When I wrote recently about American’s efforts to create a fortress network, there was one obvious outlier. While American has tried to grow its position in the places where it is most dominant, the airline has behaved in the exact opposite way in the Northeast US, especially in New York.
If we look in the Northeast, American’s strong point was the Philadelphia hub it inherited in the US Airways merger. Pre-merger American’s strongest presence in the region was in New York, but that was nothing to write home about. As you can see below, American’s share had been on the decline in New York for many years.
American NYC Airports Departing Seat Share
Looking to stop the bleeding, American Chief Commercial Officer Vasu Raja and his team hatched the plan to create a partially-immunized collaboration with JetBlue called the Northeast Alliance (NEA). This would allow the airlines to work together in order to try to compete with United’s Newark hub as well as Delta’s LaGuardia/JFK split hub operation. You can see on the above chart exactly when that happened post-pandemic.
Seats jumped. The first big driver in American’s New York offerings was the introduction of several new long-haul widebody flights that added a lot of seats. (This, the airline was able to do by using some of JetBlue’s slots at the right times.) The second big driver was American’s decision to upgauge all those 50-seaters buzzing around with 2-cabin 76-seat regionals. Altogether, those moves added up to growth.
At the same time, JetBlue took over some of American’s LaGuardia slots and both airlines launched service to a variety of new destinations. This should be considered a good news story for travelers. It meant more flights on more airlines to more places, and that is what people want to see. Yes, we are still waiting for the lawsuit to get resolved in which the Department of Justice (DOJ) challenged the deal as anti-competitive, but I will be shocked if that goes DOJ’s way.
The reality is that all signs point to this being a winner for travelers in New York, but what about the airlines? More specifically, is it a good deal for American? It’s hard to make that case.
To tell this story, we have to think about Philadelphia as well. Philly remains American’s only true Northeast hub that flexes up in the summer with significant Transatlantic flying. Philly may not be New York in terms of market size and all that, but it can provide American with one thing New York does not… a captive audience.
American Philadelphia Departing Seat Share
At the time of the merger, Philly was owned by the combined American/US Airways with a seat share of over 75 percent. The airline has seen that dominant position erode ever since with the most recent months hovering just over 60 percent.
Clearly some of this is due to the dynamics of the Transatlantic market — especially how long it took for borders to open compared to more domestic and Latin-focused hubs — as well as the widebody shortage that American has faced due to delayed deliveries. But make no mistake, a big part of this is also the airline’s focus on building New York which takes resources away that could have gone toward Philly.
Most notably, New York has taken a number of those 76-seat regional jets that are so hard to staff with pilots these days. It’s no secret that American’s regionals have not been able to live up to their promises due to the pilot shortage, so every decision to put airplanes in New York is a decision to take flying away from Philly and other hubs.
Of course, if New York is outperforming, this is a smart move. The thing is… it’s not. It’s performing quite poorly, at least on the short-haul end of the spectrum.
To start, I decided to focus on LaGuardia domestic flying under 1,000 miles since in Q3 2022 alone, that was good for 75 percent of American’s LaGuardia departures. It also makes it easy to compare to Philly which saw 71 percent of departures in that range. These are the bread-and-butter markets.
I took a look at Cirium data and started with load factors for the first three quarters of 2022.
American Load Factor on Routes < 1,000 Miles
Those are a lot of empty seats on those airplanes in New York. I also pulled regional-only flying which makes New York look even worse. Remember, there were a lot of upgauged airplanes from 50 to 76-seats at LaGuardia, but it doesn’t seem like those seats were needed at all.
The argument for the 76-seater, however, isn’t about the number of seats but the quality of them. They have extra legroom and First Class, and that’s — as the narrative goes — what will make business travelers start flying American. So, I took a look at the local fare on nonstop flights only (still under 1,000 miles).
American Average Fare on Routes < 1,000 Miles
The fare out of Philly is significantly higher across the board. Now, there is the issue here that Philly is a smaller local market with a real hub structure and more of the onboards are connections which will presumably generate less revenue. On short routes, Philly is about half local while LaGuardia is closer to two-thirds. So, let’s look at that.
In Q3 2022, the peak quarter of last year, Philly flights under 1,000 miles had stage-length adjusted passenger revenue per available seat mile (unit revenue) of 18.1 cents. LaGuardia? That was sitting down at 12.7 cents.
The PRASM number is pretty damning, but I get it. It’s not easy to determine how exactly to allocate connecting fares on to a single segment. So instead of looking at the number itself, let’s just compare across American’s hubs using stage length adjusment (SLA). Cirium is using the same allocation method throughout, so the comparison should at least tell us something directionally.
American Q3 2022 SLA PRASM by Hub on Routes < 1,000 Miles
The story is the same. New York sucks, at least on short-haul.
I also took a look at the opposite end of the spectrum showing JFK vs Philly to Europe, and it is more of a mixed bag. On average local fare, JFK lagged behind Philly throughout the year. Using Cirium’s ARC/BSP data, Q2 saw an average fare of $574 from JFK and $640 from Philly. Q3 saw $599 from JFK and $639 from Philly. But local fare isn’t everything.
If we look at peak Q3, JFK had an 86 percent load while Philly was slightly behind at 83 percent, so there was much more parity than in the short-haul domestic flying. Also, remember that Philly is more focused on connecting traffic than JFK. JFK’s Europe service generates more revenue on a segment because of that shift. Then again, it costs a fair bit more to operate from JFK, so that is a sizeable offset.
But does a decent Transatlantic performance justify the whole operation? With in-demand 76-seat aircraft going out with tons of empty seats and fares in the toilet on short-haul, it’s a tough decision to allocate all those shells. When asked, American provided this statement:
American Airlines is proud to call New York and Philadelphia hubs. As we navigate the current demand and supportability environment, we are crafting our network to fly to the destinations our customers want to visit most. Propelled by the Northeast Alliance with JetBlue, American has withdrawn all single-class regional jet operations and now offers premium cabins on all departures from New York. This summer, American will increase domestic capacity in Philadelphia by over 9% year-over-year, including new service for 2023 to three cities: Charlottesville, VA; Panama City, FL; and Portland, Oregon. Amid the regional pilot shortage, American has taken bold steps to ensure we’re able to offer a reliable schedule for our customers, including by introducing motor coach service with Landline and pay increases for pilots at our wholly owned regional carriers. We continuously evaluate our network and will adjust our capacity based on demand and supportability
Over the last few years, American has really tried to lean on partners in places like LA and New York, but there is the argument to be made that it’s not even worth it because of the skin American has to put in the game to make the partnerships work. That has not stopped American from cutting back in Chicago and LA, but in New York, it hasn’t been willing to make a move.
Part of this is undoubtedly due to the fact that New York is slot-controlled, and if you give up your slots, you won’t get them back. Slots make airlines do crazy things. But in a world where American is developing its fortress network, this focus on New York is an outlier. At the very least, this whole plan deserves to be revisited.