I Hope American Airlines Has A Plan B In New York

When US Airways took over American Airlines, they had a problem in New York. US Airways shied away from direct competition in New York because it was a competitive market. They weren't big enough in New York to be the biggest competitors.

They came up with a plan to become the airline that brought people to New York rather than competing for business in New York. They timed their flights so that people could travel to New York and back in a day or two, or at least fly up in the morning and leave after the business day.

They pulled down their New York operation because of that strategy. They stopped serving many destinations. They served Los Angeles, which gave them an advantage in pitching corporate contracts there after United pulled out of JFK. They had a few other destinations that the airline described as a boutique operation.

They took advantage of slot waivers wherever they could, such as reducing their flying while New York JFK did runway work, because they squatted on slots with inexpensive short distance regional flights.

This wasn't a good strategy. They weren't going to win New York corporate business with a smaller operation. They weren't going to attract New York loyalty. The credit card market in one of the most important financial centers in the world was lost because of a smaller New York footprint.

They came out with a new strategy two years ago and it seemed like a great idea. They were the number 3 and 4 carriers in the New York market and would be able to compete with Delta. Far from being anti-competitive.

• This would allow them to compete with the biggest players, and make the corporate market competitive
• They even agreed to give up some slots, and to give up more if they didn’t grow the number of seats offered out of New York (more supply and likely lower prices, the opposite of anti-competitive behavior).

Within a matter of months, the federal government approved the deal and then sued to overturn it.

The New York strategy for American Airlines may be about to get undone. The deal is a huge premium to take over the airline. It may not be possible for JetBlue to have an alliance with American.

• The Spirit acquisition is a bad deal. Paying oen-third to forty percent more than Frontier Airlines for Spirit is clearly overbidding, especially when JetBlue is buying the airline for parts (planes, pilots and gates), will drive up costs at the former Spirit Airlines, and won’t be adopting its business model which has been higher margin than JetBlue’s.

  In other words, the assets of Spirit will be put to work in a less profitable model, rather than one that is more profitable. They outbid a company that could earn more with those assets.

• But it gives the Justice Department new ammunition and life to their case opposing the American Airlines alliance. Certainly JetBlue+Spirit+American would never have been approved, and it leads to greater concentration in the Northeast in addition to greater concentration in South Florida. JetBlue has anti-trust problems with the Spirit merger, and even bigger anti-trust problems than before with the American Airlines Northeast alliance.
• But the Justice Department’s case against American-JetBlue was weak. A Spirit acquisition could make it stronger. But it’s still not a slam dunk. The Justice Department might say to JetBlue ‘drop the American Airlines alliance as a condition of our approval of the Spirit acquisition.’

Once they have Spirit's planes, gates, slots, and pilots, they need American less. American Airlines is left out in the cold. They believe they're too big to walk away from their assets, so they're going to go it alone in New York.

Hopefully the Department of Justice wouldn't force the choice between the two airlines, in response to which JetBlue goes forward with their acquisition. The anti-trust mandate of the DOJ would be undermined by such a move.

New Yorkers are better off with American partnering with United. We have seen that both American and JetBlue aren't viable competitors in New York.

This is a case where customers actually benefit, competitors don't like it, and whether the Justice Department is carrying water for cronyist corporate interests and not passengers.

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Dallas Fort-Worth is one of the 9 American Airlines hubs. New York JFK should be dropped and Boston added.

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At an employee Town Hall meeting on Tuesday, November 12 at LaGuardia airport, American Airlines Chief Revenue Officer Vasu Raja shared how the airline is thinking about the New York market going forward. He offered observations about what is changing for American in New York.

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