As Hurricane Florence ravages the east coast, long-term travelers are left wondering what to do while they wait. American Airlines is offering a number of different plans but there’s no mention of cancellations for flights in and out of New York City. With time running short, let’s hope this isn’t just too little too late.
I hope American Airlines has a plan B in New York. Spirit airlines is the latest airline that has been offering cheap flights to the Big Apple. Read more in detail here: spirit airlines.
In New York, I’m hoping American Airlines has a Plan B.
on April 8, 2022 by Gary Leff
When US Airways took over American Airlines eight years ago, they were faced with a dilemma in New York. They’d typically avoided direct rivalry while controlling US Airways since New York is a competitive market. They weren’t large enough to be the main competitor in New York, either.
As a result, they devised a plan to become the airline that delivered passengers to New York rather than competing for New York business. They scheduled their flights, which frequently originated in smaller locations, to allow passengers to fly to New York and return in the same day, or at the very least fly up early in the morning and depart late in the day.
Because that tactic didn’t pay off, they shut down their New York business. They reduced the number of destinations they served. They flew to hubs, including Los Angeles (where they had an edge selling corporate contracts when United dropped out of JFK) and London Heathrow, where joint venture partner British Airways is situated. They also had a few additional locations that the airline referred to as a ’boutique business.’
Then they sat on slots with low-cost regional flights and took advantage of slot exemptions whenever they could, such as decreasing their flying when New York JFK was undergoing runway maintenance.
This was also a poor choice of strategy. With a smaller company, they weren’t in a position to attract corporate business in New York. They weren’t in a position to win New York’s support. Worst of all, a reduced New York presence means giving up control of the credit card business in one of the world’s most vital financial hubs.
Finally, two years ago, they unveiled a whole new approach that seemed to be brilliant: they would partner with JetBlue. They were the third and fourth largest airlines in the New York market, and would be able to compete with Delta. Rather from being anti-competitive, it is pro-competitive.
- This would enable them to compete with the big boys in the corporate sector, making it more competitive.
- They even promised to give up some seats, and more if the number of tickets given out of New York didn’t increase (more supply and likely lower prices, the opposite of anti-competitive behavior).
The agreement was authorized by the federal government, which then proceeded to seek to reverse it, all in a couple of months and with no new information.
But it’s possible that all of this effort to offer American Airlines a credible New York strategy is about to be undone. JetBlue announced a plan to buy Spirit Airlines for a hefty premium. It’s also likely that JetBlue won’t be able to have both Spirit and an alliance with American.
- The purchase of Spirit is a horrible bargain. Paying a third to 40% more for Spirit than Frontier Airlines is plainly overbidding, particularly because JetBlue is purchasing the airline for components (planes, pilots, and gates), which would drive up expenses at the former Spirit Airlines and prevent it from adopting its higher-margin business model.
In other words, JetBlue is paying a significant premium to absorb Spirit’s assets and put them to work in a less lucrative model rather than a more successful one. And they’re outbidding Frontier, a firm that could probably make more money with those assets.
- However, it provides additional ammo and life to the Justice Department’s lawsuit against the American Airlines partnership. JetBlue+Spirit+American would very certainly never have been allowed, and it leads to increased concentration in the Northeast as well as in South Florida. With the Spirit acquisition, JetBlue has antitrust issues, and the American Airlines Northeast alliance has considerably more antitrust issues than before.
- The Justice Department’s case against American-JetBlue, on the other hand, was flimsy. It may become more powerful as a result of the Spirit acquisition. However, it isn’t a slam dunk. ‘Drop the American Airlines alliance as a condition of our approval of the Spirit merger,’ the Justice Department may tell JetBlue.
JetBlue will need fewer American aircraft, gates, slots, and pilots once they acquire Spirit’s planes, gates, and slots. American Airlines, on the other hand, is left out in the cold. This scenario would relegate them to operating on their own in New York, where they think they are both too large to walk away from their assets and too little to thrive.
Hopefully, the Department of Justice will not compel JetBlue to choose between purchasing Spirit or working with American, in which case JetBlue will proceed with their purchase. The Department of Justice’s antitrust duty, which is to enhance consumer welfare, would be violated by such a move.
JetBlue and American combining against United and Delta is definitely better for New Yorkers. As we’ve seen, JetBlue and Spirit combined aren’t large enough to matter in New York, and JetBlue and American alone aren’t competitive rivals either.
More From the Wing’s Perspective
American Airlines has a plan B in New York. The airline is trying to get around the new ban on flights from some countries that was put into place by President Trump. American Airlines has announced plans for a new route from London to Amsterdam, which will be serviced by an A330 aircraft. Reference: american airlines strategy 2021.
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