American Airlines Says They Cut Their LA – Asia Flying Because Of Too Much Competition

American Airlines dropped Los Angeles as its gateway to Asia. The remaining long haul flights American operates from LAX are to joint venture partner hubs – Tokyo, Sydney, and London.

American Airlines was losing money on it’s Los Angeles – Asia flying before the pandemic because, they believe, these markets were too competitive. And South America doesn’t work for them out of LA, either. So they’re focused on domestic flying. That makes their LA-based pilots, who don’t have the opportunities to fly widebodies, unhappy.

Delta is now the largest carrier at LAX, having displaced American. At an employee meeting in Dallas on December 9, a recording of which was reviewed by View From The Wing, a pilot asked ‘are there any intention to downsize Los Angeles any more than it has been?’

CEO Robert Isom began,

Those gates that we have out in LA, and all the money we’re putting into it – it’s hundreds of millions of dollars..those gates are really important, we’ve got to fight like crazy to make sure we keep our footprint there. The question is what kind of flying that we do with those gates.. there is a international issue that we do face that gets really hard in LA.

Vice President of Network Planning Brian Znotins continued,

The challenge we have with LA..is that LA was not profitable for us. But what we found is that the losses we were generating there were concentrated in just a handful of long haul routes. The rest of the hub actually did fairly well. So flying to China, flying to South America, that was tens of millions of dollars in losses.

The reason those routes don’t perform well, especially the Asian routes, is that any Asian carrier that wants to fly to the U.S. will almost always pick LA first. And making money flying around the country, flying around the world, is all about supply and demand. If you oversupply the market, the yields are going to be lower than what you can sustainably generate a profit off of. And if the supply is lower than demand then you can generate yields that allow you to generate a profit.

And what we found is that LA to Asia is almost in a perpetual state of oversupply because of all these foreign flags that need to be in LA even if the capacity isn’t warranted. And so flying to Beijing, Shanghai, and Hong Kong, all of these routes were very challenging for us to turn a profit. And we said if we can take these airplanes, move them elsewhere around the country, some to transatlantic, some to deep south from places like Miami, and New York and Dallas.

And then furthermore if we can take some of the airplanes that we do want to fly to China and fly out of Seattle instead where we have less of an oversupply situation, a great partnership with Alaska who can help feed those airplanes not just from connections but from the local traffic the Microsofts, and the Amazons of the world who need to go to China, we can build up a bit of an Asian connecting operation.

And LA we still do serve Sydney, we have London in the market there as well, we’ll continue to fly those routes those routes do well for us. But for the Hong Kongs, Beijings, Shanghais, and the deep South Americas those were the ones that were generating all the losses. We take those out of the equation LA looks pretty good for us. We’re really happy with what we see in the gate portfolio there. There’s no plans to further shrink LA, in fact we want to grow it in the future as part of our Alaska partnership.

The implication of what Znotins says – that Asian carriers can fly to LA, but they make money domestically (where they don’t face as much competition from as many airlines), is that American can profitably fly on domestic routes because of government protectionism. By limiting access to U.S. markets, prices are kept high and consumers have fewer options. But if foreign carriers were permitted to fly domestic routes, and had access to gates and (where applicable) slots, American wouldn’t be able to compete in Znotins’ explanation.

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