don’t know for certain, but I’m pretty confident. Cargo that travels by air is generally time-sensitive enough that the stop would work against them. And there is too much competition on each of the “half” routes (ORD-LHR and LHR-DEL) that it seems quite unlikely to me that AA could drive a profitable margin from new cargo contracts there.

    Yes, there are lots of airlines flying the route nonstop already, but what if they weren’t looking for O&D traffic, but rather connecting passengers? American has around a dozen flights a day to London, so one connecting flight to India couldn’t be that bad. It’s the same thing Delta does at Amsterdam.
    And Delta has had not always been so successful with it. The success is actually a vestige from the KLM/NW partnership, with much greater feed than just the DL service into AMS. Plus, there is no competition on the route. DL operates the only flight AMS-BOM daily. The LHR-DEL route, as noted, has quite a bit more competition and that nearly always drives out marginal business.

    I’m not saying it makes sense because I don’t claim to know their financials. But I think it’s ridiculous to outright say there’s “no value at all in such an operation.”
    I guess I’m just more willing to take a stand on a position I believe to be true. You’re absolutely correct that I do not know the specific details that underlie the AA decision here or what analysis they have on the LHR-DEL market. But I can see the bigger picture, the competitive landscape and the bits of information about market that exist. And from those bits of data I’ve synthesized some conclusions. They mostly point to AA trying to operate LHR-DEL as a foolhardy move, one that is quite unlikely to be anywhere close to profitable.

    Maybe I’m wrong. If AA announces such a service and it proves profitable I’ll have no problem admitting my mistake. But I simply do not see that happening.

    I’ll take a step back from “no value” to make it “not nearly enough value to either customers or the carrier for it to be likely to show up.” Is that better?

  23. I won’t claim to be “in the know,” but LHR-DEL might make sense for AA based on a similar move by a competitor. Delta cut its ATL-BOM flight (which had a very high load factor, as I recall) and instead now operates AMS-BOM, which is to my knowledge the only flight Delta operates out of Europe that isn’t going to the US. They have a nice base in AMS thanks to KLM (the same could be same for AA at LHR in the way of BA), and whether it’s the ability to carry more cargo or charge higher fares or what-have-you, it seems to be working for Delta. Maybe the costs are just too high to operate a 15hr+ flight halfway around the world. The 787 might change that, but that seems like the current trend. Not sure how United’s EWR-DEL flight is doing…

  24. @ Seth: Thanks!

    I even just learned that “Currently there are generally considered to be nine freedoms of the air.”

    “Fifth Freedom
    The right to enplane traffic at one foreign point and deplane it in another foreign point as part of continuous operation also serving the airline’s homeland (e.g. Northwest Airlines has “fifth freedom” rights to carry traffic between Tokyo (B) and Hong Kong (C), on services which stop at Tokyo (B) en route between Los Angeles (A) and Hong Kong (C).”

    References NW even. How up to date…

    http://ostpxweb.dot.gov/aviation/Data/freedoms.htm

  25. This could be just the kind of flight AA would deploy 787s on, whenever it is they get them.

    Still it’s always tough to make that long of a flight profitable when you have that much of a Y load.

    Now my question for AA is where are the additional 777s going? Are these the planes they’ll be using for their added JFK-LHR 11pm departure?

  26. I think this is a symptom of AA’s hub weakness, they have too many fractional bases and not enough fortress hub’s where they can dictate the prices. I suspect that there will be more cutting at ORD.

  27. Jordan, the main difference between AMS-BOM and LHR-DEL is competition. DL (and KL via codeshare) is the only carrier operating the AMS route. On the LHR-DEL route you have AI, IT, 9W, BA and VS already flying with nine frequencies daily. Seems much harder to believe that the tenth frequency is going to be particularly profitable versus the first.

  28. I talked to the AA flight attendant on my ORD-PEK flight regarding this cancellation of ORD-DEL. She said the exit of this route was due to the high fee charged by the Indian government, making the route is extremely unprofitable. Therefore AA has to drop the line. Meanwhile, the Indian government is subsidizing the local carriers on this route, making it even more unreasonable for AA to do business in this route.

  29. @ Alan et al / Everyone,
    This is also what I heard through other credible sources. AA just wanted to take the high road and not make this unfair & underhanded imposition public; and rather, bow out gracefully. Quite frankly, coming from the Indian government, this does not surprise me at all.

    AA please go to DXB instead, you shall have no such underhandedness there!

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