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American Airlines Abandons Unprofitable International Routes

By Adam Levine-Weinberg – Jul 8, 2020 at 7:24AM

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The airline giant plans to operate a much smaller long-haul international network next summer than it did pre-coronavirus.

This summer, American Airlines (AAL -3.93%) has been more aggressive than many of its U.S. peers in rebuilding capacity in the domestic market, following an unprecedented demand collapse earlier this year due to COVID-19. The carrier appears to have guessed correctly that many (though hardly all) Americans were eager to get back to normal by resuming leisure travel.

However, American Airlines isn't equally bullish about international travel. Indeed, even before COVID-19, it had been struggling in international markets, with the exception of Latin America. With long-haul travel demand likely to remain depressed for years, American Airlines announced last week that it is pulling the plug on a slew of international routes.

International routes have been a long-term challenge

Whereas the marriage of American Airlines and US Airways was fairly successful in the domestic market, it didn't fix either carrier's problems outside the U.S. The combined airline's strongest hubs are in Dallas-Fort Worth, Charlotte, and Washington, D.C. Long-haul flights are prohibited at American's Washington, D.C. hub, while Dallas-Fort Worth and Charlotte are located too far south and inland to be ideal hubs for trans-Atlantic or trans-Pacific service.

The biggest problems have been in the trans-Pacific market, where American Airlines has been losing money for several years. US Airways never flew across the Pacific, and pre-merger American was significantly weaker than United Airlines and Delta Air Lines in the region. The combined airline tried to serve Asia from three hubs: Dallas-Fort Worth, Chicago, and Los Angeles, but blistering competition led to huge losses in the latter two markets. Over the past several years, American abandoned its trans-Pacific routes from Chicago but tried to hold on in Los Angeles.

An American Airlines plane in flight, with mountains in the background

Image source: American Airlines.

American Airlines' position in the trans-Atlantic market was a little better. However, the carrier ended up competing with itself due to the structure of its route network. American Airlines felt compelled to serve many markets in Europe from both New York's JFK Airport and Philadelphia to meet strong local demand in the former market while using the latter for connecting traffic. On top of that, it tried flying nonstop to many destinations from its two strongest hubs (Dallas-Fort Worth and Charlotte) -- and, to a lesser extent, from Chicago.

American Airlines calls it a day

Last week, American Airlines announced that it will cancel 15 international routes and no longer plans to operate four others that it had intended to launch in 2020. First, it will drop its Miami-Brasilia route, which the airline had operated with its now-retired Boeing 757s.

Second, American Airlines is canceling long-haul routes from Los Angeles to Beijing, Buenos Aires, Hong Kong, Sao Paulo, and Shanghai. That will leave only flights to joint venture partner hubs in London, Tokyo, and Sydney, along with seasonal service to New Zealand.

Third, American Airlines is canceling more than a dozen noncore trans-Atlantic routes. From Charlotte, it will eliminate routes to Barcelona, Paris, and Rome. It will also ax its flights from Dallas-Fort Worth to Munich and from Miami to Milan. From Chicago, it will end service to Venice and no longer plans new routes to Budapest, Prague, and Krakow. And from Philadelphia, it will drop service to Berlin, Budapest, and Dubrovnik and cancel its plans to begin flights to Casablanca.

These moves mean that American will abandon some secondary international markets and will focus on serving Europe from New York and Philadelphia; Asia from Dallas-Fort Worth; and Latin America from Miami and Dallas-Fort Worth.

Still planning growth in Seattle

While American Airlines is planning for long-haul international capacity to be 25% below 2019 levels next summer, it intends to grow in one market: Seattle. Earlier this year, American announced an expanded partnership with Alaska Air (ALK -2.63%) to launch long-haul service from Seattle: Alaska Airlines' largest hub.

American Airlines still plans to begin flying nonstop from Seattle to Bangalore and London by next summer. What's more, it wants to transfer its Los Angeles-Shanghai route authority to Seattle, so that it can launch nonstop Seattle-Shanghai service next year.

Seattle is closer to Bangalore and Shanghai (and nearly all other points in Asia) than any other major U.S. city, enabling less circuitous routings. By tapping into the big local customer base and connecting traffic that Alaska Airlines can provide in Seattle, American may be able to carry long-haul traffic that it couldn't serve profitably from its own hubs. If these initial routes are successful, American Airlines could potentially add additional long-haul routes from Seattle in partnership with Alaska Airlines.

Of the top three U.S. airlines, American Airlines had the smallest international footprint entering 2020. Now, it appears likely to fall even further behind its rivals over the next few years. However, given its history of losses in many international markets and its need to maximize cash flow to chip away at its massive debt load, the airline had no other good options.

Adam Levine-Weinberg owns shares of Alaska Air Group and Delta Air Lines. The Motley Fool recommends Alaska Air Group and Delta Air Lines. The Motley Fool has a disclosure policy.

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