American Airlines Employee Podcast: How They Choose Planes and Routes

The latest American Airlines “Tell Me Why” podcast for employees explains how they choose aircraft for routes, where to fly to, and why they’ve scaled back so many destinations from New York.

Vasu Raja, American’s Vice President for Planning, answered several employee questions and this is available on Soundcloud and iTunes even though it’s meant as a way to explain the airline’s decision-making to employees (employees can watch it as video on their intranet Jetnet).

He explained by they fly old Boeing 767s instead of 787s on many transatlantic routes, and he explained that while the 787 is cheaper to operate it has a higher ownership cost. So overall it may not be the cheapest plane, especially when fuel is ‘cheap’ so the 787’s advantages in fuel efficiency aren’t as great. So it’s “hard to go into Budapest or Prague with an expensive plane to own.”

In the abstract the 767 may be a cheaper plane, but the followup questions I’d have would be:

  • Does the customer experience matter? You’ll see the 767 on routes where presumably American thinks it doesn’t matter. Business class seats are narrow. Some of American’s 767s lack wifi. And the only standard seat power in coach can be found at Main Cabin Extra seats, not the rest of the economy cabin. (Update: should read which has DC power.)

  • How does reliability factor into the analysis? American’s 767s are far more likely to go mechanical and that’s costly as well.


American Boeing 767 Business Class

The next question was “why not fly to more northeast markets from DFW” like Buffalo? And the answer is that longer flights take more aircraft time, so trade off with multiple frequencies to closer destinations. You need to be able to earn more revenue off of a longer distance flight to not only cover its higher cost, but to cover the opportunity cost of what else you could do with that aircraft.

Finally he was asked why American has backed off from so many New York markets such as Caribbean flying and some destinations in Europe?

  • He emphasized that for most flights they need connecting traffic to make money, but their operation in New York is split between two airports (LaGuardia and JFK) and is 70% point-to-point rather than driving connections.

  • For what are referred to as “O&D” markets where passengers are starting or ending their journey in New York and not connecting they make money in significant business markets, so they’ve been getting out of markets without local business demand.

  • There are significant constraints on how much flying they can do from New York so they have to choose their markets carefully.


American Airlines Terminal New York JFK

There’s something of a death spiral though that he doesn’t touch on. They’ve given up the fight to be the airline for New Yorkers, and even New York business travelers, by not flying to all the places they want to go. They’re looking at the profitability of individual flights but the accounting here isn’t always as simple as that because dropping flights can lose customers for your other flights.

The flights you think are profitable may actually be dependent on the ones you think are not (so really an economic model should be attributing more revenue to those ‘laggard’ flights), mis-specifying the model can lead you to believe some flights are more profitable than they are and other flights less so. And as a result you cut down to the profitable flights and find they don’t make as much money.

That said we’re necessarily going to get short answers — that while basic are still illuminating — in an 8 minute podcast dealing with several questions of course. The theme across all three questions Vasu Raja answered was opportunity cost though this wasn’t stated explicitly. I’m not sure I agree with all of the framing, and as a result always the ultimate decision the airline makes, but it’s always crucial to understand the tradeoffs than any decision entails.

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. NYC is not the center of the universe. UA’s EWR ops had best of both worlds, access from NYC as well as connecting traffic

  2. This is stage 2 of “airfare a la carte”. Stage 1 was the unbundling of fares from ancillary fees. Stage 2 is the unbundling of business routes (i.e profitable) from leisure routes (i.e less profitable). All of this will result in a “you get what you pay for” mentality that ultimately kills the Frequent Flyer scheme.

  3. I would have asked how come they dropped PHL – TLV, which is was very successful (I don’t care what they’re claiming…). That was an odd move.

  4. @dude26 there is no plausible explanation for dropping PHL-TLV other than that it WASN’T successful.

    The TWA pension story makes no sense (it’s not obvious that AA would owe any money and it’s not enough to keep them out of the market if they could profitably serve it).

    The claims that oneworld airlines aren’t permitted to serve TLV because of pressure from QR makes no sense [RJ serves TLV, AA pax were reaccommodated on BA flights and BA’s largest shareholder is QR].

    The bigger question is why they lasted so long in the market if they were losing so much money but that makes sense because of the AA merger.

  5. It’s interesting that AMR is blaming its LGA/JFK split as a reason for not succeeding in the New York market when Delta has made the exact opposite bet, bulking up at both JFK and LGA

  6. The best answer for why the 767 flies to EU is: “Well, they gotta fly somewhere now don’t they. We ain’t buying any more planes.”

  7. AA’s lack of decent p2p flights in the Caribbean, and its diminishing p2p routes to other parts of the world, out of JFK/LGA has meant that I have switched my paid flights to DL & B6. EWR honestly is a pain for me to get to, both in time and $$, so I don’t bother much with UA. AA mgmt can’t really get out of their America West mode-of-thinking – they don’t quite seem to get premium and/or international travel. ’tis a pity, for sure

  8. I’m a New Yorker. I’m not a heavy hitter, but I fly a few times a year. I used to fly American and its partners and tried to avoid delta because of skymiles. This became more and more tiresome. Last year I finally went all in with delta. I’m now a delta silver and wouldn’t choose American or partners unless they’re leaps and bounds better for my itinerary than delta.

  9. @Stephen what AA is doing at JFK is in no way remotely close to what DL did at MEM or what UA did at CLE.

    DL serves 6 destinations from MEM. AA is actually the largest carrier in MEM. UA serves 18 destinations from CLE. From those airports, ALL of those flights are mostly feeder flights to hubs or seasonal destinations to low-yield leisure markets.

    AA serves about 40 destinations from JFK, and has a huge share of the premium business routes from NYC including JFK-LAX (up to 14x Daily on 3-class A321Ts) and JFK-SFO (5x Daily on 3-class A321Ts), JFK-LHR (13x Daily with JV partner British Airways…effectively operating as one airline, sharing all costs and revenue), JFK-GRU (on 77W) and EZE.

    Not even remotely close.

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