Why American Airlines Stopped Making Money

Strategic Missteps During Pandemic [00:00]

• American Airlines, despite its size in passenger numbers, lags financially behind competitors like Delta and United due to a pattern of poor management decisions since 2020.
• Early pandemic decisions revolved around fleet management; while demand for short-haul was expected to recover faster, American retired 30% of its long-haul fleet (A330, 767, 757), a move they later regretted when transatlantic demand surged in Summer 2022.
• Boeing's manufacturing issues with the 787 delayed deliveries, further exacerbating American's aircraft shortage during the high-demand period.
• The airline was forced to cut historically successful routes like Edinburgh and Shannon, and others like Los Angeles to Sydney and Dallas to Santiago, to reallocate aircraft towards the Atlantic.

"At almost every major moment in which the airlines management could have made the right or the wrong decision, they made the wrong one."

Fleet Composition and Financial Impact [03:52]

• Post-pandemic, American realized its long-haul fleet was overindexed on newer, more expensive aircraft, leading to higher lease or finance payments.
• The break-even point for newer aircraft is higher due to increased efficiency, requiring a certain number of flight hours to offset costs. American struggled to achieve these hours due to seasonal demand fluctuations.
• In 2023, 47% of American's long-haul fleet comprised newer generation wide-bodies, compared to 32% for United and 37% for Delta, indicating a less optimal fleet mix for cost management.
• This imbalance meant that even with incoming 787 deliveries, American chose to defer future ones to manage growth at a slower rate.

Trans-Pacific Strategy and Hub Inefficiencies [05:52]

• American has historically struggled to effectively service the Pacific market, with demand largely going to United, Delta, and foreign carriers.
• Its West Coast hub at LAX is not ideal due to intense competition; it's the only airport designated as a hub for all three major US carriers, limiting their individual domestic network strength from LAX.
• United leverages SFO for a larger trans-Pacific network, while Delta focuses on Seattle, both offering stronger domestic connections than American from LAX.
• Post-pandemic, American significantly reduced its trans-Pacific portfolio from LAX, cutting routes to Beijing, Shanghai, Hong Kong, Sao Paulo, and Tokyo Narita, while adding Brisbane.

Failed Hub Attempts: Seattle and Austin [07:15]

• American attempted to build a long-haul network out of Seattle through a partnership with Alaska Airlines, including a new route to Bangalore.
• The Bangalore route was delayed due to COVID-19 and 787 delivery issues, and ultimately became unviable due to increased flight times caused by Russia closing its airspace.
• The partnership with Alaska Airlines was also phased out, partly due to Alaska's intention to merge with Hawaiian Airlines and build its own long-haul network from Seattle. American ultimately cancelled all its long-haul routes from Seattle, having wasted resources.
• In Austin, Texas, American massively expanded its network in Summer 2021, aiming to counter Delta's growth and secure gates. However, the market demand did not support the five-fold increase in seat count, leading to operational issues with regional aircraft and pilot union agreements. By 2023, with Austin's cost of living rising, the strategy proved unsustainable, forcing American to dramatically scale back its operations.

"Coming out of CO, Austin, Texas was booming. Its status as a trendy tech hub was burgeoning pre-COVID. But the emergence from the pandemic seemed to supercharge the phenomena."

Northeast Alliance and Travel Agency Conflict [13:00]

• In the Northeast, American partnered with JetBlue to form the Northeast Alliance, aiming to gain scale against United and Delta in New York.
• This alliance involved revenue sharing and network coordination, including American terminating its Orlando route to allow JetBlue to expand.
• The Department of Justice sued on antitrust grounds, and a judge ruled against the alliance, stating that antitrust law focuses on preserving competition, not building it. The partnership was terminated.
• American also declared war on travel agencies, attempting to force them to adopt the new NDC booking system and cease using the older GDS. They withheld 40% of their cheapest fares and eliminated mileage earning on non-compliant bookings.
• This strategy backfired, causing agencies to avoid booking American and corporate customers to favor competitors. The endeavor resulted in an estimated $1.5 billion revenue loss in its first year.

Chicago Hub Decline and Financial Situation [17:15]

• While pursuing new strategies, American neglected its Chicago hub, allowing United to expand its market share. American offered 21% fewer seats from Chicago in 2024 compared to 2019.
• As a consequence, American lost valuable gates at Chicago due to underutilization, which were then allocated to United.
• American Airlines has been in a poor financial position relative to rivals for over a decade, consistently earning billions less than Delta and United.
• Recent changes include a new business class configuration with 51 lie-flat seats on 777s and the introduction of A321XLRs, which are narrow-body long-haul aircraft. These updates largely return American to its pre-COVID fleet and competitive standing, which was already the weakest among the big three.
• The airline has largely failed to solve its major problems over the past five years, instead exacerbating them through its attempts.

"American Airlines will need to find some major answers soon, lest it risk getting left in the dust, allowing the American airline industry to turn into a mere duopoly."