American Airlines New Iceland Flight Undermines Their Case Against Emirates, Etihad, and Qatar

American Airlines will launch seasonal Dallas Fort Worth – Reykjavik service next summer. This is the third non-stop in the market following Wow Air and Icelandair. This is a purely leisure route where two ultra low cost carriers have already entered the market. And both Wow Air and Icelandair offer connections beyond Iceland while American Airlines does not.

British Airways will upgauge Austin – London Heathrow to a 747. Norwegian is entering the Austin – London market, doubling capacity, to the British Airways response is to nearly double their own capacity too.

They’re going old school. This is the kind of airline competitive response we used to see prior to consolidation and ‘capacity discipline’. And it’s what United, Delta, and American claim that Emirates, Etihad, and Qatar do — offer uneconomic capacity — suggesting this is only possible because of government subsidies — ignoring their own shareholder subsidies (from 1979 through 2009 US airlines lost $59 billion on domestic operations) and their own government subsidies (when the Pension Benefit Guaranty Corporation took over United’s pensions they had $9.8 billion in obligations, $6.6 billion of which is guaranteed, and the federal PBGC took over billions in pensions from Delta and US Airways).

When Legend Airlines started offering Dallas Love Field service, so did American Airlines. In 2000 they began flying to Los Angeles four times daily and Chicago O’Hare 5 times daily with Fokker 100s configured with 56 premium seats.

When Legend failed, in part driven out of business by American Airlines lawsuits and in part by low prices that resulted from this new capacity, American withdrew from the Love market.

And it turns out this isn’t illegal. If an airline could make money filling a plane at the prices it sells tickets at, whether or not it fills that plane, it’s not capacity dumping — just bad business judgment. The US airlines fought hard for that interpretation, they forget it when it’s convenient and they’re lobbying the government for protectionism from foreign airlines. But they’d be wise to remember it… since it may come up again.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Wow and Icelandair offer connecting service from RYK but American offers it from DFW. Kind of evens out, doesn’t it?

  2. Losing $59 billion and still in business? Some parties somehow subsidized the continuity of operations of those massive money losers.

  3. Rusty,

    The point is that the US3 carriers’ apologists claimed that the GCC3 carriers using DXB, AUH and DOH for transit passengers wasn’t legitimate reason to have the service networks they had/have.

    Recall the line about throwing stones from glass houses? The US3 fanboys do just that.

  4. @guwonder
    No, not 59 billion and they are still in business. They are all long out of business with those losses. Folks just don’t seem to understand what bankruptcy means. Just the brand name is what lives on because it has value. Sheesh.

  5. @Rob
    No, I think we get it.

    Bankruptcy means:
    – Senior Leadership and Board (ie those in the know) sell off their shares en masse before they break the news to the rest of the Leadership team.
    – Announce intentions to file bankruptcy after every penny has been liquidated.
    – Directors and below lose jobs or take pay cuts to “save” the company.
    – All creditors without “bank” in their name take it as a loss.
    — Creditors place loss on taxes to reduce their taxable burden (after making a bad bet propping up the airline).
    – Board of Directors that facilitated and oversaw the impending failure either stick around to place blame on the employees, or jumps to a new company’s board.
    – Another company comes in along with a litany of existing/new creditors to purchase/take over the assets, while offloading costs (like pensions) to the Federal government or getting rid of them entirely.

    -Cycle repeats itself.

    The laws have been created by the wealthy to ensure that they can literally RUN a business into the ground, and go on unfazed. Meanwhile the employees who were following marching orders have their salaries cut if they stay, go unemployed and find new work after endless months of searching and depression, and in some cases employees become blackballed for even having the company name on their resume.

    Am I close there, Rob?

  6. Because as I see it, that sums up to :
    – the banks get paid back.
    – creditors pay fewer taxes after gambling on a bad business (I should claim losses when I go to vegas!)
    – senior leadership gets hired by their frat bros at other large companies
    – board disperses and claims innocence
    – employees and taxpayers get screwed

    But nope, the deck isn’t stacked at all!

  7. @Jon,
    No, it’s clear you don’t get it. None of that is even close to true. You’ve clearly never heard of the contemplation of bankruptcy concept which would undo any beneficial moves in the 2 years prior to bankruptcy filiing, didn’t realize that any sale by directors or management are disclosed publicly for any concerned parties to follow suit, and aren’t quite appreciating the fact that all of the owners of the company are wiped out, zero, zilch to show for their years of funding. Creditors all take a loss and I’m not sure why you begrudge creditors from using the loss to take a deduction against other income? So much cynicism, so little actual knowledge.

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