American carriers used to operate two-thirds of the flights between the U.S. and China, and now that’s flipped. In fact there are 6 Chinese airlines flying to the U.S. and only 3 U.S. airlines flying to China.
The number of flights between the U.S. and China has quintupled. Some of that consists of secondary routes as Chinese airlines squat on flights they might want to operate in the future.
There’s no Open Skies agreement between the U.S. and China. Instead a bilateral agreement lays out what route authorities can be doled out by respective governments.
The Chinese government has only permitted one national carrier to fly each route between China and the U.S. so an airline needs to start a route before someone else does and operate it even if it is not profitable (although there’s been talk of relaxing this policy).
American Airlines is dropping both their Chicago – Beijing and Chicago – Shanghai flights and shifting Chicago – Tokyo flying to joint venture partner Japan Airlines. Hawaiian Airlines is giving up on Honolulu – Beijing as well.
American would like to keep their route authority from Chicago to China even while not using it. That would mean preventing any other U.S. airlines from adding China frequencies, which benefits American by avoiding competition for its Dallas and Los Angeles to Beijing and Shanghai service.
So they’ve asked the Department of Transportation to grant a ‘dormancy’ (.pdf) of their authority. (HT: @xJonNYC) They’d be able to keep the routes for a year without flying them. Normally they would lose the routes after 90 days.
- They will re-start flying “at such time the market becomes more favorable” before November 1, 2019 and “American anticipates that market conditions will improve” although offers no reason to expect that it will.
- Other airlines have gotten dormancy waivers of China service, such as Delta starting in 2008. Of course that was at the outset of the Great Recession not late in an expansion of the business cycle when American’s CEO declares they’ll never lose money again.
- “American’s ORD-PEK and ORD-PVG services create important benefits for travelers” even though American will not be offering these services and of course other airlines flying to China would also “create important benefits for travelers” — even more so if those airlines actually fly the routes.
- American flying to China is important to generate oneworld competition to SkyTeam and Star Alliance which both have members in China. Of course American owns a stake in China Southern and has begun codesharing. American flies to China from Dallas and Los Angeles. American has decided not to fly to China from Chicago and gives no reason to believe they’ll fly Chicago – China again.
- It’s in the public interest because allowing them to keep the routes would allow the airline to re-start service quickly, without new bureaucratic procedures. That’s only true (1) if it’s likely American will re-start service, and (2) that service benefits customers more than alternate service which might be awarded. If American is going to get the authority back anyway, and use it, that’s in the public interest any other scenario would not be.
- “Non-stop service between American’s Chicago hub and China is a critical part of American’s strategy for growth in Asia” in fact it’s so critical they’re going to stop offering the service.
The only reason American offers as hope that they might someday return to the Chicago – China market is that they own a stake in China Southern and are ramping up a codeshare, which has been limited by China Southern’s continued membership in SkyTeam. But they make no claims about what codesharing is expected to come online prior to November 1, 2019 which would change the dynamics of their Chicago flights.
American says that they lost tens of millions if not hundreds of millions of dollars flying Chicago – China. Indeed “[t]he difference between Chicago to Beijing and Chicago to London isn’t 15 margin points it’s 60 margin points.”
They simply have not been generating non-stop business in the Chicago – China market. It’s all connections, which they can run just as well through Dallas and Los Angeles. And connecting fares to China are super low, in their estimation. Their Vice President – Planning called Chicago – China “a really destructive thing to go and do to your hub.”
At some level fuel could drop and perhaps you’d think American would return to the Chicago – China market, but they’ve said the analysis on losses was “at $1.90 fuel not at $2.20 fuel.” And fourth quarter fuel should be higher than that, not lower.
Ultimately the public interest would be best served granting the route authorities to anyone that wants them and will fly them. To the extent there are no takers anyway then there’s little harm in granting the request.
Update: Delta wants to fly Minneapolis – Shanghai to connect to their partner China Eastern (in which they own a stake).